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Understanding the Barriers to US Biosimilars


Without a strong biosimilars market, costs for biologics in the US continue trending upward. 

The world of drug patents for biosimilars in the United States is far more complex than that for small molecule drugs. Europe has had biosimilars for over ten years now, and as a result, price indexes for these drugs almost immediately flatten out in the six months after a new biosimilar enters the market.

By contrast, the US has only two biosimilars available. The FDA has approved five of them, but patent disputes are currently blocking sales of three of those. In 2010, the FDA developed a biosimilar approval pathway with an eye toward better competition and price savings. Indeed, by early 2017, 64 biosimilars were in the development pipeline, in reference to 23 original products.

While that is good news, biologics now represent 79 percent of Medicare Part B and 21 percent of Medicare Part D spending for the top 20 drugs prescribed by those programs. Biosimilars are expected to help contain those costs. Here are the main barriers to US biosimilars, and what needs to change to lower or dismantle them.

Biosimilar Development More Complex Than for Small Molecule Drugs

The market fundamentals for generic small molecule drugs are different than those for biologics. For biosimilars, development costs are closer to those of branded biologics than costs of generic small molecule drugs are to branded small molecule drugs. Biosimilars require on average eight to ten years, and investments upward of $200 million. Although biosimilars are expected to bring down spending on biologics, they are not expected to have the dramatic effects on costs that generic small molecule drugs do.

Prescribing Patterns and Demand-Side Factors Favor Brands

Providers and patients are more reluctant to choose biosimilars than they are to choose generics for ordinary drugs. On the demand side also are restrictive formulary substitution patterns under Medicare Part D. Under Medicare Part B, there is no incentive for physicians to use less-costly alternatives, so they are less likely to choose a biosimilar. Further, pharmacy benefit manager (PBM) incentives are not always aligned with the greater substitution of biosimilars due to opaque, complicated contracts.

Effects of Payer Coverage and Patient Out-of-Pocket Costs

The PBM is not considered a perfect agent for the consumer. Product hopping (introducing a new version of a branded product just before drug patents expire) works because PBMs typically do not switch consumers to generics right away.

Pharmacy benefits managers can inadvertently keep consumer prices high. 

While rebate programs do promote price-based competition, they make it hard for the final payors (consumers) to use them. Hence, when rebates are not fully returned to consumers, PBMs and manufacturers benefit from higher prices, so there is less incentive to get consumers to use them. Finally, the market structure is concentrated because there are currently so few choices in biosimilars.

Brand Attempts to Block Competitors

Brands themselves want to keep biosimilars out, and they use a number of tactics to do so. For example, “pay for delay” agreements with competitors help brands keep markets to themselves. Other exclusionary tactics by branded biologics are effective at keeping competition at bay as well. These tactics may include voluntary REMS (Risk Evaluation and Mitigation Strategy – which is supposed to be a drug safety strategy) designation. Product hopping, and tactics like “soft switching,” where an advertising push strives to shrink the market for automatic switching to generics once drug patents expire, are other ways brands are expected to attempt to block biosimilar competitors.


Competition enforcement increasingly appears necessary to encourage biosimilar entries to the market. For example, enforcement against tactics like “pay for delay” agreements and product hopping would help as branded drug patents expire. The PBM has a role too, by learning how consolidation and contracting promote or discourage entry of competitors into the market. They also have a role in learning how patient kickbacks (rebates) disable price competition and keep prices higher than they may otherwise be.

In conclusion, while the development pipeline for biosimilars is starting to fill in the United States, there are still considerable barriers to biosimilars entering the market. In Europe, where biosimilars are more common, they have been shown to help contain costs. Overcoming the barriers to competition in the US will be necessary to contain costs for the increasingly important biologics drug sector.

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