Biologics represent a substantial and growing share of the U.S. drug market. Traditional “small molecule” generics quickly erode the price and share of the branded product upon entry, however only a few biosimilars have been approved in the US since 2015, thereby largely preserving biologics from competition. We analyze European markets, which have had biosimilar competition since 2006. Using our own survey, we analyze how market features and public policies predict biosimilar entry, price, and penetration, finding significant heterogeneity across countries and products. Effective buyer institutions are associated with increased biosimilar penetration. Our estimates can inform ongoing policy discussions.
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Sandoz’s Zarxio—which is a biosimilar of Filgrastim, a drug for neutropenia—was approved by the U.S. Food and Drug Administration (FDA) on March 6, 2015, but was not sold on the market until the third quarter of 2015.
Though not the primary focus of our analysis, the long delay in the development of a practical biosimilars regulatory pathway may reflect a significant level of regulatory capture and influence, insofar as pioneer manufacturers have significant incentives to delay the introduction of competition relative to the incentives of the biosimilars manufacturers to engage in the development of rules that would create the potential for market competition.
In so doing, we build on prior work that has examined the potential for biosimilars—such as Grabowski et al. (2006, 2007)—and papers that have examined the European experience with biosimilars—such as Rovira et al. (2011) and Berndt and Trusheim (2015). As we explain below, our work moves beyond these prior analyses by undertaking a detailed empirical analysis of the role of buyer institutions in shaping differences in entry and market impact (quantity, price) across different European countries, and thus grounding our understanding of how alternative policy choices might result in different patterns of diffusion and impact in the U.S.
Unavoidable, minor molecular differences between reference drugs and biosimilars (e.g., glycosylation patterns) may increase immunogenic responses or reduce clinical efficiency in ways that are unpredictable.
All biotechnology drugs (whether original or biosimilar) must be approved through the EMA. Some (non-biotech) biologics may use another regulatory pathway, but those products do not appear in this study.
See also Inderst and Valetti (2009).
According to the FDA, drugs that are classified as biologics may be composed of molecular structures that range from sugars to proteins to nucleic acids—or a combination of these substances—and may also include living cells or tissues (http://www.fda.gov/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CBER/ucm133077.htm).
However, a few self-injectable products—including insulin and some growth hormones—may also be dispensed through pharmacies, with country-specific regimes: For example, in Spain, growth hormone is dispensed in hospital pharmacies, but insulin and Interferon-alpha are dispensed in retail pharmacies.
Assuming, at the margin, that such policies wouldn’t substantially discourage discovery and/or development of new biologics. While out-of-sample predictions are difficult, biologics’ high on-patent prices are consistent with significant development incentives for manufacturers.
When developing a generic, a firm can both synthesize the same chemical compound and carry out analytical studies to confirm its molecular identity. Once this has been demonstrated, a bioequivalence study in humans is sufficient to prove therapeutic equivalence. This is achieved through a comparative bioavailability (pharmacokinetic) study that shows that the rate and extent to which an active substance is circulated is equivalent in both drugs. Once established, it can be assumed on scientific grounds that both the original and generic candidate products will share the same safety and effectiveness profile.
The EMA’s process results in a single marketing authorization that is valid in all EU countries as well as in the EEA countries Iceland, Lichtenstein, and Norway.
Under this regime, both new chemical entities (NCEs) and new biologic entities (NBEs) are granted 10 years of market exclusivity—with a potential for 1-year extensions if new therapeutic indications are authorized.
The specific requirements for a biosimilar Marketing Approval Application dossier are articulated in Annex I to Directive 2001/83/EC and must satisfy the technical requirements of the monographs of the European Pharmacopoeia and any additional requirements (e.g., those that are defined in relevant CHMP guidelines).
A full set of appendices can be found online at: http://people.hbs.edu/astern/SMSS_Online_Appendix_Final.pdf.
Importantly, the European Union uses the same two terms, but gives them opposite definitions, with “substitutability” indicating the ability for pharmacist substitution. In Europe, each country could (by and large) shape its own policies with regard to “interchangeability” (where clinicians could use a biosimilar to achieve the same clinical effect in the same patients) and “substitution” (where pharmacists could replace one version of a biologic with another without having to consult the health care provider who prescribed the reference product). (http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/).
France adopted a law with regard to the substitution of biosimilars for naïve patients; however the law did not have an implementing decree and therefore did not come into force during the period that is studied here. The French Agency updated its position in May 2016 to allow for interchangeability under conditions of patient transparency, monitoring, and traceability of biosimilars.
There are slightly different versions, or generations, of Epoetin on the market in Europe: Original biologics exist for both Epoetin Alpha and Epoetin Beta. Notably, only biosimilars to Epoetin Alpha have been developed; there are no biosimilars to Epoetin Beta. The biologic Epoetin Zeta only exists in biosimilar form and takes Epoetin Alpha as its reference product. We consider the Alpha and Zeta forms of Epoetin as one combined class in our analysis, since they are approved by the EMA for the same set of indications and used interchangeably in a medical setting.
The only exception is that Retacrit was also imported to Austria in 2014. Omnitrope had the most country-years of parallel imports and was imported into Germany in most, but not all sample years. Binocrit was imported into Germany in three non-consecutive years, and Retacrit was imported only in 2014.
Our empirical results are not affected by the inclusion or exclusion of Australia from the analysis sample.
As noted in Table 1, two biosimilars were approved and then subsequently withdrawn from the market by their producers.
