The Market for Follow-On Biologics
- Presenter:
Chair: Richard Frank; Discussant: Francesco Mennini Tue June 6, 2006 13:45-15:15 Room 309
The Food and Drug Administration is examining whether biologics can and should be treated like pharmaceuticals with regard to generics. Follow-on biologics differ from generic pharmaceuticals in that equivalence of safety and efficacy is more challenging to demonstrate. Because of these differences, generic biologics are often referred to as “follow-on biologics.” The focus of the debate on follow-on biologics has been on legal and health concerns, but there are important economic questions. How will differences in development and manufacturing costs and associated regulations affect the market for follow-on biologics? Will follow-on biologics be as competitive and provide the substantial financial savings provided by generic pharmaceuticals?
Generic pharmaceuticals provide a substantial price discount over branded products. Nevertheless, it is not the mere presence of a generic product in the market but competition between multiple firms that results in aggressive price competition and discounting. To assess the potential economic advantages to consumers from follow-on biologic products we must assess the potential for firm entry into this new market and whether competition among manufacturers of follow-on biologics is likely to be as vigorous as that of manufacturers of generic pharmaceuticals.
We analyze market entry and prices for follow-on biologics in the United States using four analogs. First, we analyze the U.S. market for generic pharmaceuticals. We report estimates of the number of generic competitors as a function of expected returns. We then report estimates of relative generic prices as a function of the number of generic competitors. We use IMS Health’s Generic Spectra data. Second, we analyze the U.S. market for human growth hormone (HGH). In this market some patents have expired and there are multiple competitors, but none of the products entered through an abbreviated process bypassing clinical trials. We will use price data on the HGH market from Drug Topics Redbook. Third, while there are no generic biologics yet sold in the U.S., Australia became the first regulated market to approve a generic biologic. We will analyze price data for Omnitrope, a generic biologic human growth hormone approved by the Australian Therapeutic Goods Administration in October 2004. Fourth, we will report prices of biologics in emerging markets such as Brazil, China, India, and Mexico to provide insight on manufacturing costs and generic competition.
Given uncertainty about the market for follow-on biologics, it is challenging to accurately predict how the market will evolve. Nevertheless, these four analogs can provide a better understanding of the likely market for follow-on biologics. Policy makers should be cautious in projecting large financial benefits for follow-on biologics for consumers and payers based on the experiences of generic pharmaceuticals. They need to consider how follow-on biologics will differ in terms of economics as well as scientific and regulatory factors.
