Avalere Study

Generic Biologics Seen Producing Far Smaller Savings Than Earlier Projections

Even if Congress enacts legislation paving the way for FDA approval of a type of generic biologics known as biosimilars, the cost savings over the next decade are likely to be far less than some have projected, according to analysts at Avalere Health, a healthcare advisory firm.

The Avalere analysts estimated that the federal Medicare system would save $3.6 billion over the next ten years (2008-2017) if Congress establishes a pathway this year for FDA action on follow-on biologics. While the analysis did not address it, somewhat greater savings would be seen by patients with private coverage.

Total savings in the $8 billion range, however, would be far lower than the $71 billion in savings projected by pharmacy benefit manager Express Scripts, Inc., or even the $14 billion in Medicare savings projected in an analysis released by the Pharmaceutical Care Management Association (PCMA).

Avalere experts cited a variety of factors that led them to their lower savings estimates for generic biologic drugs.

If generic biologics legislation is passed, the FDA will still have to draft and finalize implementing regulations. Regulations implementing the Hatch-Waxman Act, which dealt with conventional generic drugs, took four years to finalize after Congress enacted the legislation.

Avalere said its analysis assumes that promulgation of any follow-on biologic regulations will move more quickly than Hatch-Waxman and take only three years, given efficiencies gained from having passed generic legislation before.

After the regulations are finalized, Avalere said it assumed “it will take the Food and Drug Administration two years to review the first batch of follow-on biologic applications.

“This timeframe is longer than current average FDA review time, but is informed by European experience of reviewing comparable biosimilars,” Avalere said. It added that the review time for applications might be lengthened even further if the FDA requires additional testing of biosimilars.

This means that even if legislation enacted by Congress goes into effect this October, the first biosimilar is not likely to appear on the U.S. market until the latter part of 2012.

The analysts also forecast that biosimilars would not be priced dramatically below brand-name biologics, as is often the case with conventional generics.

They said their analysis “assumes that follow-on biologics pricing will be heavily influenced by production and testing costs, the level of competition, and heightened distribution and marketing costs.”

Another big factor — perhaps the biggest — will be the degree to which physicians prescribe biosimilars for their patients.

“Avalere’s analysis takes into consideration historical experience of physician acceptance of new medical technology, and assumes that not all follow-on biologics will be viewed as completely interchangeable with branded biologics,” the company said.

But it did not appear to factor in another consideration likely to even further limit the prescribing of biosimilars: the negative impact they would have in some cases on physician incomes.

About 64 percent of today’s biologic drugs are either injected or infused in a physician’s office, according to Avalere. And under the existing “buy-and-bill” reimbursement system, the more expensive the drug, the more money the physician makes.

All of these factors in combination mean that generic biologics are unlikely to have a huge, immediate impact on health-care costs, the Avalere analysts concluded.