When it comes to drug prices, what’s dominating the headlines is bad news story after bad news story. Turing Pharmaceuticals raised the price of an old AIDS drug by more than 5,000 percent overnight, and Valeant Pharmaceuticals International raised a blood pressure drug price by nearly 3,000 percent since 2013, among other consumer losing examples.
There is, however, good news for consumers about drug prices that hasn’t gotten the media blitz of Turing or Valeant’s price hiking moves. The beginning of competition for a class of lifesaving medicines, called biologics, is becoming a reality.
Unlike more simple chemical drugs, biologics are produced in living systems, such as plant and animal cells or microorganisms, and are used to treat a variety of deadly and debilitating diseases from cancer to multiple sclerosis. Until now, there has been no competition for these drugs from cheaper, generic versions.
That changed in September. The first biosimilar, a medically equivalent substitute for a biologic drug hit the U.S. market. It’s called a biosimilar because while it’s functionally equivalent to the original drug, it’s not identical. The way biologics are made doesn’t allow for exact copies.
This first biosimilar, Zarxio, is a substitute for Amgen’s biologic called Neupogen. Both drugs are used to treat patients with low white blood cell counts caused by cancer and bone marrow transplants, among other medical conditions. But Zarxio is 15 percent cheaper than Neupogen, a win for consumers.
Zarxio’s availability to patients is because of a provision in the Affordable Care Act, also known as Obamacare, that has finally come to fruition. The law set up a pathway for biosimilars to come to market and compete, but bureaucratic delays have interfered until now.
The introduction of the first biosimilar marks the beginning of a new wave of competition, innovation and investment. The Food and Drug Administration is currently considering biosimilar applications for other biologic drugs.
The FDA began approving generic chemical prescription drugs 30 years ago. That led to market entry and price competition, which explains why generic drugs – making up some 80 to 90 percent of prescriptions – have saved consumers more than $1 trillion in the last decade.
While biosimilars will certainly save consumers money, the price reduction won’t be as dramatic – especially initially – as it has been for generic drugs due to the high cost of producing biologics and biosimilars. The average price of a chemical drug in the United States is $2 a day, while the average cost of a biologic per day is $45. In the immediate future, it is estimated that biosimilars will reduce costs in the range of 15-20 percent.
This has already proved true in other countries. For instance, they have been bringing down prices for patients in Europe since 2006. An IMS Health study examined competition in Europe and found that from 2006 to 2013, the median reduction of biosimilar costs versus the biologic was 35 percent.
As biosimilars become more prevalent in the United States, the savings will increase. While initial price reductions will be somewhat modest, as competition becomes more robust and more competitors enter the market, there could be additional downward pressure on prices, as Europe has seen.
This good news story for consumers should be brought to light. Market rivalry leads to price competition and savings for consumers, and now, after years of waiting, we’re seeing this crystalize for biologic drugs. The more consumers use biosimilars, the more incentive there will be for investment in this innovative space in health care.
The more consumers know about this remarkable option being made available to patients in the United States, the better patient outcomes and quality of life will be for Americans dependent on expensive biologic drugs.
Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information about the Institute, visit www.theamericanconsumer.org. This piece was published in FORBES.