Biosimilar Disruption: Taking the Temperature of Drugmakers

We’re experiencing a period of extraordinary progress in medicine, marked by groundbreaking technologies and discoveries that offer hope for treating numerous debilitating diseases. Yet, the steep price of these treatments presents a significant barrier to access for many people.

A 2021 West Health-Gallup survey showed that nearly 30% of Americans put off or avoided medical care or buying a prescription in the past three months because they couldn’t afford it.¹ Lower-income individuals and women are notably more affected by this issue.

Biologics, complex molecules obtained from living organisms, are commonly administered by injections or infusions to treat various diseases like rheumatoid arthritis, diabetes and cancer. Their high annual costs of $10,000-$30,000 or more have caught the attention of lawmakers and regulators seeking to lower prices and improve access to these innovative treatments.²

One approach to cutting prices involves creating regulations that facilitate competition from biosimilars, which are similar but not identical to biologics. Despite their differences, biosimilars are just as effective and cheaper to develop.

This shift toward biosimilars is reshaping the pharmaceutical and biotechnology industries. While it may threaten large pharmaceutical companies focused on safeguarding their traditional products rather than innovating new medicines, smaller and more adaptable biotech firms with robust drug development capabilities benefit from a favorable regulatory environment.

Patent Protection and Drug Prices: Exploring the Impact on Pharmaceutical Innovation and Access

Pharmaceutical firms typically have exclusive rights or patents protecting their drugs for 12-20 years, depending on the type of drug. During this time, they can set higher prices to recover the substantial costs invested in the research and development needed to bring the drugs to market. These companies also use this period to heavily market their medications, aiming to establish them as the preferred choice of patients and doctors, especially as competition emerges.

For some treatments, competitors can copy a brand-name drug’s recipe exactly and bring generics to the marketplace when the patent expires. In the face of this competition, the brand-name drugmaker typically loses sales and must lower its prices as generics gain market share.

The situation differs for biologics, which have quickly grown to 40% of U.S. prescription drug spending.³ These drugs can’t be physically replicated, so there’s no generic option. After the 12-year exclusivity period for a biologic expires, biosimilars can enter the market as alternatives to the original biologics they reference. However, developing biosimilars involves navigating complex patent landscapes and potential legal challenges from originator companies.

Regulatory Influence on Biosimilar Adoption

Biosimilars got off to a slow start. The Biologics Pricing Competition and Innovation Act (BPCIA), part of the 2010 Affordable Care Act (ACA), set rules and created a period of exclusivity for biologics in the U.S. However, high research and development costs, uncertainty about the approval process and the threat of patent litigation meant that only one biosimilar was launched in the U.S. from 2010-2015.

After federal regulators clarified the rules, drugmakers were more comfortable investing in biologic alternatives, and the market for biosimilars in the U.S. began to take off.

Another critical step for the Food and Drug Administration (FDA) was to improve the understanding of biosimilar safety and effectiveness among patients, physicians and payors. Other components of the agency’s biosimilar action plan established a policy under which an interchangeable biosimilar product can be substituted for the original product without consulting the prescriber if state pharmacy laws allow the substitution.⁴

This move allowed insurance companies, which bear most medication costs, to designate biosimilar drugs as “preferred” medications or deny coverage for the original biologic drug when a biosimilar is available. For instance, CVS Health recently announced that it will remove AbbVie’s blockbuster rheumatoid arthritis drug Humira^® from some of its preferred drug lists and recommend biosimilar versions instead.⁵

These efforts paid off. In 2017, biosimilars rapidly gained market share as physicians, insurers and consumers grew comfortable using them. In recent years, the Biden administration has taken additional steps to clarify biosimilars’ standing in the marketplace and status relative to biologics.

In accordance with the Inflation Reduction Act, the U.S. government will begin negotiating pricing for 10 of the most expensive drugs covered by Medicare starting in 2026. More drugs will be added to the list each year. However, prices on biologics with biosimilars on the market will be excluded from these negotiations. This exclusion also applies to other drug classes with generic alternatives and those intended for treating rare diseases.

