Merck has made a wise decision to pursue the development of generic biologic drugs. (See Merck Restructuring Puts a Focus on Generic Drugs.) Merck and its traditional big pharma rivals are suffering because they’ve failed to develop novel chemistry-based products and because their existing products face generic competition. Although the biotech sector has not been stellar, at least biotech companies are still developing and launching innovative products. Meanwhile, the generic biotech market doesn’t really exist yet (except a bit in Europe).
As the market has shifted, biotech products are taking up a higher and higher share of total drug spend. Individual biotech products can be frightfully expensive: often tens or even hundreds of thousands of dollars per year per patient. And unlike with chemistry-based drugs, there’s no relief valve of generic competition to drive prices down 30, 50, or 90 percent. The biotech industry has been around for a couple of decades now, so products are going off patent but maintaining their monopoly.
From a policymaker’s standpoint, the time would appear to be ripe for bio-generics. After all, the Hatch-Waxman Act, which created a pathway for generic drugs, led to a vibrant generic industry and affordable drug prices. Why not do the same thing with biologicals? Merck and others are banking on action from Congress that will enable a bio-generic industry to form. It’s a good bet.
But as I’ve written before (Paradox or Idiocy?), bio-generics are a bad idea. Generic versions of drugs like Zocor can be substituted directly by pharmacists. If the doctor writes “Zocor” the pharmacy can (and often is mandated to) fill the prescription with generic simvastatin instead. Generic companies sell based on price, which drives prices way down once a few companies reach the market. Generic companies just have to show their drugs are chemically the same –they don’t have to conduct clinical trials.
That’s not how it’s likely to work for bio-generics. These products will be considered “bio-similars,” not directly substitutable by pharmacists. That’s because biologics are much more complex to manufacture, and it’s very difficult to make an exact match. Companies will also have to perform some clinical trials on human patients in order to get approval. If you think about it, this is really much more similar to the traditional big pharma model than it is to the generic market. And the result will probably be like the big pharma model, too, not the generic market.
Back in the day when the pharmaceutical industry was launching new classes of drugs, every big pharma would rush to develop a “me too” product in the same class. The drugs were similar, but not directly substitutable. The statin class is a good example: Mevacor came out first, followed by many others including Zocor, Lipitor, Lescol, Pravachol and Crestor. Companies spent serious money to persuade physicians and payers to cover these products. Each company looked for ways to position its product slightly differently to emphasize the real and imagined distinctions among the products. This included large sales forces, follow-up clinical studies, direct to consumer marketing and other big pharma activities. You can be sure prices didn’t fall as a result of all the statins reaching the market!
Merck is probably counting on developing the same model in biologics. The company plans to bring to market a competitor to Amgen’s Aranesp, but I’ll bet you they won’t position the product as “generic Aransep.” Instead they’ll emphasize subtle differences in the product to pitch it as an alternative therapy. They’ll deploy a salesforce that visits physicians and will look to expand the overall market. Maybe they’ll price the product somewhat lower than Aranesp. Then again, maybe they won’t.
If policymakers want to control the cost of biologics, there’s a much simpler and easier way. Simply regulate the price of biologics once their patents expire. That would have several advantages:
- Guaranteed lower pricing and certainty about when lower pricing will be available
- No need to subject patients to the hazards of clinical trials
- No need for FDA to stretch itself further monitoring new biologics manufacturing facilities –which are notoriously difficult to run well
It wouldn’t even be that bad for biologics companies. They’d already have earned their profits during the patented life of the product, and would retain 100 percent market share post-patent expiration. They can’t really complain about the government interfering with the free market, considering that patents are granted by the government in the first place.
The only real losers in this plan would be generic biologics companies. Since the industry doesn’t even really exist yet, now is a good time to implement my scheme.December 10, 2008