Economic Analysis of Availability of Follow-on Protein Products. Estimate of Cost Savings Associated with FoPPs

07/27/2009

1. Parameter Estimates

a. Base-case Estimates of Number of FoPP Entrants into Biologic Product Markets

The baseline estimates of the number of initial FoPP entrants range between 0 and 3, as shown in Table 3. The base-case analysis holds the initial number of entrants constant over the duration of the model.

 

Table 3: Base-case Estimate of Number of FoPP Entrants
Number of entrants: 2009-2019
Year Procrit/ Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys 
2009 0 0 0 0 0 0 0 0 0 0
2010 0 0 0 0 0 0 0 0 0 0
2011 0 0 0 0 0 0 0 0 0 0
2012 0 0 0 0 2 0 0 0 0 0
2013 3 0 0 0 2 0 2 0 2 0
2014 3 0 0 0 2 2 2 2 2 0
2015 3 1 2 0 2 2 2 2 2 0
2016 3 1 2 0 2 2 2 2 2 0
2017 3 1 2 3 2 2 2 2 2 0
2018 3 1 2 3 2 2 2 2 2 0
2019 3 1 2 3 2 2 2 2 2 0

 

Originator product markets are assumed to be closed to entry until expiry of both the patent protection period and data exclusivity period (Table 4), with FoPP entry in prior years assumed to equal zero.

Table 4: Estimation of Date of Market Opening to FoPP Entry
Product Characteristics: Market Launch and Patent Protection
  Procrit/Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
Year of Market Launch 1990 1998 1997 2004 1998 1998 1996 2002 1991 2002
Initial indication Anemia Breast Cancer Non-Hodgkin's Lymphoma Colorectal Cancer Rheumatoid Arthritis Crohn's Disease Multiple Sclerosis Multiple Sclerosis Neutropenia Hepatits C
Year of Effective Patent Expiry 2013 2015 2015 2017 2012 2014 2013 2013 2013 2017
 
Product Characteristics: Data Exclusivity Coverage
  Procrit/ Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
Data Exclusivity Period 12 12 12 12 12 12 12 12 12 12
Year of Data Exclusivity Expiry 2002 2010 2009 2016 2010 2010 2008 2014 2003 2014

Market first open to FoPP entry
  Procrit/ Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
Market first open to FoPP entry 2013 2015 2015 2017 2012 2014 2013 2014 2013 2017

Our approach draws from and adapts experience gained from the small molecule market. Following the opening of the market to competition, the initial number of FoPP entrants is estimated using Equation 1; derived following Grabowski et al. (2007) and Anderson, Palma and Thisse (1992). The starting point is the entry equation described by Grabowski et al. (2007), which is then adjusted to account for the need for the entry elasticity for FoPPs to reflect that FoPPs are likely to be more differentiated than small-molecule generics and that price-cost margins for biologic drugs are likely to differ from those of small-molecule drugs. In addition, the functional form of the entry equation is changed to prevent the prediction of negative entrants. The derivation of Equation 1 is detailed in Appendix A, Memo on Entry Modeling.

The estimation of the number of FoPP entrants proceeds in two steps. First, we estimate the number of generic entrants expected to enter a standard small molecule market equivalent in size to the biologic market of interest as measured by market revenue (the first term on the RHS of Equation 1). This number is then adjusted for differences between the markets for biologic drugs and small molecules, particularly higher price-cost margins and higher fixed costs of entry.

Equation 1

NFoPP = NSM (PCMFoPP / PCMSM * FCFoPP / FCSM)η

Where:

         Description

Outcome:

NFoPP                              number of FoPP entrants into biologic market in first year market open

Inputs:

NSM                                 number of entrants into small molecule market of equivalent size (in revenue)

PCMFoPP / PCMSM         relative price-cost margin for FoPP drug versus originator biologic

FCFoPP / FCSM                relative fixed costs of entry for FoPP

η                                       elasticity of market entry w.r.t. fixed costs of entry, price-cost margins, and market revenue

Parameter Inputs:

NSM :                               number of entrants into small molecule market of equivalent size (in revenue)

                                        estimation based on first stage equation from Grabowski (2007) study predicting number of entrants
                                        into equivalent small molecule market:

                                        Equation 2

                                        NSM = exp [0.07 + (0.36) *1n (MktSze) ]

MktSze :                         Projected US market in year in which market opens to entry (YOFE), measured by revenue in US$2000 (Table F-5).

          • 2007 US market revenue from company annual reports
          • Predicted growth in US market revenue from market research
          • Projections of average growth in market revenue (sales) over period 2007-2012[127] assumed to apply to period 2012-2019
          • Market revenue in YOFE deflated to US$2000 using estimated Pharmaceutical PPI deflator of 4.38% per annum based on compound annual growth                    rate (CAGR) of 2007-2000 Pharmaceutical PPI[128]

Table F-5: Estimating Market Size (revenue in US$mn)

Market Revenue of Branded Drug (US$mn)
  Procrit/ Epogen  Herceptin  Rituxan Avastin  Enbrel Remicade Avonex  Rebif  Neupogen Pegasys
Mkt Revenue (US$mn) , 2007 $4,179 $1,506 $2,787 $2,695 $3,052 $2,534 $1,090 $625 $861 $388
Avg. YOY Change in Rev. 0.5% 5.0% 9.0% 19.0% 10.0% 8.0% 6.6% 18.0% 1.7% -7.0%
Avg. YOY Change in Price -1.3% 3.7% 4.8% 0.2% 4.7% 1.3% 10.9% 10.9% 3.6% -3.5%
Avg. YOY Change in Util. 1.8% 1.3% 4.0% 18.7% 5.1% 6.6% -3.9% 6.4% -1.8% -3.6%

YOY=year on year (annual change)

Projected Mkt Revenue , 2009 $4,221 $1,660 $3,311 $3,816 $3,693 $2,956 $1,239 $870 $891 $336
Projected Mkt Revenue in YOFE $4,306 $2,225 $5,553 $15,347 $4,915 $4,343 $1,599 $1,991 $953 $188

 

PCMFoPP/ PCMSM :            Relative price-cost margin (average mark-up) estimated from:
                                             percentage gross margisn = (sales — cost of sales)/sales

                                            Default value of 1.13 from:

    • PCMFoPP = 0.87 from representative major biologic manufacturer[12
    • PCMSM = 0.77 from a representative major pharmaceutical company that specializes in small-molecule drugs[130]

