Biosimilars and the Fight Against Inflation

Medicine is meant to ease symptoms, cure or prevent disease and promote overall health — but at what cost?

On average, Americans spend more than $1,500 per person on prescription drugs every year.¹ Drug prices in the United States are 2.56 times higher than prices in 32 comparable countries and 1.90 times as high when rebates and other discounts are considered, according to the office of the assistant secretary for planning and evaluation (ASPE), the principal advisory group to the United States Secretary of the Department of Health and Human Services (HHS).² While part of the spending can be attributed to patients’ taking multiple medications at once (and thus, the expenditures are collective among many medicines), the fact remains that prices for prescription drugs are far higher in the United States than they are in any comparable nation, and it’s a problem.¹

A recent poll conducted by the Kaiser Family Foundation, a nonprofit organization focusing on national health issues, found that while most Americans (83 percent) say prescription drug prices in the United States are “unreasonable,” 69 percent of people taking prescription drugs say affording them is easy.³ The poll showed that while one in five adults currently taking three or fewer prescription medications say they have problems paying for their medications, 32 percent of those taking four or more medications struggle to afford them. The poll also indicated that some groups are much more likely to report difficulty paying for prescriptions, specifically “those who take four or more prescription medications, those who have chronic conditions in their household and those with an annual household income of less than $40,000.”³

The price difference between biologic medications and small molecule drugs seems to be directly related to affordability. In 2017, only 2 percent of U.S. prescriptions were for biologic medications, but that small percentage accounted for $120 billion, or 37 percent, of net drug spending. An average, daily dose of a biologic costs 22 times more than that of a small molecule drug.⁴ The reason for and solution to exorbitant drug prices isn’t straightforward or simple. Various factors such as research and development, marketing and launch expenses, exclusivity, patents and lack of competition, among others, all contribute to the complicated nature of pharmaceutical pricing for both small molecule and biologic medications.⁵

Inflation doesn’t make affordability any easier: Reduced consumer purchasing power forces patients to make the hard choice between paying for everyday essentials (such as food and gas) and critical medications. Inflation soared from 1.4 percent in 2020 to 8.5 percent in 2021, and as of this writing, it is still hovering at 6 percent, but sharp rises in drug prices have been an ongoing problem for the past several decades. Drug prices were five times higher in 2021 than they were in 1984, according to a USAFacts report analyzing data collected by the Bureau of Labor Statistics. The same analysis showed the rise in drug prices was three times greater than the rate of inflation for all other goods during the same time period.⁶

In an attempt to address these exorbitant pharmaceutical prices in the United States, the Inflation Reduction Act (IRA) of 2022 signed provisions into law that are meant to make critical medications, especially biologic medications, more affordable, but the question remains whether or not the act will accomplish its goals.

Rising Drug Prices Outpace Inflation

Inflation is the rate at which the price of goods and services increases, but it doesn’t directly drive up the price of prescription drugs. In fact, drug prices seem to operate independently from inflation.

Between 1989 and 2019, the average annual inflation rate in the United States was 2.5 percent; more recently, the inflation rate was 6.0 percent for the 12-month period between February 2022 and February 2023.⁷ According to a 2021 report conducted by the American Association of Retired Persons, between January 2006 and December 2020, retail prices for 65 chronic-use brand-name drugs increased cumulatively by an average of 276.8 percent; the cumulative general inflation rate was 32 percent during that same 15-year period.⁸

Between 2019 and 2020, retail prices for 260 widely used brand-name prescription drugs increased by 2.9 percent, more than two times faster than general inflation increased the same year (1.3 percent). The average annual cost for one brand-name medication used on a chronic basis was more than $6,600 in 2020, more than $1,500 higher than the average annual cost of therapy in 2015. To put this in perspective, an average adult taking 4.7 prescription drugs per month in 2020 paid more than $31,000 for them that year, which is $17,000 more than the same therapy cost in 2015.⁸

According to HHS, between July 2021 and July 2022, there were 1,216 prescription drugs whose price increases exceeded the inflation rate of 8.5 percent for that time period. The average price increase for these drugs was 31.6 percent. Some drugs in 2022 increased by more than $20,000 (or 500 percent).²

The upward trend is thought to continue: Vizient, Inc.’s Winter 2023 Pharmacy Market Outlook forecasted a 3.78 percent overall drug price inflation rate for the calendar year beginning July 1, 2023.⁹

To make matters worse, drug prices routinely increase in January or July every year anyway. In January 2022, the average price increase was nearly $150 per drug (a 10 percent increase), and by July 2022, it was $250 (a 7.8 percent increase). These increases were larger than for the same months in previous years, according to ASPE.²

What About Generics? Don’t They Help?

