Biosimilars Bring Much-Needed Competition to Drug Markets

The high cost of medical care is one of the issues that most directly affect individuals and families. Historically, high initial investments in capital and a strict regulatory regime have effectively limited competition in many sectors of the medical industry. But thanks to advances in technology and a changing regulatory environment, some of that is starting to change.

The pharmaceutical industry is one example of a market where competition trying to burst forward in previously unseen ways. Pharmaceuticals made through biological processes acting on living organisms represent a growing share of domestic spending on medicine, but due to the high cost of name brand drugs, known as biologics, this technology has remained largely unavailable to most patients.

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Now, medically-identical copies of biologics—called biosimilars—have started to gain traction as a lower-cost alternative. Biosimilars have been widely accepted in Europe for some time, but it was not until 2010 that they became legal in the United States. Earlier this year, the Food and Drug Administration granted approval for the first biosimilar for sale in America, a drug designed to reduce inflammation in chemotherapy patients.

This was a great step forward for medicine in America, although not one that has been welcomed by all. Unfortunately, the manufacturers of biologics are taking aggressive legal action against biosimilars, seeking to maintain their government-granted monopoly status for as long as possible. The Patient Protection and Affordable Care Act, due to intense pressure from biologic manufacturers, granted the industry a twelve-year exclusivity period, but apparently this was unsatisfactory, since lawsuits have only ramped up since then.

This is a shame, since, as any economist will tell you, competition among goods results not only in lower prices, but in higher quality products as manufacturers seek to please their consumers. Allowing biosimilars to compete alongside biologics will make the suppliers of both better at their jobs, with the ultimate outcome being better and more affordable care for everyone.

The Federal Trade Commission estimated that, on average, biosimilars would be 10 to 30 percent less expensive than their brand name alternatives, and greater availability could bring life-saving medicine to patients who would otherwise have never been able to afford thecare they need. In fact, the savings might be even more once a healthy market emerges. A study of European biosimilars found an average price reduction of 35 percent.

It is easy to assume that companies working in fields such as health care, where human lives are at stake, must be motivated either by altruism and empathy, or by a ruthless desire to capitalize on the suffering of their fellow man. In fact, neither is true. To paraphrase Adam Smith, it is not from the benevolence of the pharmacy that we expect our medicine. The need to compete with other firms for a finite number of customers means that pharmaceutical companies will be forced to provide better services, and to engage in more innovation, regardless of whether they regard their clients with benevolence or distain.

Biological drugs, including biosimilars, are a new frontier in medicine and have the potential to greatly benefit mankind through new medical breakthroughs. That fact that these drugs are starting to penetrate the market and provide much needed care for patients across the country is cause for optimism about the future of American medicine. With any luck, this new competitive pressure will continue to drive pharmaceutical companies to even more astonishing discoveries.

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