 

PCMFoPP/ PCMSM :         Relative fixed costs of entry as a follow-on competitor into a small molecule market versus biologic market
                                         (Table F-7).
                                          Relative price-cost margin (average mark-up) estimated from:

                                          Due to lack of appropriate data, this parameter is not estimated directly. Instead, an indirect method is used that
                                          relies in part on calibration. First, anchor  fixed-cost ratios are estimated by calibrating the FC ratio for products
                                          to values that produce estimated numbers of entrants that have face validity. We chose the EPO products and
                                          Neupogen as our anchor products as both have seen actual entrance attempts in the EU. Thus the model is
                                          calibrated so that the FC anchor estimate for Procrit®/Epogen® and Neupogen®, produces an estimate of two
                                          entrants for each product, in line with actual FoPP entrant attempts for the EU market.[131]

                                          The choice of the market size that is used in the calibration exercise depends on the manner in which the entry
                                          question facing the manufacturer in the EU is conceptualized. If the entry decision assumes that the sole source
                                          of revenue available to the EU manufacturer following the decision to develop a FoPP will be the FoPP market,
                                          then the EU market size should be used in the calibration. If however, the manufacturer has reason to believe
                                          that additional sources of revenues will be available─i.e., the EU entry can be leveraged with appropriate, and
                                          potentially minimal additional investment into an application for the ex-EU market─then the larger market size
                                          should be used in the calibration. The "true" scenario very likely lies somewhere along this continuum.

                                          The choice of the market size that is used in the calibration is, therefore, not a simple one, and we conduct the
                                          calibration exercise under two scenarios. The first calibration uses an estimate of the market size in the EU alone
                                          (US$1,195 for Procrit/Eprex and US$416 for Neupogen),[132] consistent with the first scenario discussed
                                          above. The second scenario uses an estimate of the global market size, consistent with the second scenario
                                          discussed above (US$5,374 for Procrit/Eprex and US$1,277 for Neupogen).[133]

        

Table 2. Calibrations of Relative Fixed Costs of Entry between Biologic and Small-Molecule Markets

Pair of Calibrated Relative FC values

  Procrit/Epogen Neupogen
Scenario 1: EU Market >8 >6.5
Scenario 2: Global Market >12.3 >10.8
Mid-Point >10.2 >8.7

                                          As the relevant entry decision probably lies somewhere between these two hypothesized extremes, we use
                                          the mid-point of the range in FC estimates (10.2 for EPOs, and 8.7 for Neupogen) in base-case analyses.
                                          These analyses are subject to extensive sensitivity analyses which are discussed in Section 6.1.2.

                                          Estimates of the relative FC of entry parameter for the remaining biologic product markets are calculated,
                                          relative to the EPO value of 10.2, by linking differences in the complexity of molecule structure to likely
                                          differences in regulatory requirements for clinical evidence (Table F-6). These are based in part on the following
                                          EMEA guidance and estimates of the cost of clinical trials in this population of $25,000 per patient, as follows:

          • For somatropins: one "adequately powered, randomised, parallel group clinical trial"; 12-months immunogenicity data[134]
          • For erythropoietins: two "adequately powered, randomised, parallel group clinical trials"; safety data from 300 patients;
            12-months immunogenicity data[135]
          • For interferon alphas: "a randomised, parallel group comparison against the reference product"[136]
          • For granulocyte stimulating factors: a "two-arm comparability study in chemotherapy regimens with known frequency and
            duration of severe neutropenia"; at least 6 months safety data from a number "sufficient for the evaluation of the adverse effects"[137]
    •                       We propose a four-category classification, with the "very high" category intended to approximate a full-blown phase III trial.
                             These categories, with associated estimated costs are shown in Table 3 below.
Table 3. Estimated Costs of Satisfying Clinical Trial Requirements for FoPP Approval
Clinical Requirement Number of Patients Approximate cost
Low 150 $3.75mn
Medium 300 $7.5mn
High 600 $15mn
Very High 900 $22.5mn

                                          Erythropoietins are regarded as having "medium" regulatory requirements. These differences in expected clinical trial costs
                                          are combined with an estimate of the cost of entering the small-molecule market of $2.5mn to estimate the relative FC of
                                          entry for products with a Low, High and V. High regulatory requirement. The resulting estimates of relative FC range
                                          between 8.7 and 16.2 (Table F-7).
 

Table F-6: Categories of Likely Regulatory Clinical Requirements
 
Clinical trial costs
1= Low
2= Medium
3= High
4= V. High

 

Clinical Trial Costs
  Procrit/ Epogen  Herceptin  Rituxan Avastin  Enbrel Remicade Avonex  Rebif  Neupogen Pegasys
1=Low
2=Medium
3=High
4=V. High
2 4 4 4 3 4 1 1 1 3

 

 

Table F-7: Base-case Estimate of Relative Ratio of Fixed Cost of Entry for Follow-on Producers into Biologic versus Small Molecule Market[138]

 

Estimated relative fixed costs of market entry
  Procrit/ Epogen  Herceptin  Rituxan Avastin  Enbrel Remicade Avonex  Rebif  Neupogen Pegasys
Relative FC of entry:
Biologic/Small Mol.
10.20 16.20 16.20 16.20 13.20 16.20 8.70 8.70 8.70 13.20

 

Parameter Inputs:

η :                                   Elasticity of entry for biologic market w.r.t. innovator market size, innovator PCM, and innovator FC (see Appendix A):

                                        Equation 3

                                        η = 1/1+ γ + δ ≈ 0.79

                           Where:

                            γ: entry elasticity of PCM

                            δ: entry elasticity of revenue

γ :                                  Entry elasticity of PCM; calculated as:

                                       γ = entry elasticity of price * price elasticity of PCM
                                       γ = {0.36} * {(1-0.87)/0.87} = 0.054

        • In Grabowski (2007), entry elasticity of price is ~0.72; we discount this by half to account for greater differentiation in FoPP market, i.e., to 0.36
        • Price elasticity of PCM = (1-PCM)/(PCM); PCM in biologic market assumed to be 0.87; based on financial reports of pharmaceutical companies that specialize in biologic

δ :                                  entry elasticity of revenue; calculated as:

                                       δ =the entry elasticity of price * the price elasticity of revenue

                                       δ = 0.36 * 0.6 = 0.216

          • Entry elasticity of price assumed to be 0.36
          • Price elasticity of revenue = 1 — price elasticity of demand; from literature, price elasticity of demand assumed to be 0.4[13

Under these assumptions, our estimates of initial FoPP entrants range between 0 and 2 entrants for the markets under consideration (Table F-8). The model predicts zero entrants for Pegasys®, primarily because this market is forecast to decline in size. Currently, only one entrant is estimated for Herceptin® as well, although the key factor here is the complexity of the molecule and correspondingly high fixed cost of entry. In contrast, the model predicts two entrants into each of the interferon alpha markets, which is one more than the EU experience of a single application for FOPP entry into the interferon market; this was Alpheon (BioPartners), which referenced Roche's Roferon-A, which subsequently received a negative opinion from the Committee on Medicinal Products for Human Use.

