A better idea than biogenerics

A better idea than biogenerics

Generics are a bright spot in the world of health care costs. Safe, efficacious generics are available in an increasing number of key therapeutic classes. Producer level prices have been low for years. Thanks to Wal-Mart those low prices are now making their way through to patients. With Democrats in control of Congress, barriers to the introduction of generics are likely to fade.

But there’s a large and growing exception to the generic trend: biotech. Biotech drugs are an expensive and rapidly growing component of drug spending and the trend is likely to continue.
It’s hard if not impossible to make exact copies of biotech drugs and there’s no clear regulatory framework for their approval. According to the Wall Street Journal (Democrats’ Rx? Generics):

Some biotech officials argue that generics makers will need to redo all the studies performed by the original manufacturer, in order to guarantee their copycat products are effective and safe for patients. That would likely eliminate much, or all, of the price advantage offered by the generics rivals. “There is no way to characterize a biological,” says James Greenwood, a former congressman who heads the Biotechnology Industry Organization, a trade group.

You should take the self-interested statements above with a grain of salt. Still it probably doesn’t make sense to apply the same generic model to the biotech industry, even though it’s worked well for traditional drugs. Instead I suggest the following:

  • Allow biotech drugs to be approved and marketed as they are now, without price regulation
  • After patent expiration or after a certain number of years on the market, regulate price. The price could be based on cost of goods, a percent of the previous selling price, or some other mechanism

This would avoid the costs and risks of biogeneric development and regulatory approval while delivering the benefits of lower costs to payers. The original maker of the product should be happy too. Although their price will be lower than it is today, they won’t have to share the market with generic players or spend money blocking the entry of new players. They will still enjoy a substantial period of high margin sales as they do today. It just won’t go on forever.

When, at some point in the future, science improves to the point where truly identical biogenerics can be developed, these rules could be revisited.

November 27, 2006

9 thoughts on “A better idea than biogenerics”

  1. While I understand a lot of the cost of traditional medication is the R&D – a large portion is also the advertising and the monopoly powers. Why do I state the obvious?

    Well, from my perspective, even if biogenerics cost a lot more than current generics (higher R&D costs for new manufacturers) there will still be an incentive to do that research (and theoretically R&D should be cheaper than a new technique because you know what the end result should be). Once someone overcomes the R&D they should be able to lower the market price by ending the monopoly, advertising less, and all the rest. Meaning that if the market is functional, biogenerics could still be a viable option.

    I am sure I am missing something, just food for thought.

  2. This is a great discussion topic and interesting proposals, but I actually don’t think either approach is really viable. As for the biogeneric approach, although the cost for R&D might be a bit less than that of the original manufacture, the risk is still very high and the clinical development program long. There is the very real possibility that the generic company will still not be able to show non-inferiority to the innovator product. Even if similar efficacy could be established the generic company will also have to demonstrate a similar safety profile. With biotech biologicals, product contaminants and lot variations (even within FDA standards) could produce potential side effect profile differences. You also have to consider how well you would be able to recruit patients for these studies. Why should patients participate in a long-term generic equivalence clinical outcomes study if the patient can already get what is likely a safe and efficacious breakthrough drug covered in large part by their health plan? If the generic company product is approved, marketing costs will likely go up as there is now competition. The generic company marketing costs will be substantial as they will have to show physicians more than that their product is just bioequivalent.

    With regard to a price regulation approach, I can’t see that “the original maker of the product should be happy too” either. After a company spends hundreds of millions of dollars at risk to produce a biotech drug for an unmet medical need, they’re more than likely to respond…bring it on, we’ll take our chances in a competitive market place.

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