Biosimilars are not generics

The Wall Street Journal (Big Pharma's Unfamiliar Biosimilar Threat) warns us that pharmaceutical companies are overvalued because investors have not realized that copy-cat versions of biotech drugs, aka "biosimilars" will hurt profits substantially. It's not an unreasonable assertion.And yet, the Journal follows with a common but false explanation of what biosimilars are:

"Biosimilars are analogous to generic versions of traditional small-molecule pharmaceuticals."

Actually they are quite different. Generic versions of traditional drugs like Lipitor are meant to be exact copies of the original. That means pharmacists can --and generally must-- automatically substitute generic atorvastatin for brand name Lipitor. There is no differentiation for generic makers of atorvastatin --you won't see them advertising on TV or sending reps into doctors offices. Instead, they compete on price. When a traditional drug goes generic, sales of the branded product plummet, and once several generics hit the market they typically sell for less than 10 percent of the original price.Biosimilars are not exact copies of the original biotech drug --that would be too difficult to achieve. Instead, they are "similar" products that have to be tested on patients before they can be approved. Once approved, they will have to be marketed to get physicians to prescribe them. A pharmacist can not simply substitute a biosimilar for the original product. The relatively high cost of biosimilar development means we can expect fewer competitors, more differentiation, and substantial sales and marketing efforts.Those characteristics make biosimilars much more like the me-too versions of traditional drugs, where a variety of similar drugs appear in one class. Think statins: Lipitor itself was a me-too product, the fifth statin on the market after Mevacor, Zocor, Lescol and Pravachol. But Lipitor didn't compete on price. Instead Pfizer leveraged superior marketing and clever clinical trial designs to differentiate itself.I expect biosimilar makers to try the same kinds of tactics as the me-too drugs of yore. As I've written, Pfizer itself is getting into the act  (see Pfizer and Hospira: It's not about generics.) "Experts" expect biosimilars to cost 20-30 percent less than the original. Some more aggressive analysts say 40-50 percent less. We'll see a range, but I'm willing to bet someone will try to price the same or higher based on a differentiated claim.The market won't play out exactly the same way as me-too drugs because:

• Health plans and pharmacy benefit managers are on to the drug industry's games and will be more aggressive
• The market for biotech products is more specialized; drug companies can't expand the number of patients so dramatically as they did by marketing products for common conditions
• The products are very pricey, leading to unsustainable increases in treatment costs. Consumers, policy makers and doctors understand this and have incentives to do something about it by pushing prices down

Image courtesy of Supertrooper at FreeDigitalPhotos.net—By healthcare business consultant David E. Williams, president of Health Business Group.