Table F-8: Base-case Estimate of Number of FoPP Entrants
 
Input Parameters for Estimates of FoPP Entry
  Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
Year of first entry (YOFE) 2013 2015 2015 2017 2012 2014 2013 2014 2013 2017
Market rev. ($mn), YOFE $4,306 $2,225 $5,553 $15,347 $4,915 $4,343 $1,599 $1,991 $953 $188
Relative Fixed Costs of Entry 10.20 16.20 16.20 16.20 13.20 16.20 8.70 8.70 8.70 13.20
Elasticity of market entry 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79

 

Number of entrants - YOFE
  Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
Predicted # entrants, YOFE     3 1 2 3 2 2 2 2 2 0
 
YOFE=Year of first entry

b.       2 Base-case Estimates Brand and FoPP Prices, Pre- and Post- FoPP Entry

Price calculations are based on defined daily doses as described in Figure 9. Base-case estimates of price discounts are a function of the estimated number of FoPP entrants and range between 12% and 20% for the markets with a positive number

Table F-9: Defined Daily Doses

Daily Doses (DDs)
Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
1000 units 20.8mg 71.4mg 25mg 7mg 3.75mg 4.3mcg 4.3mcg 0.35mg 26 mcg
YOFE=Year of first entry

'World without' Parameter Inputs

    PbrandWWO :                        Price of the branded drug/daily dose in absence of FoPP entrants (Table F-10)

            • Derived from average sales price (ASP) data reported by CMS in the January 2008 "Payment Allowance Limits for Medicare Part B Drugs" series.
              • Prices for public payers set to ASP+6%, consistent with Medicare payment allowances
              • Prices for private payers set to ASP

    InflbrandWWO :                        Inflation rate of the branded drug/ daily dose in absence of FoPP entrants (Table F-10)

              • Estimate based on 3-year CAGR from ASP+6% reimbursement data published by CMS in the January 2008 "Payment Allowance Limits for Medicare Part B Drugs" series.
              • Inflation rate assumed to remain constant over duration of the mode
    Table F-10: Brand Prices in Absence of FoPP Entrants

    Daily Doses (DDs)

      Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
      1000 units 20.8mg 71.4mg
    25mg
    7mg 3.75mg 4.3mcg 4.3mcg 0.35mg 26 mcg

     

    Brand Price ($/daily dose) Prior to FoPP Entry
      Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
    Brand price inflation  -1.29%    3.66%    4.79%    0.22%    4.66%    1.31%    10.92%    10.92%    3.61%    -3.50%  
     
    2007 ($/DDs) - ASP $ 8.45 $ 115.81 $ 342.76 $ 135.52 $ 44.58 $ 19.53 $ 45.10 $ 45.10 $ 210.08 $ 58.39
    2009 ($/DDs) - ASP $ 8.24 $ 124.44 $ 376.41 $ 136.13 $ 48.83 $ 20.04 $ 55.49 $ 55.49 $ 225.52 $ 54.37
    2019 ($/DDs) - ASP $ 7.23 $ 178.23 $ 601.16 $ 139.21 $ 77.04 $ 22.83 $ 156.38 $ 156.38 $ 321.57 $ 38.08

    'World with' Parameter Inputs

    InflbrandWW :                        Inflation rate of the branded drug/daily dose in presence of FoPP entrants (Table F-11)

              • Brand price assumed to continue to rise after FoPP entry, albeit at a slower rate
              • InflbrandWW = 0.95 * InflbrandWWO; based on Bhattacharya and Vogt (2003)
              • The rate of brand price inflation changes post-FoPP entry is not dependent on the number of FoPP competitor
     
    Table F-11: Price of Brand Drug, in Presence of FoPP entrants
      Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
    Brand inflation rate beforeFoPP entry  -1.29%    3.66%    4.79%    0.22%    4.66%    1.31%    10.92%    10.92%    3.61%    -3.50% 
    Brand inflation rate after FoPP entry  -1.36%    3.47%    4.55%    0.21%    4.43%    1.25%    10.37%    10.37%    3.43%    -3.68% 

     

    PFoPPWW:                             Discount associated with price of the FoPP/daily dose (Table F-12)

            • Estimated as discount on PbrandWWO
            • FoPP discount based on estimates from Reiffen and Ward (RW), 2005 [140] (Table 4)
            • Predicted number of FoPP entrants assumed to remain stable after initial year of entry for duration of model
    Table 4: Estimates of FoPP

    Based on estimates from Reiffen and Ward (2005

    )

    No.

    FoPP entrants

    RW estimates of generic discount

    1 12%
    2 19%
    3 20%
    4 22%
    5 24%
    6 26%
    7 28%
    8 28%
    9 28%
    10 31%
    11+ 37%
    Table F-12: Base-case Discounts Associated with FoPP Entry

    FoPP Price Discount (%)

      Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
    2009  0%    0%    0%    0%    0%    0%    0%    0%    0%    0% 
    2010  0%    0%    0%    0%    0%    0%    0%    0%    0%    0% 
    2011  0%    0%    0%    0%    0%    0%    0%    0%    0%    0% 
    2012  0%    0%    0%    0%    19%    0%    0%    0%    0%    0% 
    2013  20%    0%    0%    0%    19%    0%    19%    0%    19%    0% 
    2014  20%    0%    0%    0%    19%    19%    19%    19%    19%    0% 
    2015  20%    12%    19%    0%    19%    19%    19%    19%    19%    0% 
    2016  20%    12%    19%    0%    19%    19%    19%    19%    19%    0% 
    2017  20%    12%    19%    20%    19%    19%    19%    19%    19%    0% 
    2018  20%    12%    19%    20%    19%    19%    19%    19%    19%    0% 
    2019  20%    12%    19%    20%    19%    19%    19%    19%    19%    0% 

    c.        Base-case Estimates of Market Shares for FoPP Drugs

    By definition, market shares of FoPP entrants prior to entry are zero. Base-case estimates of the cumulative market share for FoPP products in each market after entry range from 10% to 54% (Table F-13). Estimates are based on the OLS specification reported in Saha et al. (2005), and are a function of the FoPP price discount, number of FoPP entrants, market size, and level of HMO coverage (Table F-13):

