The following originally appeared on The Upshot (copyright 2015, The New York Times Company).
Competition among generic drug makers pushes drug prices downward. But such competition is weak for a growing and expensive class of drugs called biologics. A big reason has to do with the science that underlies them.
Biologics — large-molecule, protein-based drugs — are made by living organisms, not by chemical processes, which are the source of non-biologic, or small-molecule, drugs. Their complexity makes them harder to reverse engineer than small-molecule drugs, making generic versions of them — called biosimilars — more costly to bring to market.
Comparing insulin (perhaps the most familiar biologic drug) with aspirin (perhaps the quintessential small-molecule drug) offers a sense of how the two classes differ, and why one is so much more expensive to produce. Aspirin is relatively simple, consisting of four ingredients, two of which are cornstarch and water. The composition of small-molecule drugs like aspirin is no mystery; it’s published in their patents. From aspirin’s ingredients it’s relatively easy for engineers to intuit how it could be produced. In fact, you can find a video on the Internet showing how to make aspirin. (But at pennies a dose, you really needn’t bother, unless you are lost in the woods.)
Insulin, by contrast, consists of larger, more complex molecules originally extracted from the pancreatic tissue of dogs, then pigs and cows. Today, like other biologic drugs, it can be made by manipulating the genetics of certain micro-organisms. It’s this complexity — and the fact that the precise means of production is not included in their patents — that makes biologics’ composition and source far harder to discern than for small-molecule drugs like aspirin. Search online all you want — you won’t find a simple recipe to make PCSK9 inhibitors, the new cholesterol-lowering drugs (with high prices), in your kitchen. (Unlike original insulin, discovered in 1901, modern biologics are not naturally occurring, but made only through genetic manipulation.)
As the law professors W. Nicholson Price and Arti Rai put it, “If an aspirin were a bicycle, a small biologic would be a Toyota Prius, and a large biologic would be an F-16 fighter jet.” It is 100 times more expensive to reverse engineer a modern biologic than a small-molecule drug.
In a paper to appear in the Iowa Law Review, they argue that because biologics cost more to make, relatively higher prices are required to encourage manufacturers to do so. They suggest that if the science of biologic production were more open, the barriers to entry for biosimilars would fall, and with it their prices.
Biologics may seem unfamiliar, but they’re becoming increasingly common. Vaccines are biologics. So are PCSK9 inhibitors and the top-selling Humira, Remicade, Enbrel (all used to treat rheumatoid arthritis, among other conditions) and Avastin (a cancer drug). In 2011, eight of the top-selling 20 drugs in the United States were biologics.
The impact of biologics’ higher prices is profound. A biologic treatment costs about 22 times that of a small-molecule one. Spending on biologics has grown much faster than for small-molecule drugs and is expected to be about six times higher this year than it was in 2011. A quarter of all drug spending in the United States is expected to be for biologics next year.
Biosimilars will reduce drug prices, but not to the same degree generics do. While prices for small-molecule generics can be 50 to 80 percent lower than their brand-name equivalents, estimates of price reductions for biosimilars are closer to half that, at best — in the 10 to 30 percent range. Since biologics are far more expensive than brand-name, small-molecule drugs to begin with, the smaller discount on a much higher price makes biosimilars vastly more expensive than generic drugs.
The cost of bringing a generic drug to market is about $2 million, which is relatively inexpensive compared with the up to $200 million it costs for a biosimilar. To confirm that a generic drug will perform the same as its brand-name counterpart, chemical equivalence is what matters — something relatively easy to assess. That scientific fact underpins the Food and Drug Administration’s path for approval of generic drugs.
The Hatch-Waxman Act, passed in 1984, allows small-molecule, generic manufacturers to piggyback on the clinical trials of the brand-name drugs they replicate after a five-year period of data exclusivity. As long as they’re chemically identical to the original, generics will be clinically identical as well, so there’s no need to incur the expense of demonstrating they work in the same manner.
For biosimilars and their corresponding brand-name biologics, structural equivalence is hard to achieve and verify. Their structure and clinical performance depend on the means of production. For example, the exact organism and other manufacturing details used to produce a biologic are crucial, but such information is not fully disclosed in patents or evident in the final product. Therefore, a biosimilar manufacturer seeking to reverse engineer a process is likely to produce a slightly different drug — and that difference may affect patients.
Recognizing this, the F.D.A. proposed requiring evidence of no clinically meaningful performance differences between a biologic and its biosimilar replicates.
Proving no clinically meaningful differences only adds to the cost of bringing biosimilars to market. Even after the F.D.A.’s granted period of market exclusivity — set at 12 years for biologics by the Affordable Care Act — and after any patents have run out, a manufacturer must both reinvent the production process (or find an adequate alternative) and demonstrate that the resulting product performs similarly to the original. The high cost of doing so serves as a barrier to entry, further protecting the profits of original biologic producers, but also adding to the nation’s drug bill.
Mr. Price and Ms. Rai suggest a way to avoid these costs: require biologic manufacturers to disclose their drug production details, perhaps with a quid pro quo of an additional period of market exclusivity. After that market exclusivity expires, competitors could use the disclosed process to produce biosimilars. This would, of course, turn profitable trade secrets into public knowledge, so the proposal may be strongly resisted by some biopharmaceutical companies.
But it would give rise to a biologics market that’s as close as it could be to the small-molecule generics one, in which all relevant information for producing an equivalent product is available at relatively low cost. This would increase entry into the market and push the prices of today’s and tomorrow’s most expensive drugs downward.