Biosimilars Projected to Reduce Biologic Spending by $44 Billion Over Next Decade

RAND Corporation projects biosimilars to cause an approximately 4% reduction in total US biologic spending from 2014 to 2024.

The introduction of biosimilars in the United States are expected to have a significant impact on biologic drug direct spending over the next decade, according to a recent analysis published by the RAND Corporation and sponsored by Sandoz.

The report estimates cost savings in the US market from biosimilars will lead to a $44.2 billion reduction in direct spending on biologic drugs from 2014 to 2024, which represents 4% of total biologic spending for that time period, with a range of $13 billion to $66 billion. RAND cautions the actual savings are dependent on the specifics of the final FDA regulations and the level of competition.

“While the FDA is still developing its final regulations, draft guidance documents released by the FDA suggest that biosimilar manufacturers will face lower costs and less time to obtain approval compared with originator manufacturers, while still ensuring that there are no clinically relevant differences in safety and efficacy between the biosimilars and originator biologics,” the study authors wrote. “The FDA has indicated that biosimilars and traditional generic drugs will be reviewed and regulated differently.”

Unlike generic drugs, not all biosimilars will be deemed interchangeable with the source product, while most biosimilars will require a minimum of one head-to-head clinical trials to verify similarity with the originator biologic as basis for approval.

“To the extent that differences do exist, payers will need to compare the cost-effectiveness of biosimilars versus other treatments, including possibly second- and third-generation biologics,” the authors wrote. “The second category is payment and relates to the approach that insurers use to pay providers (including physicians, pharmacies, and facilities) for biosimilar drugs relative to other biologics and to small-molecule drugs. Equivalent or higher payment rates for biosimilars relative to other drugs will encourage prescribers to substitute biosimilars for more expensive originator biologics.”

In July, Sandoz became the first company to file for approval of a biosimilar in the United States through the pathway created by the Biologics Price Competition and Innovation Act of 2009. The company filed for the approval of filgrastim (ZARZIO), a biosimilar of the reference product NEUPOGEN by Amgen.

In the European Union where the biosimilars market is still new, studies of biosimilars in some therapeutic areas suggest the drugs are priced below the reference biologics with discounts of 25% or more.

“Price competition will be greater to the extent that biosimilars are substitutes, in terms of safety and efficacy, for other approved drugs with similar uses,” the RAND report states. “This is an important factor in some markets (e.g., erythropoetins and anti-tumor necrosis factor [TNF] products) with multiple originator drugs. It may also be an important driver when patients and providers can choose between biologics and other treatment alternatives, including traditional drugs.”

The research utilized 2013 US sales data from more than 100 biologics, including all blockbuster drugs with sales over $1 billion, to evaluate the potential savings from biosimilars. The combined 2013 sales from these products were $66.3 billion across all distribution channels.

Additionally, the introduction of biosimilars are projected to significantly reduce out-of-pocket expenses for patients.

“A 25% direct price reduction on a $40,000-per year drug would reduce out-of-pocket spending for an individual facing a 30% coinsurance rate by $3000 a year,” the authors wrote. “Coinsurance savings will be smaller for less expensive biologics, although some of these biosimilars may be placed on preferred tiers, further reducing patients’ cost-sharing burden.”

The overall impact of biosimilars will hinge on several factors. Among these factors are the acceptability of biosimilars to patients, payers, and physicians. The use of biosimilars will need to be supported by prescribers, while patients must also agree to take them instead of the original products for these cost savings to be realized, which could potentially disrupt longstanding prescribing practices, the report noted.

“Our framework predicts that increased competition, comparable or better safety and efficacy relative to alternative drugs in the same therapeutic class, greater acceptance, and payment policies favoring biosimilars will lead to greater savings, while fewer competitors, worse safety and efficacy relative to alternative drugs, low acceptance, and payment policies disincentivizing biosimilars will lead to less overall savings,” the authors wrote.