    Equation 4:

    ln (MktShrFoPP/ MktShrbrand)= 0.998 - 2.4965 * (PriceFoPP/Pricebrand) + 0.705 * NFoPP

    -0.0002 * MktSze - 0.3975 * BigMkt + 1.979 * HMOCov

    Where:

    MktShrFoPP/ MktShrbrand:                       Market share of FoPP entrants (cumulative) relative to the brand

    PriceFoPP/Pricebrand:                                Ratio of FoPP price to brand price

    NFoPP:                                                       Number of FoPP entrants

    MktSze:                                                     Market size in year that market opens to entry (US$2000)

    HMOCov:                                                 Average HMO share of payers; estimated as 21% of private payers and 12% of public payers141]142]

     

    Table F-13: Base-case Estimates of FoPP Market Share

    US market shares of FoPPs (%)

      Procrit/Epogen  Herceptin  Rituxan  Avastin  Enbrel  Remicade  Avonex  Rebif  Neupogen  Pegasys
    2009  0%    0%    0%    0%    0%    0%    0%    0%    0%    0% 
    2010  0%    0%    0%    0%    0%    0%    0%    0%    0%    0% 
    2011  0%    0%    0%    0%    0%    0%    0%    0%    0%    0% 
    2012  0%    0%    0%    0%    28%    0%    0%    0%    0%    0 
    2013  35%    0%    0%    0%    28%    0%    48%    0%    54%    0% 
    2014  35%    0%    0%    0%    28%    32%    48%    45%    54%    0% 
    2015  35%    32%    27%    0%    28%    32%    48%    45%    54%    0% 
    2016  35%    32%    27%    0%    28%    32%    48%    45%    54%    0% 
    2017  35%    32%    27%    10%    28%    32%    48%    45%    54%    0% 
    2018  35%    32%    27%    10%    28%    32%    48%    45%    54%    0% 
    2019  35%    32%    27%    10%    28%    32%    48%    45%    54%    0% 

     

    2.       Base-case Estimates of Overall Market Size, Pre- and Post- FoPP Entry

    Market size in this model is defined in millions of daily doses (Table F-14). Initial market size is estimated by dividing 2009 market revenue by the estimated 2009 Pricewght /daily dose. The default estimate of Pricewght is the weighted price across private and public payers, derived from an analysis of commercial versus Medicare and Medicaid expenditures (Table F-15).

    Table F-14: Initial Market Size (millions daily doses)
    Daily Doses (DDs) Defined
     Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
     1000 units  20.8mg  71.4mg  25mg  7mg  3.75mg  4.3mcg  4.3mcg  0.35mg  26 mcg
    Total market size (mn DDs) - US markets without FoPPs
       Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
    2009 Market Size  498.18    13.02    8.51    26.97    73.98    144.26    21.74    15.27    3.85    6.00  
    Avg. YOY Change in Util.  1.8%    1.3%    4.0%    18.7%    5.1%    6.6%    -3.9%    6.4%    -1.8%    -3.6% 
    Table F-15: Ratio of Public to Private Payers for Selected Biologic Drug[143]
    Distribution of Public and Private Payers
       Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
    Public Payers  48%    41%    57%    66%    37%    37%    45%    45%    41%    48% 
    Private Payers  52%    59%    43%    34%    63%    63%    55%    55%    59%    52% 
    Public+private  100%    100%    100%    100%    100%    100%    100%    100%    100%    100% 

    a.       'World without' Parameter Inputs

    Base-case estimates of increases in overall market size are calculated as the residual after projected changes in price are subtracted from projected changes in overall market revenue (Table F-16). Base-case estimates of market size do not account for entry of second-generation drugs.

    Table F-16: Base-case Estimate of Market Size in Absence of FoPP Entry]
    Daily Doses (DDs) Defined
     Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
     1000 units    20.8mg    71.4mg    25mg    7mg    3.75mg/P    4.3mcg    4.3mcg    0.35mg    26 mcg/P 
    Total market size (mn DDs) - US markets without FoPPs
       Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
    2009 Market Size  498.18    13.02    8.51    26.97    73.98    144.26    21.74    15.27    3.85    6.00  
    Avg. YOY Change in Util.  1.8%    1.3%    4.0%    18.7%    5.1%    6.6%    -3.9%    6.4%    -1.8%    -3.6% 
    Total market size (mn DDs) -US markets without FoPPs
       Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
    2009 498.18 13.02 8.51 26.97 73.98 144.26 21.74 15.27 3.85 6.00
    2010 507.23 13.19 8.85 32.02 77.75 153.78 20.89 16.25 3.78 5.78
    2011 516.45 13.36 9.2 38.02 81.72 163.94 20.08 17.28 3.71 5.57
    2012 525.84 13.53 9.57 45.14 85.88 174.76 19.29 18.39 3.64 5.37
    2013 535.39 13.71 9.96 53.6 90.26 186.3 18.54 19.56 3.58 5.18
    2014 545.12 13.89 10.36 63.64 94.86 198.6 17.82 20.81 3.51 4.99
    2015 555.03 14.07 10.77 75.56 99.7 211.72 17.13 22.14 3.45 4.81
    2016 565.12 14.25 11.2 89.71 104.78 225.7 16.46 23.55 3.38 4.63
    2017 575.39 14.43 11.65 106.52 110.12 240.6 15.82 25.06 3.32 4.46
    2018 585.84 14.62 12.12 126.47 115.73 256.48 15.21 26.66 3.26 4.30
    2019 596.49 14.81 12.61 150.17 121.63 273.42 14.61 28.36 3.20 4.15

    b.       4.2 'World with' Parameter Inputs

    The model assumes that any price discounts associated with FoPP entry will bring about an increase in the overall market size due to a positive elasticity of price demand, following Equation 5. Our base-case estimates of induced demand range between 1% and 3% of overall market size.

