Published On: Thu, Nov 8th, 2018

Biosimilar drugs promise to slash health-care costs in rich countries

“IT’S THE prices, stupid.” That simple assessment of America’s wildly expensive health-care system was made 15 years ago by Uwe Reinhardt, a health economist who died last year. Health costs as a proportion of America’s economic output have soared since, from 14.5% in 2003 to over 17% in 2017, with drug-price inflation a big culprit. Less than 2% of Americans are treated with specialty biotech drugs, but these account for as much as 35% of total drug spending.

The good news is that cheaper biotech drugs are coming. Known as biosimilars, these complex copycat drugs (which are a bit like generics) have been allowed in Europe since 2004 and in America since 2010. At first, owing to policy roadblocks and anti-competitive tactics by incumbents, only a few came to market. But the firms that make them, which range from biotech giants to scrappy upstarts, are turning the trickle into a torrent.

Consider Humira, a biotech drug made by America’s AbbVie that treats rheumatoid arthritis, psoriasis, Crohn’s disease and other maladies. It is the world’s top-selling drug; annual sales of $ 20bn are more than double that of the next two top sellers combined. The annual cost (after rebates) of Humira in America has shot up from about $ 19,000 a patient in 2012 to some $ 38,000 a patient. David Maris of Wells Fargo, a bank, calculates that a 9.7% price increase imposed earlier this year by AbbVie on Humira could add $ 1.2bn to America’s health-care costs in 2018.

Such sums explain why the launch of several biosimilar rivals to Humira in Europe in October is being watched closely. Five copycats, which regulators have verified are safe and effective, have been approved and three have launched. One of them is Amjevita, which is made by Amgen, a giant American biotech firm with pricey branded drugs of its own to defend. AbbVie confirmed in an earnings call on November 2nd that rivals are undercutting Humira’s list price by up to 80% in some European countries. This has forced AbbVie to cut prices steeply.

In America a similar battle is brewing over Neulasta, a biotech cancer drug made by Amgen with global sales of some $ 3.7bn this year. On November 2nd America’s Food and Drug Administration approved a biosimilar rival to Neulasta developed by Coherus BioSciences, a biotech firm based in California. Its pricing is unknown but this time it seems likely to be Amgen that has to lower prices.

Makers of biosimilars do face hurdles. The owners of branded biologic drugs have been known to put out misleading advertising that casts doubt on the copycats’ safety. Denny Lanfear, boss of Coherus, bemoans the fact that firms typically file dozens of patents on old drugs to extend their monopolies. He notes that AbbVie’s “patent thicket” means Humira will not face biosimilar competition for years to come in America. Also, nobody knows whether President Donald Trump will follow up on his recent praise for biosimilars with practical policies on reimbursement for them in the Medicare system.

Yet overall the future looks bright. McKinsey, a consultancy, estimates that the global market for biosimilars could triple, to $ 15bn, by 2020. That is tiny compared with overall health spending. But because the new drugs lead to price-cutting by incumbents, the systemic benefits could be far bigger. The RAND Corporation, a think-tank, says that biosimilars could reduce American health-care spending by $ 54bn over the next decade. Biosimilars could prove to be the mouse that roars.

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The Economist: Business

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Biosimilar drugs promise to slash health-care costs in rich countries