Fixing The Regulatory Flaws Biosimilars Face Will Help Patients

About a month ago, the Centers for Medicare & Medicaid Services announced the next 15 drugs that will be subject to the maximum fair price (MFP) negotiation process. These negotiations are essentially a means to impose price controls on selected medicines. If the Trump Administration truly wants to help patients, it would abandon these efforts and focus on regulatory reform.

Striking the right regulatory balance is no easy task. On one side are patients whose medicines are costly. On the other side are patients living with untreated diseases hoping that pharmaceutical companies will soon develop an efficacious treatment. Meeting the needs of both groups of patients requires regulations that enforce well defined exclusivity rights for a predetermined number of years followed by a structure that promotes patient-friendly competitive markets for medicines.

This approach has proven effective. Currently, patients in the U.S. have access to “85% of new medicines compared to less than 40% for Europeans on average.” At the same time, 90% of U.S. prescriptions are either generics or biosimilars saving the U.S. healthcare system $445 billion in 2023 alone.

Despite these achievements, there are important reforms that, if implemented, would generate significantly more savings in the future while still maintaining the U.S. as the global leader in drug innovation. One key focus of these efforts should address the deficiencies afflicting the market for biologics, which are medicines made or derived from biological processes.

Innovative biologics have vastly improved treatments for devastating diseases such as autoimmune disorders and cancers. These medicines are also expensive due to their high value and large costs of capital – the capital costs associated with developing a new drug averages $2.9 billion including post-approval studies. Providing the opportunity to cover these costs is essential for incentivizing continued medical innovation – helping patients still waiting for efficacious treatments.

And new and better treatments for many diseases such as Alzheimer’s, pancreatic cancer, and muscular dystrophy are desperately needed. Policies, such as price controls, jeopardize continued innovations that could provide patients with new and better medicines because they inhibit innovators’ ability to cover these capital costs.

Yet, promoting greater affordability for existing therapies remains essential. For biologics, this is the value that biosimilar competition creates. Biosimilar competition has a demonstrated record of generating significant systemic savings while still incentivizing continued drug innovation. Adjusted for inflation, the average prices for biologics that faced biosimilar competition declined by more than 56% over the past five years. In contrast, the inflation adjusted prices increased for those biologics that did not face effective biosimilar competition.

The stark differences in price and expenditure changes between the originators facing biosimilar competition and those not facing competition provides evidence that competition from biosimilars drives down prices and total expenditures. Despite these impressive achievements, obstacles remain that could reduce the availability of biosimilar competition against many originator biologics that will soon come off patent.

Without reforms, the biologics market risks what IQVIA labels a potential biosimilar void – insufficient competition in the biologics market once the exclusivity period for originators have expired. Several reforms highlighted by IQVIA could meaningfully address this problem.

One obstacle for biosimilars is the long and costly development process that can cost up to $300 million and require up to 9 years. Streamlining and clarifying regulations can lessen these costs and reduce the time required to develop these competitive medicines.

Another problem is the confusion created by the interchangeability designation that often creates a distinction without a difference. The distinction discourages appropriate use of biosimilars, however, and should be clarified.

Reforms to the current rebate system are also imperative. Whether the drugs are infused in a clinical setting or taken by patients, the current payment system often incentivizes the use of more expensive biologics rather than lower cost alternatives. Addressing the rebate system will help remove this current disincentive for using biosimilars.

Then there is the maximum fair price negotiation authority authorized by the misnamed Inflation Reduction Act (IRA). The IRA’s price controls create a substantial risk that investors will be unable to recoup their capital costs if they invest in the expensive process of developing biosimilars. As a result, alternative investment opportunities look relatively more attractive compared to investing in continued biosimilar innovation. Repealing the MFP negotiation authority will, consequently, improve the market’s competitiveness as well as its innovativeness.

Rather than continuing down the path toward price controls, Congress and the Administration should focus on removing current anti-competitive and anti-innovation regulations. Improving the competitive landscape for biosimilars should be an essential part of this strategy. The expected result from the increased competition will be reduced costs for patients and lower overall healthcare costs system wide.