    Equation 5:

    InducedDemand = λ * EffectDisc

    Where:

    λ:                                Price elasticity of demand; base-case estimate is -0.4

      • Estimate based on the mid-point of the range (-0.2 , -0.6) reported in the Goldman et al. (2007) review [144]

    EffectDisc:              Overall price discount in presence of FoPP entrants, estimated to range from 4% to 10.1% (Table F-17)

      • Weighted average of discount on branded drugs associated with FoPP entry (via decrease in inflation rate) and discount on FoPPs
    Table F-17: Base-case Overall Price Discount in Market in "World With FoPPs"
    Weighted Price Discount in Market
    YEARS  Procrit/ Epogen    Herceptin    Rituxan    Avastin    Enbrel    Remicade    Avonex    Rebif    Neupogen    Pegasys 
    2009  0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0% 
    2010  0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0% 
    2011  0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0%    0.0% 
    2012  0.0%    0.0%    0.0%    0.0%    5.4%    0.0%    0.0%    0.0%    0.0%    0.0% 
    2013  7.1%    0.0%    0.0%    0.0%    5.6%    0.0%    9.2%    0.0%    10.2%    0.0% 
    2014  7.1%    0.0%    0.0%    0.0%    5.7%    6.1%    9.5%    8.8%    10.3%    0.0% 
    2015  7.2%    4.0%    5.2%    0.0%    5.9%    6.2%    9.7%    9.0%    10.4%    0.0% 
    2016  7.2%    4.1%    5.4%    0.0%    6.1%    6.2%    10.0%    9.3%    10.4%    0.0% 
    2017  7.3%    4.2%    5.6%    2.1%    6.2%    6.2%    10.2%    9.6%    10.5%    0.0% 
    2018  7.3%    4.3%    5.7%    2.1%    6.4%    6.3%    10.5%    9.8%    10.6%    0.0% 
    2019  7.3%    4.4%    5.9%    2.1%    6.5%    6.3%    10.7%    10.1%    10.7%    0.0% 

    Base-case estimates of overall market size in the presence of FoPP entry are presented in Table F-18. It is assumed that both brand and FoPP manufacturers will actively support their drugs with advertising and detailing. The implication of this assumption is that FoPP entry does not exert a negative effect on overall market size, as is sometimes the case in the small molecule market.

    Table F-18: Base-case Estimates of Market Size in Presence of FoPP Entrants
    Inputs for Estimation of Market Size Following FoPP Entry
       Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    YOFE  2013   2015   2015   2017   2012   2014   2013   2014   2013   2017 
    FoPP % price discount, YOFE 20% 12% 19% 20% 19% 19% 19% 19% 19% 0%
    FoPP market share, YOFE 35% 32% 27% 10% 28% 32% 48% 45% 54% 0%
    Price elasticity of demand -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4

    Market size (mn DDs) - US markets with FoPP entry
    YEARS  Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    2009  498.18   13.02   8.51   26.97   73.98   144.26   21.74   15.27   3.85   6.00 
    2010  507.23   13.19   8.85   32.02   77.75   153.78   20.89   16.25   3.78   5.78 
    2011  516.45   13.36   9.20   38.02   81.72   163.94   20.08   17.28   3.71   5.57 
    2012  525.84   13.53   9.57   45.14   87.74   174.76   19.29   18.39   3.64   5.37 
    2013  550.57   13.71   9.96   53.60   92.27   186.30   19.23   19.56   3.72   5.18 
    2014  560.67   13.89   10.36   63.64   97.04   203.46   18.50   21.54   3.66   4.99 
    2015  570.95   14.29   11.00   75.56   102.05   216.93   17.80   22.94   3.59   4.81 
    2016  581.42   14.48   11.45   89.71   107.32   231.30   17.12   24.43   3.52   4.63 
    2017  592.09   14.68   11.91   107.41   112.86   246.61   16.47   26.02   3.46   4.46 
    2018  602.95   14.87   12.40   127.54   118.68   262.94   15.84   27.71   3.40   4.30 
    2019  614.01   15.07   12.91   151.43   124.81   280.35   15.24   29.51   3.34   4.15 

    3.       Base-case Estimates of Cost-Impact

    Under our default assumptions, the base-case scenario estimates cost savings from entry of FoPPs totaling approximately $10 billion dollars (Table F-19). Using the estimated distribution of private and public payers reproduced in Table F-20, $5.3 billion of this amount is estimated to accrue to private payers (not shown) and $4.6 billion is estimated to accrue to public payers (Table F-21).

    Table F-19: Estimated Cost Impact of Availability of FoPPs: All Payers, 2009-2019

    US Market without FoPPs

    Total Cost of Originator Drug ($mn), 2009-2019
       Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    Total Cost ($mn) $47,608 $23,588 $58,146 $116,032 $68,434 $49,198 $19,141 $25,024 $10,672 $2,636

    US Market with FoPPs

    Total Cost of Originator Drug ($mn), 2009-2019
       Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    Total Cost ($mn) $37,350 $19,736 $49,574 $110,690 $53,247 $39,396 $12,754 $16,699 $7,003 $2,636
    Total Cost of FoPP drugs ($mn), 2009-2019
       Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    Total Cost ($mn) $8,847 $3,513 $7,364 $4,634 $12,919 $8,541 $5,392 $7,037 $3,175 $0

    Cost Impact of FoPPs

    Cost of Drug ($mn)
       Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    Total Cost - US Markets  $47,608   $23,588   $58,146  $116,032  $68,434  $49,198   $19,141  $25,024  $10,672   $2,636 
    Total Cost - US Markets  $46,197   $23,249   $56,938  $115,324  $66,166  $47,937   $18,147  $23,736  $10,179   $2,636 
    Cost Impact of FOPPs  $1,412  $340 $1,208 $707 $2,268 $1,262 $994  $1,288  $493 $0
        Total Cost Impact (in US$ millions) $9,972        

     

    All Payers: Cost Impact of FOPPs ($mn) - by year
    YEARS  Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    2009  $0   $0   $0   $0   $0   $0   $0   $0   $0   $0 
    2010  $0   $0   $0   $0   $0   $0   $0   $0   $0   $0 
    2011  $0   $0   $0   $0   $0   $0   $0   $0   $0   $0 
    2012  $0   $0   $0   $0   $168   $0   $0   $0   $0   $0 
    2013  $193   $0   $0   $0   $193   $0   $97   $0   $63   $0 
    2014  $196   $0   $0   $0   $222   $167   $110   $115   $65   $0 
    2015  $199   $56   $183   $0   $254   $182   $124   $144   $68   $0 
    2016  $202   $61   $209   $0   $290   $199   $139   $180   $70   $0 
    2017  $205   $67   $238   $195   $332   $217   $156   $224   $73   $0 
    2018  $208   $74   $271   $233   $378   $237   $174   $279   $76   $0 
    2019  $211   $81   $308   $279   $431   $259   $194   $346   $78   $0 

