The issue of the need to expedite competition in the biologic market is an important and challenging one. Facilitating patient access to affordable and innovative new drugs that can improve health outcomes is a worthwhile goal. Proposed approaches involve abbreviated regulatory approval pathways analogous to the 505(b)(2) or 505(j) processes for drugs regulated under the FDCA. In this analysis, we attempt to quantify the financial impact of proposals to expedite FoPP competition in major biologic drug markets.
This estimate is challenging to derive for a number of reasons, starting with the limited number of cases of follow-on products from which to draw conclusions on market behavior. The uncertainty around market response to FoPP entry is demonstrated by the variation in estimates reported in prior studies. In our analysis, we combined microeconomic models of the pharmaceutical industry with empirical data and the considered opinion of clinical experts and experts in the fields of pharmacoeconomics and pharmaceutical economics to systematically address how FoPP entry would affect pharmaceutical expenditures on major biologics.
Our base-case analysis estimates total cost savings of approximately $10 billion over the period 2009-2019, assuming entry of the first FoPP into the markets is considered no earlier than 2012. This estimate is within the range reported in previous studies. Six of the 10 biologics that we assess are not expected to be exposed to FoPP competition until 2014 or later. Of greater significance is that our estimates of the likely fixed costs of entry associated with satisfying clinical requirements similar to those required by EMEA are associated with a small number of market entrants, i.e., no more than three (in the EPO and anti-TNF markets) and zero in the case of Pegasys®. As a consequence of relatively small number of predicted entrants, our estimate of the accompanying FoPP price discount is in the range of 12–20%, with FoPP market penetration of 10-54%.
Our base-case estimates of the likely cost-impact of FoPP entry into the US market are low relative to most previous studies of this topic (CBO, Express Scripts, Engel & Novitt) and consistent in magnitude with the findings from one study (Avalere). Key differences between this study and previous ones include our structured analysis of FoPP competition on a product-specific basis and the derivation of estimated price discounts following the entry of FoPP competition that account for the significant differences between the biologic and small-molecule markets (including higher fixed costs of entry and few competitors marketing products that are likely to be perceived as heterogeneous). This approach results in smaller estimates of branded biologics expenditures exposed to competition during the study period, smaller baseline estimates of likely price discounts (10-20% vs. 10-40% for other studies), and correspondingly smaller estimates of FoPP market uptake. Moreover, we estimate a smaller price response on the part of the brand biologics to FoPP competition.
As we noted above, there is much uncertainty about the likely number of FoPP entrants, FoPP price discounts, and the market shares that would be seen after actual market entry. Therefore, we performed a series of sensitivity analyses to assess how our estimate of overall cost impact would vary under different scenarios. If, for example, we project subsequent entry of two additional FoPP entrants into each market (in some cases doubling our base-case estimate), our projected costs savings increase by roughly 66%, to $16.5 billion. Not surprisingly, our estimate of cost impact is particularly sensitive to the assumptions on FoPP price discounts, as the effect of lower prices is compounded by the phenomenon of lower FoPP prices leading to increased FoPP market share (offset somewhat by the growth in the overall market due to induced demand). If we assume that all FoPP entrants discount by 25%, our estimate of overall cost savings increases by more than 60% to $16.15 billion; assuming more aggressive discounting of 40% increases our estimate by a factor of four to $44 billion.
In the context of our model, however, the ability of regulatory authorities to affect this estimate varies. As noted earlier, we assume that increased or decreased regulatory requirements will act through two paths. The first is the timing of a market's opening to FoPP competition; the second is the cost of complying with regulatory requirements. We assume that increased regulatory rigor will delay the time to FoPP entrance, as it should, generally, require longer to generate larger amounts of clinical evidence; moreover, any requirement for FoPP manufacturers to follow published FDA guidance will introduce further delays. We explore the effect of introducing delays to FoPP entry by two and five years. Delaying projected FoPP entry in each market by two years reduces estimated cost savings by $3.4 billion, or 34%. Likewise, additional clinical requirements are more costly to implement. We explore this issue in two ways. First, we directly model the effect of requiring all FoPP entrants to meet a "very high clinical standard," which we model as running a 900-patient clinical trial; under this scenario, projected overall cost savings are reduced by $1.5 billion, or roughly 15%. As an alternate check, we also increase our estimate of the ratio of FoPP fixed costs of entry in the biologic versus small molecule market, from a range of 8.7-16.2 to 25 (assuming small molecule fixed cost of entry of $2.5 million, this is equivalent to increasing fixed costs of entry by approximately $22.5 - $40 million); this reduces project cost savings by $5 billion, or 46.9%.
Our sensitivity analyses show our estimates of cost savings to be most sensitive to assumptions about the size of FoPP price discounts and reductions in brand-price inflation following FoPP entry. If FoPP manufacturers discount conservatively, then projected cost savings will be relatively small. If, however, the opening of the market brings about highly competitive behavior on the part of either or both brand product or FoPP manufacturers, projected cost savings over the period 2009-2019 can be significant (over $40 billion).