Generic biologic drugs unlikely to be cheaper than brand-name drugs

May 2 2007

Generic versions of a class of medicines called "biologics" would not be significantly cheaper than brand-name versions of the medicines, according to research from professors at Duke University's Fuqua School of Business.

Biologics are drugs, vaccines and other medicines produced by living cells in controlled circumstances. The way they are made differs from traditional pharmaceutical drugs that are produced by industrial-scale chemistry.

Insulin is a common biologic prescribed to treat diabetes; other biologics treat arthritis, cancer and other diseases.

The Food and Drug Administration currently does not have a process for the review and approval of generic versions of biologic products, several of which are scheduled to lose their patent protection this year.

"Congress and the FDA are currently addressing this issue and developing a process for the oversight of generic biologics, partially in hopes of generating significant cost savings for consumers and insurers," said Kevin Schulman, a professor of medicine and business administration and director of Duke's Health Sector Management program.

"However, our research indicates that any savings to be expected from the addition of generic biologics to the marketplace will be significantly less than the savings generally available from generic pharmaceuticals," Schulman said.

The manufacture of biologics by living organisms through a process that resembles fermentation must be closely monitored to ensure that the final products meet quality and safety standards.

"Our calculations indicate that policy-makers should not assume significant price reductions from generic biologics," said Henry Grabowski, a professor of economics and director of Duke's Program in Pharmaceuticals and Health Economics. "If the discount is small, and patients are achieving good outcomes with the branded product, then generics might get only a small market share," Grabowski said.

The research team, which also included David Ridley, a professor in Duke's Fuqua School of Business, will publish the paper, "Entry and Competition in Generic Biologicals," in the journal Managerial and Decision Economics. The research was funded by Genentech, which produces biologics.

In order to predict prices of generic biologics, the researchers combined a theoretical model of generic biologics with historical data from the generic pharmaceutical market.

Generic pharmaceutical products are widely accepted as a less-expensive alternative to brand-name drugs. Companies are able to sell generics for less because they do not have to repeat the studies required to win initial approval from the FDA. If manufactured according to the standards set forth for the initial approval of the treatment, the generic product is assumed to have the same safety and efficacy profile as the branded version.

Because of their unique characteristics, however, generic biologics probably face higher clinical, manufacturing and marketing costs to enter the market, according to the researchers.

Another barrier for generic biologics is that they probably will not be approved by the FDA as therapeutically equivalent to the reference brand, the researchers said. Generic pharmaceuticals can be substituted for the brand name by a pharmacist under state substitution laws aimed at cutting prescription costs. But without equivalency, a physician would specifically have to prescribe the generic biologic.

In recent congressional testimony, Grabowski called for a 10-year period in which makers of generic biologics could not use data developed by makers of original products in marketing applications for generic biologics. Otherwise, generics potentially could enter the market before originators have earned a positive return on their sizeable investments in research and development, he said.

U.S. Rep. Henry Waxman, D-Calif., and U.S. Sens. Hillary Rodham Clinton, D-N.Y., and Charles Schumer, D-N.Y., have introduced legislation that would subsidize companies that produce generic biologics. But Duke's David Ridley says that even with such legislation, "prices might not fall enough to justify the cost to taxpayers of such a program."

"We understand the enthusiasm for lower prices for these biologics," he said. "But 'generic' is not necessarily synonymous with 'cheap.' Whether generic biologics have low prices will depend on how many generic biologic manufacturers enter the market."

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