Cheaper versions of the most expensive drugs may be coming, but monopolies will likely remain

In May, the Food and Drug Administration issued much-anticipated guidance that could revolutionize the pricing of some of the most expensive drugs on the market in the U.S. and, possibly, globally.

In this document, the FDA explains to drug manufacturers how to develop their own copycat versions of a special class of drugs called biologics. Unlike most drugs, biologics are not chemically synthesized but are made, for the most part, inside living organisms. This makes them complicated to manufacture and tricky to imitate.

The FDA’s new guidance will allow drug manufacturers to create their own cheaper versions of biologics that could be automatically substituted for one another, including by pharmacists. Just as happened with “generic” drugs, bringing competition into biologics markets will, hopefully, lower the prices of these medicines. But, it is unclear by how much or whether the guidance will do so for all biologics.

As a legal researcher specializing in the regulation of novel biotechnologies, I have been following efforts over the last 10 to 12 years to bring competition into biologics markets in the United States. So, I am excited to see how the FDA’s new guidance affects competition in biologics and whether it ultimately increases patient access to these drugs.

Why are biologics so expensive?

Following the maturation of recombinant DNA technology in the 1970s, biologics have been emerging as a prominent class of pharmaceuticals. To illustrate, seven out of the 10 best-selling pharmaceuticals in 2018 were biologics, including Humira, Opdivo, Keytruda, Enbrel, Herceptin, Avastin and Rituxan. The world’s best selling pharmaceutical, Humira, which is prescribed for a variety of autoimmune diseases, including rheumatoid arthritis, Crohn’s disease, ulcerative colitis, psoriasis and juvenile idiopathic arthritis, brought in nearly US$20 billion in worldwide sales last year.

The growing importance of biologics is due, in large part, to their remarkable therapeutic qualities. Biologics provide treatment and sometimes even a cure for some of the most devastating and often previously untreatable illnesses, including numerous types of cancer, autoimmune diseases such as arthritis, Crohn’s disease and psoriasis, some forms of blindness and more.

But biologics are also very expensive, typically costing in the range of many tens of thousands to hundreds of thousands of dollars a year. In a few cases of biologics indicated for the treatment of rare diseases such as neuronal ceroid lipofuscinosis type II or Batten disease and spinal muscular atrophy the price comes closer to a million dollars per treatment year. As a result, although biologics account for only about 1 to 2% of prescriptions written in the United States, they are responsible for more than 30% of the spending on pharmaceuticals overall and their “share” in pharmaceutical spending only continues to grow.

The high price of biologics is partly due to the costly manufacturing facilities and the large investment in research and development necessary in order to take biologics through clinical trials and FDA approval processes. In 2009, the R&D cost for a copycat biologic was estimated at between $100–200 million. Conducting the research and clinical trials necessary to develop a new biologic is estimated to cost in the range of hundreds of millions dollars for a typical biological product.

But the primary reason biologics prices are so steep is that the manufacturers of these drugs enjoy a monopoly and are able to keep their prices very high for a very long time.

The reason most pharmaceutical companies have monopolies on biologics is that these products are structurally and chemically complex. It is very difficult and sometimes even impossible – at least using current technologies – to know their exact structure and composition. This, in turn, makes it difficult to produce identical or near-identical replicas of biologics, which is what generics drugs are. This is why there are no generic biologics on the market. But that might soon change.

FDA guidance could make biologics cheaper

Congress has long recognized that the best way to lower the prices of expensive pharmaceutical products is through competition. That was the rationale behind the enactment of the Hatch-Waxman Act in 1984, which created a legal pathway for approval of imitation or “generic” versions of pharmaceuticals.