The Pricing Outlook for Biosimilars

Many health systems, payers, and physicians have an expectation that biosimilars will result in immediate and significant cost reductions (similar to what we have seen with generic pharmaceuticals). Based on our analysis, we at Pangea do not expect generic-like discounts for biosimilars any time soon. In the long run, this is probably good for patients, payers, and physicians because more realistic market prices for biosimilars should help ensure the establishment of a sustainable biosimilar industry. Here, we outline a few of the factors that will insulate biosimilars, at least in the near term, from generic-like discounts:

• Fewer biosimilar competitors exist compared with generic pharmaceuticals. The most important factor driving discounting is the limited number of competitors in the biosimilar space. Given the complexity of biosimilars and their high barriers to entry, we expect that the number of biosimilars for each molecule will be lower than the number of competitors for generic pharmaceuticals with similar sales volumes.

Barriers to entry include technological, regulatory, legal, commercial, and financial factors. The technical and regulatory barriers have been well described. Legal barriers include litigation (and the threat of litigation), which will continue to give biosimilar firms pause, at least for the foreseeable future. Additional barriers include the much higher investments required to commercialize biosimilars compared with generics—unlike stakeholders’ expectations of generics, biosimilar firms are expected to provide support services, such as reimbursement hubs, patient education, and training resources. Finally, biosimilars often have greater requirements for post-approval monitoring, including obligatory registry participation in many countries.

• The cost of goods is much higher than generic pharmaceuticals. Manufacturing biosimilars (and for that matter, any biologic) is generally much more complex, costly, and time-consuming than manufacturing small-molecule pharmaceuticals. Furthermore, small-molecule pharmaceutical manufacturing capacity is much more flexible, and it is possible to quickly switch manufacturing from 1 molecule to another. Because of this flexibility, it is possible for small-molecule pharmaceutical manufacturers to rapidly produce large quantities of pharmaceuticals. This is not the case for biosimilars, and as a result, it is unlikely that prices will be driven down by the presence of large inventories.

• Many of the largest biosimilar players also have branded biologics. Several of the largest biosimilar players, including Pfizer, Amgen, and Novartis (Sandoz) also market branded biologics. For example, Pfizer markets biosimilar infliximab, which competes with Enbrel, while Sandoz has a biosimilar etanercept that competes in some indications with their blockbuster Cosentyx. In almost all cases, the profitability of branded biologics dwarfs the profitability of biosimilars. Given these market dynamics, I believe it is highly unlikely that any of these biosimilar players will make aggressive pricing moves that could impact the performance of their branded products.

• Interchangeability remains a few years away. In January 2017, the FDA released for public consultation draft guidance detailing the agency's expectations for biosimilars for which manufacturers hope to obtain interchangeable status. An interchangeable product may be substituted for the reference product by a pharmacist without the intervention of the prescribing health care provider. The guidance, initially expected to be available in 2015, recommends that biosimilars manufacturers who seek an interchangeable designation conduct 1 or more switching studies to show that patients can alternate between the reference and the biosimilar safely and without diminished efficacy. However, the guidance is still a draft, and because of the time required to conduct studies and regulatory reviews, it is unlikely that there will be any biosimilars designated “interchangeable” for at least a few more years.

In conclusion, we at Pangea believe it’s very unlikely that the US market will see deep, generic-like discounts for biosimilars in the next few years.