     

     

    Table F-20: Ratio of Public to Private Payers for Selected Biologic Drugs
    Distribution of Public and Private Payers
       Procrit/ Epogen   Herceptin   Rituxan   Avastin   Enbrel   Remicade   Avonex   Rebif   Neupogen   Pegasys 
    Public Payers  48%   41%   57%   66%   37%   37%   45%   45%   41%   48% 
    Private Payers  52%   59%   43%   34%   63%   63%   55%   55%   59%   52% 
    Public+private  100%   100%   100%   100%   100%   100%   100%   100%   100%   100% 

     

    Table F-21: Estimated Cost Impact of Availability of FoPPs: Public Payers, 2009-2019

         

    Coverage of Expenditures by Public Payers, 2009-2019
      Procrit/ Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
    Public Payer Coverage  48%   41%   57%   66%   37%   37%   45%   45%   41%   48% 

    US Market without FoPPs

         

    Total Cost of Originator Drug ($mn), 2009-2019
      Procrit/Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
    Total Cost ($mn)  $23,545   $10,005   $33,970   $78,084   $26,257   $18,877   $8,890   $11,623   $4,527   $1,304 

    US Market with FoPPs

         

    Total Cost of Originator Drug ($mn), 2009-2019
      Procrit/Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
    Total Cost ($mn)  $18,471   $8,371   $28,962   $74,489   $20,430   $15,115   $5,924   $7,756   $2,971   $1,304 

     

    Total Cost of FoPP drugs ($mn), 2009-2019
      Procrit/Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
    Total Cost ($mn)  $4,375   $1,490   $4,302   $3,119   $4,957   $3,277   $2,505   $3,268   $1,347   $0 

     

    Cost Impact of FoPPs

    Cost of Drug ($mn)
      Procrit/ Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
    Total Cost - US
    Markets
    $23,545 $10,005 $33,970 $78,084 $26,257 $18,877 $8,890 $11,623 $4,527 $1,304
    Total Cost - US
    Markets
    $22,847 $9,861 $33,264 $77,608 $25,387 $18,392 $8,428 $11,024 $4,318 $1,304
    Cost Impact of
    FOPPs
    $698 $144 $706 $476 $870 $484 $462 $598 $209 $0
        Total Cost Impact (in US$ millions) $4,648        

     

    Public Payers: Cost impact of FOPPs ($mn) - by year
      Procrit/ Epogen Herceptin Rituxan Avastin Enbrel Remicade Avonex Rebif Neupogen Pegasys
    2009 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
    2010 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
    2011 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
    2012 $0 $0 $0 $0 $64 $0 $0 $0 $0 $0
    2013 $95 $0 $0 $0 $74 $0 $45 $0 $27 $0
    2014 $97 $0 $0 $0 $85 $64 $51 $53 $28 $0
    2015 $98 $24 $107 $0 $97 $70 $57 $67 $29 $0
    2016 $100 $26 $122 $0 $111 $76 $65 $84 $30 $0
    2017 $101 $29 $139 $131 $127 $83 $72 $104 $31 $0
    2018 $103 $31 $158 $157 $145 $91 $81 $130 $32 $0
    2019 $104 $34 $180 $188 $165 $100 $90 $161 $33 $0

     

    6.       Sensitivity Analyses

    6.1   Effect of Differences in Regulatory Requirements

    Given the uncertainty regarding new approval pathways for FoPPs, it is important to develop estimates of the cost impact of the availability of FoPPs that account for the effects of proposed approval pathways that have differing levels of stringency. In this model, differences in the stringency of the approval process influence estimated cost impacts through two main parameters: 1) the time to market entry of the FoPP and 2) the fixed costs of satisfying regulatory requirements. Both of these parameters are assumed to increase with the level of regulatory stringency. Regulatory stringency affects the time to market entry of FoPPs in multiple ways. Principally, the greater the level of clinical evidence required, the more time required to comply with the requirements. Also, waiting for clarifying guidance to be issued by regulatory bodies can delay FoPP entrance. We explore the effects of varying the time to initial FoPP entrance and varying fixed costs of entry below.

    6.1.1     Timing of Initial Entry of FoPP Competitors

    The base-case analysis assumes that the market opens to FoPP competition once the listed patent protection period expires and the data exclusivity period lapses. However, the market may open to FoPP competition more quickly or more slowly than our base-case estimates. Regulators may call for greater or lesser levels of clinical evidence to be provided in support of approval processes. Potential applicants could be required to delay pursuing market access pending issuance of formal guidance. A final legislated data exclusivity period for protein products may differ from our base-case estimate of 12 years. Entry may occur more rapidly if there is a successful challenge to the patent (outside of a countervailing data exclusivity period). Finally, FoPP competition may be stalled if the first indication to open to competition is not sufficiently attractive. Thus, we explored the effect of varying the date at which the FoPP market is open to entry on our estimates of cost impact.

    As is evident in Table 5, delaying projected initial entry of FoPP competitors by five years reduces our estimate of cost savings from FoPP availability by $7.9 billion, or 79%.

    Table 5: Effect on Varying Time of FoPP Entry on Estimates of
    Cost-Impact of FoPP Availability ($billion)
      Earliest Entry Latest Entry Cost Impact All Payers

    2009-2019

    Cost Impact Private Payers

    2009-2019

    Cost Impact Public Payers

    2009-2019

    5 years earlier 2009 2014 $17.56 $9.00 $8.56
    2 years earlier 2010 2015 $13.40 $7.07 $6.33
    Base case 2012 2017 $9.97 $5.32 $4.65
    2 years later 2014 2019* $6.53 $3.57 $2.96
    5 years later 2017 2019* $2.08 $1.20 $0.88

    Five years earlier is set to 2009 as it would be unrealistic to estimate the cost impact in 2007 when there were no FoPPs.
    Some markets do not open to entry during model duration.