Brand-name drugs are expensive when they first enter the market for many reasons, one of which is market exclusivity. Exclusivity is a period of time when the brand-name drug is protected from generic drug competition; it is designed to promote a balance between new drug innovation and generic drug competition. After branded drugs lose their exclusivity, generic versions can enter the marketplace after receiving approval from the U.S. Food and Drug Administration (FDA) and if a patent no longer blocks generic approval.⁹ (Drug patents typically last for about 20 years).

Once exclusivity ends, generic versions of small molecule, chemically-based drugs (“generics”) are created to provide the same clinical therapies as existing brand-name counterparts at a lower price to consumers. They contain the same active ingredient; have the same strength, dosage and administration; and are equally safe and effective. Although some inactive ingredients might differ, generics yield the same therapeutic effects as brand names, so they can be substituted easily without the intervention of the prescriber. Generics are relatively easy and inexpensive to produce, especially since they do not have to repeat animal or clinical studies required of the original brand names to demonstrate their safety or efficacy.¹⁰ Lower upfront costs make generics more affordable: They are typically sold for 80 to 85 percent less than brand-name medicines. It often takes many generic competitors entering the market to make any meaningful difference in price. The more competition, the lower the prices.⁵

Generics help offset costs ­— no doubt about it. In fact, according to the IMS Health Institute, generic drugs saved the U.S. healthcare system almost $2.2 trillion between 2009 and 2019.¹⁰

How Biosimilars Factor In

But generics are only part of the solution. Replicating chemically based medicines is one thing, but replicating highly complex biologic medicines is another. Biologic drugs (commonly called “biologics”) are the most expensive prescription medications on the market, costing $10,000 to $30,000 per year on average, and exceed $500,000 per year for the most expensive biologics.⁴ Unlike small molecule drugs, biologics are highly specialized, complex medicines that are generally derived from living organisms, including animal cells or microorganisms such as yeast and bacteria. Their nature varies and their structures are more complex, which makes their production far more complicated — and expensive — to reproduce than chemically based medicines, and as such, biologics don’t have true generics.¹¹

However, biosimilars are comparable to generics, and they may indeed be a game changer when it comes to affordability of biologic medications. Like generics, biosimilars are secondary iterations of an original drug product, and they carry the potential for lower consumer price tags. However, biosimilars aren’t exact copies of originator biologic products (or “reference products”). Instead, they are highly similar to them and therefore require clinical studies to show they have no clinically meaningful differences from their brand-name counterparts that are already FDA-approved. Biosimilars have the same route of administration, strength, dosage form and potential side effects as the reference product, and they provide the same potential treatment benefits. They are rigorously and thoroughly evaluated by FDA before approval.¹¹ If biosimilar products go through an additional FDA approval process for interchangeability, they can be dispensed in place of the brand-name originator product without involvement of the prescriber.

Biosimilars offer comparable treatment options to patients with many chronic, debilitating diseases such as multiple sclerosis, inflammatory bowel disease, rheumatoid arthritis, psoriasis, some forms of cancer and rare genetic diseases, among others. Like biologics, their therapeutic effects can significantly improve quality of life, prolong life — or both.

Biosimilars are exciting because they present an opportunity to reduce costs by creating competition for originator products that currently have market exclusivity.¹² According to FDA, “Biologics are among the fastest growing segments of the prescription product market. The FDA approval of additional biosimilar and interchangeable biosimilar medications may help stimulate competition. Patients will have more treatment options and potentially less expensive alternatives.”¹¹ The savings would be immense: Using biosimilars instead of biologics could drive down the cost of medicines used to treat rare diseases with an estimated savings of $38.4 billion, or 5.9 percent of the projected U.S. spending on biologics between 2021 and 2025, according to the RAND Corp.⁴

But there aren’t many biosimilars available in the United States yet; 40 have been approved as of this writing, and only 27 have been launched despite being widely available in other countries.¹³ For example, 75 biosimilars have been approved in the European Union (EU); as of July 2022, they are interchangeable there, meaning that a prescribed reference product can be replaced by a biosimilar without provider approval.^13,14 Interchangeability is only possible in the United States when biosimilars meet additional FDA requirements.

