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All you need to know about why generic biologics are bad public policy

Posted Jun 11 2009 6:02pm

As I’ve written before ( starting almost three years ago ), I don’t favor generic biologics or “biosimilars” to control the cost of biologic drugs. Instead, I suggest that once products lose patent protection their price should be regulated. That would be positive in several ways:

  • Reducing the prices of drugs sooner and more deeply –not just hoping that competition will eventually do so
  • Simplifying the FDA’s job in supervising biologics manufacturing plants, which tend to need a lot of oversight
  • Reducing FDA’s workload in approving new drugs
  • Eliminating the need for clinical trials for “follow-on” products, which will reduce costs and reduce the risk of harm to patients

But Congress seems fixated on replicating the success of the Hatch-Waxman Act in the biologics area, even though that model doesn’t really apply here. Rep. Waxman is sending a letter to President Obama asking that the FDA begin putting together a pathway for generic biologic approval, without waiting for legislation. This could have the effect of speeding up the process.

Here’s what Citigroup has to say about it in a research note:

Follow-on Biologics Pathway Favorable to Distributors, PBMs — Follow-on biologics’ profit model is similar to simple molecule generics for PBMs and Distributors: creates greater competition, lowers overall costs, and offers higher profit opportunities. While it would likely be lower margin than generics as biosimilar molecules complex & not exact duplicates, offers greater absolute profit dollars as specialty Rx priced much higher. Medco (MHS.N; US$44.35; 1H) est’s biosimilars could get to market by 2013 if legislation passed in 2009 and create long-term profit driver within its Accredo specialty Rx biz. Specialty Rx distributors would also benefit including AmerisourceBergen (ABC.N; US$35.74; 2H) where specialty dist. is approx. 20% of total rev and our estimated 28% of profit.

In other words, generic biologics provide a big opportunity for those who manage the pharmacy benefit and supply chain to make money by pitting manufacturers against one another. There’s no particular expectation that much of this economic value creation will accrue to patients and those who pay for health insurance.

Is that what Waxman intends?

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