Is Canada paying too much for generic biological drugs?

In an earlier article, we discussed the importance of post-patent competition in generating social value from the pharmaceutical market. Generic competition gives people access to less expensive drugs and allows society to recapture value from patent holders.

This topic is currently relevant because numerous major biopharmaceutical patents, including Remicade, Humira, and Lucentis, are set to expire in the next five years. Biopharmaceuticals, also called biologics, are the largest driver of drug spending in Canada– just these three drugs alone accounted for $1.5 billion CAD in pharmaceutical spending in 2013.

Patent expiry opens the biologics market to newfound competition and savings in the form of biosimilars or subsequent entry biologics (SEBs) – imitations of the original, patented biopharmaceuticals.

However, biosimilars are not merely generic versions of biopharmaceuticals and therefore pose a number of unique regulatory challenges. Unlike small-molecule drugs, complex biologics are incredibly sensitive to changes in production and replications are always marginally different from the reference drug they mimic – hence the term biosimilar, not biogeneric.

From a clinical and regulatory standpoint, small-molecule generics are considered interchangeable with their reference drug. This means they are therapeutically equivalent and can be safely substituted in clinical practice. As perfect substitutes, these generic medications compete with originator drugs based on cost, which drives down their prices.

In contrast, Health Canada does not make decisions regarding the interchangeability of a biosimilar with its reference drug. Where approved small-molecule generic drugs are automatically deemed interchangeable and can be substituted at the pharmacy level, approved biosimilars are not.

Physicians must use their own discretion when choosing to prescribe either branded biologics or biosimilars. But, the lack of regulatory guidance on interchangeability dissuades doctors from switching patients from branded biologics to biosimilars. Moreover, it encourages biosimilar manufacturers to compete based on minor differences in efficacy (differences firms say make their products “biobetters”) instead of cost to capture the interest of prescribing physicians.

The end result is that biosimilar drug markets do not possess the same level of competition or price discounts as generic markets. Not in Canada. And, for now at least, not in many places around the world.

Biosimilars are typically discounted between 15% and 30% from the cost of the reference drug. While Canadian prices for small-molecule generic drugs are relatively high by world standards, they can still be discounted by as much as 80% relative to the patented brands they copy.

Industry makes the argument that higher development and manufacturing costs of biosimilars justify these smaller discounts. In effect, manufacturers of biosimilars ague that they should be priced in ways comparable to patented brands because they are more like innovative new products than small-molecule generics.

Their argument is somewhat compelling. Steep regulatory hurdles and high manufacturing costs may create real barriers to affordable biosimilar pricing. But, we are not convinced these are the only, or the biggest, road blocks.

We believe there is an opportunity for competition to play a greater role in biosimilar markets and to facilitate far more affordable biologic pricing.

It is true that the costs for most biosimilars will be higher than costs for most small-molecule generics. But this does not mean that biosimilar markets should be exempt from the forces of price competition.

Patented drug products – including patented biologics – have markups on production costs that are in the order of hundreds, if not thousands of percent. That is, firms sell their drugs for many times the cost of production, not just a few percentage points above it.

So, if biosimilars were deemed interchangeable we should expect to see significant savings in the form of higher prescribing and greater discount rates.

Clinicians and regulators have understandable concerns that switching to and from a biosimilar could cause adverse immunological reactions for some patients. However, this risk may be more of a perception than reality. A 2012 review found that there is “no evidence from clinical trial data or past market surveillance data that switching to and from different biopharmaceuticals leads to safety concerns.”

The US has tried to address this issue in their Biologics Price Competition and Innovation Act of 2009, which creates a FDA regulatory pathway and guidelines for determining biosimilar interchangeability. However, this initiative is still in development and has yet to be finalized and tested.

Norway is taking an even greater leap towards a competitive biosimilars market by sponsoring a clinical trial on interchangeability known as NOR-SWITCH. The Norwegian Medicines Agency has contributed $20 million NOK ($3.2 million CAD) towards a clinical study examining the safety and efficacy of switching from Remicade to Remsima – a biosimilar with the same active ingredient (infliximab) as Remicade.

The Norwegian government sponsored their study because they saw it in their own national interest. But the rest of the world – which would include Canada – can benefit from the resulting information and improved prospect of interchangeability for at least one biosimilar. If the Norwegian experiment proves successful, funders of medicines worldwide might be advised to work together to plan and fund interchangeability studies needed to encourage multiple, proven competitors in the post-patent biopharmaceutical sector.

Regardless, Canadian health policymakers need to figure out what can be done to foster competition in the biosimilars market – the reward is certainly worth it.

Matthew Renwick is a Pharmaceutical Policy Analyst at the Centre for Health Service and Policy Research at the University of British Columbia. Steve Morgan is a professor at the University of British Columbia. Follow Steve on Twitter @SteveUBC