    6.1.2     Variation in Fixed Costs of Entry

    Our base-case analysis assumes that regulatory requirements for FoPP entrants will resemble those issued thus far by the EMEA. Thus, we classify the likely requirements for Neupogen® and the interferon betas (Avonex® and Rebif®) as "low" (150-patient trial) and the likely requirements for the EPOs as "medium" (300-patient trial). However, it may be the case that regulatory requirements are more stringent. In Table 6, we explore the effect of increasing the clinical requirements by progressively raising the minimum level of evidence required.

    In the context of our model, raising the minimum requirement for clinical evidence from low to medium has a minimal effect on our base-case estimates. Requiring all entrants to meet a "very high" standard of clinical evidence has a relatively small effect on our baseline estimates of cost savings, reducing the estimate by $1.5 billion, or 15.3%.

    Table 6: Effect of Increasing Clinical Requirements on Estimates of
    Cost-Impact of FoPP Availability ($billions)
      Cost Impact All Payers
    2009-2019
    Cost Impact Private Payers
    2009-2019
    Cost Impact Public Payers
    2009-2019
    Base case $9.97 $5.32 $4.65

    Minimum clinical requirement> Medium: 300 pts>

    $9.71> $5.18> $4.54>

    Minimum clinical requirement> High: 600 pts>

    $8.45> $4.50> $3.94>

    Minimum clinical requirement> Very High: 900 pts>

    $8.45> $4.50> $3.94>

    Our base-case estimates of the ratio of fixed costs of entry for a biologic versus small molecule market (ratios of 8.7-16.2) are calibrated to produce an estimate of FoPP entrants in the EPO market that has face validity. However, these are significantly lower than, for example, the values implied by Grabowski et al. (2007), which range as high as 100. These latter ratios would be expected if, for example, every potential entrant would require building an entirely new facility to enter the biologic market, but could rely on existing production capacity to enter the small molecule market. In Table 7, we explore the effect of varying our estimate of the ratio of fixed costs of entry for a biologic versus small molecule market (FCFoPP/ FCSM) directly. In the context of our model, as one would expect, the number of FoPP entrants is sensitive to the ratio FCFoPP/ FCSM. A ratio of 25 decreases estimated cost savings by $5 billion, or 46.9%. A ratio of 50 results in a single FoPP entrant for Avastin® and negligible cost savings. To put these figures in context, if we assume that fixed costs of entry in the small molecule generic market average $2.5 million, FCFoPP/ FCSM ratios of 25 and 50 imply FoPP fixed costs of entry of $62.5 million and $125 million respectively.

    Table 7: Effect of Varying Fixed Costs of Entry for Biologic Market
    versus
    Small Molecule Market on Estimates of Cost-Impact of FoPP Availability ($billions)
      Maximum No. FoPP Entrants Cost Impact All Payers 2009-2019 Cost Impact Private Payers 2009-2019 Cost Impact Public Payers 2009-2019
    Base case 3 $9.97 $5.32 $4.65

    FCFoPP/ FCSM = 25

    2 $5.30 $2.78 $2.51

    FCFoPP/ FCSM = 50

    1 $0.30 $0.10 $0.20

    FCFoPP/ FCSM = 75

    0 $0.00 $0.00 $0.00

    6.2  Multi-year Entry of FoPPs

    Our approach is based, in part, on Grabowski et al. (2007), who model the specific question "What is the equilibrium number of generic entrants in the twelve-month period after the market opens to competition (i.e., after patent expiry, and the expiry of the data exclusivity agreement)?" Similarly, our base case estimates assume that that the number of FoPP entrants in place 12 months after the market opens to competition will remain constant for the remainder of the study period.

    It may be the case (as occurs in small molecule markets) that additional FoPP products would enter the market in subsequent years. Therefore, we explore the effect of allowing additional FoPP entrants after the first year in which the market opens (for products that experience a positive number of entrants). Additional entrants would enter in the second year of market opening and would, in the context of the model, exert downward pressure on the relative FoPP price, increase the FoPP market share, and increase the estimated cost savings associated with FoPP entry as shown in Table 8. Assuming even a single additional entrant in each market in the subsequent year increases our estimate of cost savings by $2.3 billion, or 22.8%.

    Table 8: Effect of Allowing Additional FoPP Entry on Estimates of
    Cost-Impact of FoPP Availability ($billions)
      Largest Discount Largest Market Share Cost Impact All Payers

    2009-2019

    Cost Impact Private Payers

    2009-2019

    Cost Impact Public Payers

    2009-2019

    Base case 20% 54% $9.97 $5.32 $4.65

    1 additional entrant

    22% 63% $12.25 $6.56 $5.69

    2 additional entrants

    24% 78% $16.54 $8.91 $7.63

    6.3  Interchangeability of FoPPs

    The microeconomic studies of pricing and market share in the pharmaceutical industry referenced here share the assumption of homogenous generic entrants. Given the anticipated differences in the production processes, FoPPs are likely to be inherently heterogeneous. While modeling FoPP heterogeneity directly is beyond the scope of this analysis, we can probe the effects of the likely outcome of such heterogeneity. A market in which there were heterogeneous FoPP entrants would behave in a manner more characteristic of an oligopoly or imperfectly competitive market, i.e., with higher prices (smaller discounts) and smaller quantities sold, although the effects on the relative market shares of brands and FoPPs are ambiguous.

    To examine the potential effects of greater heterogeneity among FoPP entrants, we re-estimate the model with smaller discounts associated with FoPP entry and assess the effect on estimates of cost impact. As shown in Table 9, decreasing the price discount that would accompany FoPP entry, as would be expected for a small number of heterogeneous products, has a fairly significant effect on our estimates of overall cost impact. A 25% reduction in the estimated FoPP discount decreases estimated cost savings by $3.2 billion, or 32%.

    Table 9: Effect of Varying Estimated FoPP Price Discounts on Estimates of
    Cost-Impact of FoPP Availability ($billions)
      Smallest* Discount Largest Discount Cost Impact All Payers

    2009-2019

    Cost Impact Private Payers

    2009-2019

    Cost Impact Public Payers

    2009-2019

    Base case 12% 20% $9.97 $5.32 $4.65

    25% reduction in base-case FoPP discount

    9% 15% $6.78 $3.62 $3.15

    40% reduction in base-case FoPP discount

    7% 12% $5.26 $2.82 $2.44

    *Smallest non-zero discount

    6.4  Variation in FoPP Price & Market Share

    There are a number of additional demand- and supply-side factors that are not modeled explicitly in our analysis that nonetheless might influence FoPP prices and FoPP market shares. Examples of such factors that might affect pricing include strategic pricing on the part of FoPP manufacturers and payers' ability to extract large price discounts. Factors that affect the demand for FoPP products include brand loyalty on the part of patients, perceived therapeutic substitutability, and the extent to which payers are able to influence physician prescribing behavior. Although modeling these factors explicitly is beyond the scope of this analysis, it is instructive to explore how variation in assumptions of FoPP price discounts and market uptake affect estimates of overall cost impact.

