The U.S. Food and Drug Administration is expected to release final regulations outlining lower-cost approval pathway requirements for so-called biosimilar drugs. The introduction of biosimilars is expected to reduce prices. This Perspective combines prior research and recent data to estimate cost savings in the U.S. market. We predict that biosimilars will lead to a $44.2 billion reduction in direct spending on biologic drugs from 2014 to 2024.

Cover: The Cost Savings Potential of Biosimilar Drugs in the United States
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The Cost Savings Potential of Biosimilar Drugs in the United States

by Andrew W. Mulcahy, Zachary Predmore, Soeren Mattke

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Research Questions

  1. Will new FDA regulations allowing for the introduction of "biosimilar" drugs (competing versions of complex biologic drugs) in the U.S. prescription drug market reduce health care costs?
  2. Will these regulations encourage competition and lead to lower prices for patients and payers?
  3. Who will benefit the most from the cost savings from biosimilars?

The U.S. Food and Drug Administration (FDA) is expected to release final regulations outlining lower-cost approval pathway requirements for so-called biosimilar drugs. The introduction of biosimilars is expected to reduce prices, albeit to a lesser degree than small-molecule generics. This Perspective combines prior research and recent data to estimate cost savings in the U.S. market. We predict that biosimilars will lead to a $44.2 billion reduction in direct spending on biologic drugs from 2014 to 2024, or about 4 percent of total biologic spending over the same period, with a range of $13 billion to $66 billion. While our estimate uses recent data and transparent assumptions, we caution that actual savings will hinge on the specifics of the final FDA regulations and on the level of competition.

Key Findings

Biosimilars are expected to increase competition and drive down prices, though not as dramatically as less-complex generic drugs did when they entered the market in the 1980s.

  • The introduction of biosimilars could result in up to $44.2 billion worth of savings—or 4 percent of total spending on biologics—over the next decade.
  • The magnitude of savings will depend on the specifics of the final FDA regulations, the amount of increased competition, and the acceptance of biosimilars by physicians, patients, and payers.
  • Savings will accrue to a range of stakeholders in the short term—including physicians and hospitals—though patients and taxpayers will benefit in the long term.

This research was sponsored by Sandoz, a Novartis Company, and conducted within RAND Health, a division of the RAND Corporation.

This commentary is part of the RAND Corporation Expert insight series. RAND Expert Insights present perspectives on timely policy issues. All RAND Expert Insights undergo peer review to ensure high standards for quality and objectivity.

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