Tag: Generic drugs

Biosimilars are "me-too" drugs, not generics

May 11th, 2016 by
Time to take off the blinders

Generic drugs are the biggest success story in healthcare cost containment. This great success has fooled policymakers, journalists, health plans and others into thinking that the same model will tame spending on biologic drugs the way it has for traditional, chemical based products.

The latest example can be found in the Wall Street Journal (Knockoffs of Biotech Drugs Bring Paltry Savings). The article blames the lack of savings on price increases by makers of the original products in the run-up to the introduction of competing products. That is happening, but it doesn’t get to the root cause of the situation.

The traditional generic market is about as close as the healthcare industry gets to economists’ fantasy world of perfect competition where there is no differentiation among products, there are a large number of producers, and buyers understand that the products are all the same. As a result, prices trend toward marginal cost and it is not uncommon to see price reductions of 90 percent or more. Sometimes it’s 99 percent.

Biotech is very different. The “generic” products are not generic at all, rather they are close but not exact copies that cannot be freely substituted for one another. The number of producers will be small because they must go through the expense of clinical trials. And if the companies are smart (they are) they will do their best to make sure buyers realize there are differences among the products. One clue is that the products are referred to as biosimilars not biogenerics.

As I’ve been writing for ten years, this doesn’t sound like the market for generic drugs. Rather it’s much more like the “me-too” phenomenon we saw in the 90s with blockbuster categories such as statins. When Lipitor came in as the fifth statin on the market it didn’t advertise itself as cheaper and undifferentiated. Rather it used clever trial design and sales and marketing tactics to climb to the top of the pile.

Why wouldn’t a biosimilar try the same approach if possible? So far new entrants are pricing themselves a bit lower than the original product but if they can come up with better data from a trial why not make the price higher instead?

If we take off our generics blinders we can come up with ways to control costs while encouraging innovation. Since 2006 (A better idea than biogenerics) I’ve suggested regulating the price of biotech drugs once their patents expire. I still think it’s a good idea.

Image courtesy of iosphere at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

Pfizer and Hospira: It's not about generics

February 6th, 2015 by
Did somebody say generic?
Did somebody say generic?

Leading newspapers, including the Wall St. Journal and New York Times, misunderstand the strategy behind Pfizer’s proposed purchase of Hospira. Here’s what the Journal had to say:

Pfizer Inc. said Thursday it would buy smaller rival Hospira Inc. in a $16 billion deal that would transform the New York pharmaceutical company into a leading player in the emerging market for lower-priced knockoffs of costly biotech drugs. …[B]ig drug companies like Pfizer are now borrowing from the playbooks of generic makers and developing copycat versions of each other’s biotech drugs.

Actually, no. What Pfizer is really doing is returning to the strategy that led to its Lipitor heyday: making “me-too” versions of existing drugs and differentiating them through marketing backed up by clinical research. This is not about intensive competition on pricing.

Generic drugs are considered equivalent to the brand name product. Pharmacists can and do substitute generic drugs for the branded original and for one another at will. A patient who receives a prescription for an off-patent drug like ZOCOR will find that the pharmacy automatically substitutes generic simvastatin from any one of the many manufacturers. When the patient goes back to refill the prescription they are likely to get simvastatin from a totally different manufacturer. Undifferentiated markets like this are driven by price competition, and prices are typically 90 to 99% less than the original.

Copies of biotech drugs –which are just starting to become available– are very different. They can not be substituted interchangeably by pharmacists because they differ at least subtly from the original product. An unsophisticated marketer might try to compete purely on price, offering a discount from the price of the original. That may happen –but we’re probably only talking about a 10-25% discount, not 90-99%.

A clever marketer like Pfizer is likely to take a much different approach. Lipitor wasn’t the first statin in the market. It wasn’t the second, third or fourth either. When it launched in 1997 there were already three blockbuster statins on the market. Payers liked the idea of having multiple parties with similar products to negotiate with, and they tried with a certain amount of success to generate competition based on price.

Yet Pfizer came in with an aggressive campaign to differentiate its product from the others and ended up being the biggest seller by far. To me the difference between the various biosimilar versions of a product is akin to the difference among the various statins.

Products that come later to market don’t have to compete on price if they can differentiate in some other way. I’d be shocked if Pfizer isn’t thinking this way about the Hospira deal.

photo credit: Sorry… what exactly is in this can again? via photopin (license)

By healthcare business consultant David E. Williams, president of Health Business Group.