But the United States is moving that direction. The Biologics Price Competition and Innovation Act (BPCIA) of 2009 shortened the pathway to licensure for products that are shown to be biosimilar to, or interchangeable with, a previously approved reference product. The BPCIA promised to reduce the price of biologics while also promoting innovation.

Fourteen years later, we are starting to see the fruit of the BPCIA, as many biosimilars are in the pipeline for approval, several of which are expected to be approved this year. In January 2023, Amgen introduced the first of many promising biosimilar releases with its introduction of Amjevita (adalimumab-atto), a biosimilar to Humira (adalimumab).¹⁵ At least seven other adalimumab biosimilars will follow later this year.¹⁶ The patent for Stelara (ustekinumab) expires in September of this year, and nine biosimilars are currently in development, with two of them pending FDA approval (expected in late 2023). Biosimilars for Actemra (tociluzumab) are expected to seek FDA approval in 2023 as well. Extended exclusivity for Enbrel (etanecept) pushed the launch of two already FDA-approved biosimilars [Erelzi (etanercept-szzs) and Eticovo (etanercept-ykro)] to 2029. Xolair (omalizumab) and Tysabri (natalizumab) will both face biosimilar competition in the coming years, and development of biosimilar alternatives are already well under way.¹⁷

Competition vs. Price Controls

Despite the promise of savings, biosimilars remain expensive. Again, small molecule generic medications cost 80 to 85 percent less than their brand-name counterparts, but the savings from biosimilars doesn’t come close to that. For example, Remicade, a biologic that treats autoimmune conditions such as rheumatoid arthritis, Crohn’s disease, ulcerative colitis and severe psoriasis, has a list price of $4,671 per month, whereas Inflectra, Remicade’s first biosimilar, has a list price of $3,785 per month (19 percent less than Remicade). Renflexis, another biosimilar for Remicade, has a list price of $3,014 per month (35 percent less than Remicade).¹⁸

Critical treatments remain out of reach because the patients still simply can’t afford them, and dramatic increases in cost of living due to inflation makes an already precarious situation worse. Financial and co-pay assistance programs help, but patients are nevertheless often forced to pick between paying for everyday essentials such as food and gas, or spending their money on the specialized medicines they need. How to make them more affordable has been a point of contention for quite some time. Debate concerning what to do about it seems to come down to two strategies: Encourage competition to bring prices down naturally, or enforce price controls to bring prices down forcefully.

“At this point, there is likely nothing more critical to lower drug prices than encouraging biosimilar consideration and adoption,” said Steven Lucio, senior principal of pharmacy solutions at Vizient.¹ Increased competition among biologic products are thought to make vital medications 15 to 35 percent less expensive than reference products and grant patients more treatment options, generating close to $7 billion in savings every year.¹ Since biosimilars present a substantial opportunity for cost savings, Lucio emphasizes government must continue to support the biosimilar pathway and limit excessive patenting as a strategy to promote competition.

However, others emphasize that giving the federal government power to negotiate prices with drug companies is a better avenue to lower prices. Supporters of price negotiations in the United States point to the lower prices in other comparable countries as proof that government price regulations work. For example, countries in the EU deal directly with pharmaceutical companies to regulate prices; when a new drug enters the market, EU member states decide on its price. In Canada, the Patented Medicine Prices Review Board caps prices based on what medicines cost in other countries. In countries that have single-payers (government pays for most healthcare costs), the government negotiates prices with drug companies.¹⁹ Advocates for U.S. price negotiations say implementing price negotiations between the government and drug makers would bring prices down here, too. But critics say too much government involvement will stifle innovation and competition, which will lead to fewer drugs in the future.²⁰

Inflation Reduction Act to the Rescue?

