Great Expectations for U.S. Biosimilars, But Prime Therapeutics Warns Regulatory Decisions May Reduce Savings

New research finds only biosimilars for blockbuster biologics are likely viable

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Feb 24, 2015, 09:00 ET

ST. PAUL, Minn., Feb. 24, 2015 /PRNewswire/ -- The imminent approval of the first biosimilars in the U.S. brings widespread optimism that they will stem the tide of soaring specialty drug costs. While biosimilars will yield savings, a new report sponsored by Prime Therapeutics (Prime) cautions that pending regulatory decisions and actions by states could stifle the U.S. biosimilar market and reduce potential savings for payers and consumers.

"The Economic Viability of a U.S. Biosimilars Industry," authored by health care economist Alex Brill, CEO of Matrix Global Advisors, presents an empirical model showing that even under favorable conditions, drug manufacturers will likely limit development of biosimilars to only "blockbuster" biologics.

"Biosimilars have been used successfully in Europe for a decade and offer the best hope to add competition to the marketplace and slow escalating specialty drug costs in the U.S.," said Eric Elliott, Prime's chief executive officer. "Policymakers should minimize restrictions on market entry or the market will be smaller than projected, and neither consumers nor payers will benefit as much as they could. Our hope is to inspire public dialogue now while many of the rules are still being decided, to prevent one-sided decision making and layering on unnecessary hurdles."

"The general consensus to date has been, if you build the pathway, biosimilar manufacturers will come," said Brill. "But the decision of a biosimilars manufacturer to enter the U.S. market is more tenuous than commonly perceived. Manufacturers will not jump at just any opportunity to develop biosimilars. Without careful policy consideration of the costs associated with biosimilar development, a robust biosimilars market may not be realized."

Biologics treat complicated conditions such as cancer and multiple sclerosis, among other devastating illnesses. Because biologics are developed from living organisms, biosimilars are expected to take longer and cost substantially more to develop and produce than small-molecule generics. Brill warns that adverse regulatory decisions and market risks not only may impede biosimilar market share, but may stifle biosimilar market entry altogether for many products. For example:

- The Food and Drug Administration has yet to offer guidance on key aspects of the regulatory pathway, including naming conventions and clinical testing requirements for biosimilars.
- Legislation being considered in states to govern biosimilar substitution may negatively impact biosimilar uptake.
- Private and public health care plans' coverage of biosimilars will influence use, as will prescriber and patient perceptions of biosimilars.

Building on an established economic framework, Brill estimates the point at which sales offset the cost of developing and bringing to market a biosimilar. In the base-case, a biosimilar is viable only for biologics with average annual sales greater than $898 million. In an alternative scenario with diminished market share due to unfavorable regulatory barriers a biosimilar is viable only for biologics with average annual sales greater than $1.3 billion. A third scenario, which shows the impact of lower R&D costs, concludes that the breakeven points drops to sales greater than $627 million.

In a nutshell, Brill finds that even under favorable assumptions, manufacturers would likely invest only in biosimilars tied to the biggest-selling biologics. Biosimilars with a smaller sales market may never reach consumers.

Separately, Prime predicts that the market for biosimilar development will shrink, as sales from blockbuster biologics decline. An internal analysis among the 14 million commercially insured lives served by Prime found that the top 10 specialty drugs (by percent of annual sales) over the past 7 years represent a smaller percentage of total specialty spending, dropping from 68% in 2008 to 61.5% in 2014. Prime sees this trend continuing for biologics, and within 10 years the top drugs may be even fewer, representing only 30–40% of spending. This means that up to 60–70% of spending could come from biologics that are smaller revenue generators, which in Brill's model would be unattractive investments for biosimilar manufacturers if they remained below the break-even point.

Brill's paper serves as a call to action for regulators and legislators to adopt policies that reduce unnecessary barriers to entry. It is Prime's hope that this paper will help refocus the debate on the importance of biosimilars and the real impact these products could have in lowering drug costs for health plans and consumers.

"Americans deserve access to drugs at an affordable price, and a robust biosimilars market is essential to slowing runaway costs of specialty drugs," said Peter Wickersham, senior vice president for cost of care and specialty at Prime. "Given high barriers to entry for biosimilar manufacturers and current trends, we urge policymakers to set rules for biosimilars that make them an attractive investment for manufacturers. Do not squander the opportunity for savings from smaller biologics, but minimize the barriers and risks manufacturers face so that competition can bring less-expensive, life-saving drugs to people who need them."

About Prime Therapeutics
Prime Therapeutics LLC (Prime) helps people get the medicine they need to feel better and live well. Prime manages pharmacy benefits for health plans, employers, and government programs including Medicare and Medicaid. The company processes claims and delivers medicine to members, offering clinical services for people with complex medical conditions. Headquartered in St. Paul, Minn., Prime serves more than 26 million people. It is collectively owned by 13 Blue Cross and Blue Shield Plans, subsidiaries or affiliates of those plans. Prime has been recognized as one of the fastest-growing private companies in the nation.

For more information, visit www.primetherapeutics.com or follow @Prime_PBM on Twitter.

About Alex Brill
Alex Brill is the CEO of Matrix Global Advisors, an economic policy consulting firm based in Washington, DC. He is also a research fellow at the American Enterprise Institute. Previously, he served as policy director and chief economist to the House Committee on Ways and Means and on the staff of the White House Council of Economic Advisers. More information is available at www.matrixglobaladvisors.com.