Further, while certain drugs are protected from Medicare price negotiations for nine years after their approval, biologic drugs enjoy protection for 13 years. Drugmakers may be more likely to steer investment toward biologics and biosimilars to avoid becoming targets of Medicare negotiations.

Drugmakers’ Response: If You Can’t Beat Them, Join Them

Many leading biologic manufacturers are now developing biosimilars to compete with their rivals’ products, suggesting that biosimilars are here to stay.

In the U.S., there are currently 45 approved biosimilars based on 15 brand-name biologics, with over 100 additional biosimilars in various stages of development.⁶ Patients greatly benefit from these powerful drugs in terms of cost savings and access. Indeed, the Association for Accessible Medicines estimates that biosimilars have saved consumers nearly $24 billion since 2015.⁷ The trade association notes that when biosimilars were introduced to the market, their prices were about 50% less than those of the reference drugs.

On the other hand, companies that develop biologics employ different strategies when their exclusivity period expires and biosimilars enter the market.

AbbVie Delayed but Couldn’t Prevent Competition for Humira

In early 2023, Amgen’s Amjevita™ became the first biosimilar based on AbbVie’s Humira to enter the U.S. market. Humira held the title of the world’s top-selling prescription drug (excluding COVID-19 vaccines and medications) for years, achieving a record $21 billion in sales in 2022.⁸

To prepare for competition, AbbVie established a patent “thicket” for Humira by filing over 250 patents related to the drug, with half of them filed after the drug’s exclusivity period had ended.⁹ In addition, the company initiated lawsuits to delay the entry of Humira biosimilars into the market until 2023.¹⁰

The result of this action pushed off biosimilar competition for several years. However, it also drew the attention of Congress and the Federal Trade Commission, which is now scrutinizing this practice.

In 2023, new biosimilars came to market priced 5% to 81% below Humira’s roughly $7,000-per-month list price.¹¹ AbbVie expected this competition to result in a 37% decline in Humira sales.¹²

Roche Overestimated Loyalty to Its Brand-Name Drugs

Or look at Roche’s oncology drugs Herceptin^®, Avastin^® and Rituxan^®, which typically generated about $21 billion in combined sales before biosimilars hit the market.¹³ Pfizer and Amgen have launched biosimilars that compete with all three, while Teva Pharmaceuticals, Viatris and Merck are also contenders in this market.

Roche believed its brand name would represent significant value for oncology drugs and initially refused to compete on price. However, Roche appears to have underestimated payers’ and providers’ willingness to accept biosimilars. Within a year of the biosimilars’ launch, Roche saw market share erode and cut prices on all three of its products.

USC Center for Health Policy and Economics research investigated the impact of biosimilars on Herceptin three years after biosimilar entry into the market. The study’s authors concluded that the market for Herceptin “displayed important hallmarks of competition: doctors could choose among six products; new entrants rapidly captured market share from the originator [Herceptin]; and prices steadily declined on all six options. Prices of some versions declined by more than half, and the originator lost half of the market.”¹⁴

What’s Next for the Biosimilars Market?

Moving ahead, we expect biosimilars to continue to capture market share with an entire pipeline of new offerings over the next few years. In the U.S., biosimilars are expected to result in savings of as much as $181 billion over the five years from 2023-2027.¹⁵ This projection represents a substantial increase compared to the savings observed in the previous five years. The estimate is grounded on the anticipated launches of newly approved biosimilars and the ongoing uptake and price reductions of existing biosimilars.

These shifts directly challenge the earnings of companies producing well-established brand-name drugs. Besides developing and introducing new medications, the success of pharmaceutical companies will hinge on effectively handling the shrinking profit margins of their flagship drugs. But these conditions also create opportunities for agile companies that can adapt to these changes.