President Joe Biden signed the IRA into law on Aug. 16, 2022, legislation that supporters say will provide both competition and price negotiations. Several provisions in the act aim to address drug prices, including:²¹

• Establishing a new program for Medicare to directly negotiate prices with pharmaceutical companies for some of the costliest drugs on the market, and implement penalties for companies that refuse to do so;
• Requiring manufacturers to pay rebates on drugs reimbursed under Medicare Parts B or D for which average prices increase faster than inflation;
• Eliminating the 5 percent coinsurance for Medicare catastrophic drug coverage;
• Increasing the add-on fee for healthcare providers prescribing biosimilars from 6 percent to 8 percent for five years;
• Establishing price caps on insulin;
• Providing free shingles vaccines for people covered by Medicare Part D;
• Limiting out-of-pocket drug costs for Medicare beneficiaries at $2,000 annually.

According to HHS, the IRA will deliver lower healthcare costs and much-needed relief from exorbitant prescription drug prices to millions of Americans covered by Medicare. “In recent years, prescription drug prices have skyrocketed, but thanks to the [IRA], America’s families will soon start seeing relief,” said HHS Secretary Xavier Becerra.²¹ According to the Centers for Medicare and Medicaid Services, “By reducing coinsurance for some people with Part B coverage and discouraging drug companies from increasing prices faster than inflation, this policy may lower out-of-pocket costs for some people with Medicare and reduce Medicare program spending for costly drugs.”²²

Senate Finance Committee Chair Ron Wyden echoed these sentiments when he said, “For too long, Medicare has been forced to contend with Big Pharma with one hand tied behind its back.”²³ The IRA fundamentally changes that with provisions that “[lower] prices in a way that is fair and designed to promote innovation, not stifle it.” Executive Director of the Biosimilars Forum Julie Reed agreed, saying the IRA “will increase competition, promote access and ultimately save American taxpayers and patients money.”²⁴

But praise for the IRA’s price-cutting promises isn’t ubiquitous.

Some opponents to price negotiations claim the drug pricing plan is based on false promises, and that price negotiations are euphemisms for price controls. “They say they’re fighting inflation, but the Biden administration’s own data show that prescription medicines are not fueling inflation, argues Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America. “They say this is ‘negotiation,’ but the bill gives the government unchecked authority to set the price of medicines. And they say the bill won’t harm innovation, but various experts, biotech investors and patient advocates agree that this bill will lead to fewer new cures and treatments for patients.”²⁵

Other critics agree, saying price negotiations are really a way of imposing price controls. Wayne Winegarden, PhD, senior fellow in business and economics at the Pacific Research Institute, argues the IRA’s provision for price negotiations actually discourages the competitive process. “Price controls can only generate savings by sacrificing innovation,” Dr. Winegarden claims, and will create a risk that investors will not be able to recoup their capital costs when investing in biosimilar development. According to Dr. Winegarden, competition among biosimilars actually preserves incentive for innovation while generating savings because it provides the developers of the reference products an opportunity to recoup their initial investment. The result of price negotiations, he says, will be less competition and higher prices.²⁶

Douglas Holtz-Eaken, a former top economic adviser to President George W. Bush and former director of the Congressional Budget Office (CBO), argues that provisions in the IRA may lower some costs of Medicare drugs, but it would also discourage new drug development or reduce venture capital investment in start-up pharmaceutical companies.²⁷ And, Representative Jason Smith of Missouri says “the prescription drug price controls included in the plan will — according to the [CBO] — increase the cost of new drugs, while simultaneously preventing new cures from coming to market. With the way that policy will also stifle generic drug competition, it will increasingly become only the wealthy who can afford innovative cures and medications.”²⁸

Time Will Tell

Inflation continues to hover at a higher-than-average rate, crippling the purchasing power of everyday Americans and making already high prescription drug costs even more difficult to afford. For patients needing critical biologic treatments, the problem is even more dire. The promise of biosimilars is encouraging: With lower list prices than their reference products, they may indeed increase affordability and access to these medications. But the jury’s still out on whether the IRA will be a help or hindrance in this endeavor. Time will tell whether or not the American people will find financial relief anytime soon.