Appendix A describes Australian regulations, which are primarily based on EMA decisions. Therefore, we include data from Australia in our regression estimates; however, excluding Australia does not affect our results. While Australia recognizes the EMA’s decisions on biosimilars, the reverse is not true.
All documents are available at: http://www.ema.europa.eu/.
Notably, the two lines may cross and one need not be above or below the other. When the total number of EMA-approved products is greater than the number of unique distributors in the sample, this indicates that either some products are not distributed at all or that the number of distributors that are active in our sample countries in a given year and class of biosimilars is smaller than the total number of approved biosimilars in that class. This will be the case, for example, if a single distributor is responsible for the distribution of more than one biosimilar product within a class of drugs. More commonly, we see that the number of distributors that are active in our sample is greater than the number of approved products. This is the case when one product uses different distributors in different countries or when one product is sold by multiple distributors within a country.
We calculate prices in local currency since procurement contracts are likely to be negotiated in local currency rather than U.S. dollar terms. In robustness tests, we confirmed that using U.S. dollars produced similar results with respect to predictors of price changes.
The biologic drugs that we consider are produced in several different forms. For example, we see different packaging options that reflect the number of milliliters of liquid in a pre-filled syringe. We combine all forms of a drug that are sold by the same firm in the same country and year into one observation, scaled by standard units of active drug. We can do this accurately because IMS provides a variable called “standard units”, which converts each form of every biologic product into common units. Other researchers have used standard units from the IMS data to capture quantities sold (e.g., Berndt and Trusheim 2015). Alternative volume measures include defined daily dosage (DDD), extended units, and so-called “eaches.” We follow Berndt and Trusheim (2015) in using standard units.
Other researchers (e.g., Ganslandt and Maskus 2004) have written about the role of parallel imports in European pharmaceutical markets. Such imports are legal and happen frequently. They are, however, less likely to be relevant in the setting that we study, since biologic drugs are relatively costly and often procured by health systems for administration in hospitals.
There are four exceptions to this: due to lack of full data availability, data for Lithuania, Slovakia, and Sweden are included only through 2012, and data for Latvia are included only through 2010.
Other researchers should be aware that IMS creates a price by dividing revenues by quantities, but then reports a rounded quantity. Re-creating price by dividing revenue by the rounded quantity results in large price outliers when quantities are small. It is possible to reconstruct the non-rounded quantity by dividing revenue by price again.
In one case (Slovakia) tendering was done at the insurer level, where the national health system reported that the tender applied to only 60% of the population, so the relevant population imputation was adjusted to reflect this.
GDP (used in models not shown) is highly collinear with national pharmaceutical expenditures, and the other coefficients are virtually identical when either control is used. In our sample, on average, a country with an additional $1.5 trillion in GDP would be expected to have one additional distributor entrant per class of biologics.
Country-level fixed cost should not be confused with the fixed regulatory costs of scientific approval, which occur at the European level.
Surprisingly, additional Somatropin distributors appear to be associated with higher average prices (Table 7), although this result is based on a very small sample of entrants.
In this case, we see an ambiguous relationship between national pharmaceutical expenditures and prices: In aggregate there is no clear trend, but higher national pharmaceutical expenditures appear to be associated with slightly lower Epoetin prices, but slightly higher Filgrastim prices.
We identify these by looking at the largest biologics markets in all countries over the entire period of observation and taking the top three products, which were Etanercept (brand name Enbrel), Adalimumab (brand name Humira), and Infliximab (brand name Remicade).
The Center for Medicare and Medicaid Services (CMS) is considering J codes for provider-administered biosimilars under Medicare Part B, and it is expected that private payers would follow suit (Sarpatwari et al. 2015).
As defined in the U.S. as a situation that permits pharmacist substitution.
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We are grateful to Ernie Berndt, Bill Comanor, Innessa Colaiacovo, James Leung, Robert Meyer, Andrew Mulcahy, Stacy Springs, Robert Town, and seminar participants at Boston University, UCLA, the Kellogg Health Care Markets Conference, Harvard Business School, Harvard Medical School, Tulane University, the University of Virginia, IFS, KU Leuven, ASHEcon, the NBER Productivity Lunch, and the Bates White Life Sciences Symposium for helpful suggestions. Several experts in and well acquainted with the health ministries of European countries in our sample provided valuable information on domestic drug procurement policies. Suzette Kox, Julie Maréchal, Pieter Dylst, and Maarten Van Baelen from Medicines for Europe were particularly generous with their time. Prof. Fernando de Mora in the Department of Pharmacology, Therapeutics and Toxicology at the Universitat Autònoma de Barcelona—Spain provided detailed scientific and regulatory detail. Melissa Ouellet, Oliver Falvey, Lila Kelso, Brittany Ngo, and Kathrin Lampert provided excellent research and editorial assistance. Funding from the National Science Foundation award number 1064341 (The Industrial Organization of the Biologics Industry: theory, Empirics and Policy) and the National Institute on Aging, through grant number T32-AG000186 to the National Bureau of Economic Research, is Gratefully acknowledged. We are particularly appreciative of access to IMS data that was provided by Pfizer Inc. and IMS.
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Scott Morton, F.M., Stern, A.D. & Stern, S. The Impact of the Entry of Biosimilars: Evidence from Europe. Rev Ind Organ 53, 173–210 (2018). https://doi.org/10.1007/s11151-018-9630-3
- Health care
- Pharmaceutical competition
- Health care spending