    Previously, we explored the effect of more conservative estimates of FoPP price discounts that might be associated with a small number of heterogeneous FoPPs. Here, we explore the effect of more aggressive price discounts that would be consistent with strategic pricing behavior by FoPP manufacturers, or payers extracting large pricing concessions. In the context of the model, aggressive FoPP discounts would lead to larger FoPP market share as well as an increase in overall market size. (The model does not allow FoPP market share to rise above 85%). As Table 10 shows, more aggressive estimates of discounting behavior on the part of FoPP manufacturers has a dramatic effect on the estimate of overall cost impact. For example, assuming that all FoPPs discount heavily at 40% (a figure that is not inconsistent with the small molecule market) leads to an increase in the estimated cost impact of $35 billion.

    Table 10: Effect of Increase in FoPP Discounts on Estimated Cost Impact of
    Availability of FoPPs ($billions)
      Smallest* Discount
     
    Largest Discount
     
    Cost Impact All Payers

    2009-2019

    Cost Impact Private Payers

    2009-2019

    Cost Impact Public Payers

    2009-2019

    Base case 12% 20% $9.97 $5.32 $4.65

    25% FoPP discount

    25% 25% $16.15 $8.67 $7.48

    40% FoPP discount

    40% 40% $44.20 $23.80 $20.40

    *Smallest non-zero discount

    Likewise, we might expect that market uptake of FoPPs would lag if patients exhibit high levels of brand loyalty, or physicians perceive the FoPPs to have low levels of therapeutic substitutability. Conversely, if payers are able to influence physician prescribing behavior or institute a tier-structure that promotes FoPP use, then market penetration might be considerably higher than our base-case estimates. Our estimates of cost impact are less sensitive to variation in market share versus variation in prices, in part because the effects of changes in price are compounded by reinforcing changes in market share. As shown in Table 11, a 25% increase in base-case FoPP market share only increases estimated cost-impact of FoPP availability by $2.3 billion, or 23%.

    Table 11: Effect of Change in FoPP Market Share on Estimated Cost Impact of
    Availability of FoPPs ($billions)
      Smallest* Market Share Largest Market Share Cost Impact
    All Payers 2009-2019
    Cost Impact Private Payers 2009-2019 Cost Impact Public Payers 2009-2019
    25% reduction in base-case FoPP market share 8% 40% $9.05 $4.84 $4.22
    10% reduction in base-case FoPP market share 9% 48% $7.69 $4.11 $3.58
    Base case 10% 54% $9.97 $5.32 $4.65
    10% increase in base-case FoPP market share 11% 59% $10.90 $5.82 $5.08
    25% increase in base-case FoPP discount 13% 67% $12.30 $6.56 $5.73

    *Smallest non-zero market share

    6.5  Price of Branded Biologic Drugs

    Our base-case analysis assumes that the presence of FoPP competition will moderate brand price inflation by 5% (i.e., the inflation rate for branded drugs will be 95% of the pre-FoPP rate). It may be the case; however, that FoPP entry exerts stronger downward pressure on brand price inflation.

    We present the results of sensitivity analyses that explore the effects of varying assumptions on the rate of price increases in branded drugs in Table 12. We would expect the increased cost savings caused by lower expenditures on branded biologics to be offset in part by increases in overall utilization driven by induced demand. Lowering our estimate of the rate of brand price inflation in the presence of FoPP competition by 50% more than doubles our estimated cost-savings to $21.42bn (increase of 115%). We also investigate the estimated cost impact if the advent of FoPP competition either halts brand price inflation altogether (0% inflation) or causes decreases in price of 1.5% per year. In this latter instance, the estimated cost impact is increased by a factor of 4 to $40.3bn.

    Table 12: Effect of Change in Price Inflation for Branded Biologics ($billions)
      Largest Annual Inflation Rate Cost Impact All Payers

    2009-2019

    Cost Impact Private Payers

    2009-2019

    Cost Impact Public Payers

    2009-2019

    Base case 10.37% $9.97 $5.32 $4.65

    25% decrease in annual rate of brand price inflation

    8.19% $15.11 $8.15 $6.96

    50% decrease in annual rate of brand price inflation

    5.46% $21.42 $11.63 $9.79

    0% annual rate of brand price inflation

    0% $32.38 $17.71 $14.66

    -1.5% annual decrease in brand price

    -1.50% $40.29 $21.92 $18.37

    6.6  Second-Generation Branded Products

    Our base-case analysis assumes no further entrants into the market beside the originator product and any FoPP entrants. Moreover, base-case estimates of projected increases in overall market size assume that current, short-term projections (of three-five years) will hold constant over remainder of the model.

    Our attention here is not on new treatments expected to enter the market in the near term (e.g., Cimzia® and Golimumab® for rheumatoid arthritis), or relatively new competitors already on the market (e.g. Neulasta® for neutropenia). The effects of these drugs on sales and revenue of their competitors are presumably built into current market projections for the early portion of our model.

    Given the model horizon of 2009-2019, it may be constructive to consider the case of entrants into the market in the medium to long term (i.e. 2013+) by products that compete with the originator and follow-on product (e.g., a second- or third-generation biologic). In such an instance, the size of the market for the originators and FoPPs would decrease, as would the long-term estimated cost impact of the FoPPs in that particular market. The effect of decreasing long-term market size is presented in Table 13. A sizeable loss in market share to a newer-generation competitor would be required to generate a significant effect on estimated cost-impact.

    Table 13: Effect of Varying Estimated Market Size in the Long-Term (2014-2019) on Estimates of Cost-Impact of FoPP Availability
      Cost Impact
    All Payers

    2009-2019

    Cost Impact
    Private Payers

    2009-2019

    Cost Impact
    Public Payers

    2009-2019

    Base case $9.97 $5.32 $4.65

    20% reduction in base-case
    market size, 2014-2019

    $8.13 $4.35 $3.79

    40% reduction in base-case
    market size, 2014-2019

    $5.17 $2.78 $2.40

     

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