Association for Public Policy Analysis & Management

Research Objective: Biosimilars are biologic drugs that are very similar to already approved “reference” biologics in terms of potency, safety, and efficacy, but manufactured by different companies. The Biologics Price Competition and Innovation Act, enacted as part of the Affordable Care Act, authorized a new FDA regulatory approval pathway for biosimilars with the goal of introducing price competition among often-expensive biologics. We report utilization and spending trends to date with the first marketed biosimilar in the United States and estimate potential future savings from biosimilars in the United States.

Methods: We developed a model to estimate 10-year spending on biologics with and without biosimilar competition as a function of biosimilar prices (relative to reference biologics), biosimilar market share, the probability of biosimilar entry over time, and baseline market growth. Parameter values were informed by a literature review, our analysis of US utilization and spending trends for the filgrastim market where there is already biosimilar competition, and our expert opinion. We used a range of transparent parameter values in order to present a range of savings estimates including upper and lower bound estimates. Our estimates include on the direct savings from spending on biologics and do not account for increased spending due to higher utilization of lower-cost biosimilars or downstream health or spending implications of higher treatment rates. We also conducted a qualitative review of published studies on biosimilar cost savings to identify potential drivers of savings other than the parameters included in our model.

Data: Our baseline data were from IMS Health and included product-level 2016 data for over 100 biologic active ingredients, including all biologics with sales over $1 billion. We excluded filgrastim from our estimate because this market is already experiencing competition from biosimilars. We used different assumptions for insulin and human growth hormone products because there are already multiple competing products in these markets.

Results: Under our baseline assumptions, we calculate potential direct cost savings of $54.0 billion over ten years or about 2.8% of total biologic sales over the same period. Lower and upper-bound sets of parameter values yield ten-year cost saving estimates of $24 and $150 billion, respectively. In sensitivity analyses, using the baseline assumptions but reducing entry probabilities by 25% decreases ten-year cost savings to $40.5 billion, while 25%–higher entry probabilities increases ten-year cost savings to $67.5 billion. Future savings from biosimilars hinge on developments related to intellectual property, regulation, payment, and clinical practice, all of which will affect biosimilar entry, uptake, and price.

Conclusions: We estimated savings from biosimilars over ten years of $54.0 billion, although this represents only 2.8% of total biologic sales over this period. There are many ongoing sources of uncertainty that could affect actual savings as the U.S. biosimilars market continues to evolve. Our estimate suggests biosimilars may offer public and private payers some modest relief from rapidly increasing spending on biologics and other specialty drugs. Public policies and private-sector strategies to promote price competition will, based on our model and estimates, increase savings and should be considered.