Biologics Boondoggle

Everyone knows that an easy way to save money on medicines is to buy generics rather than brand-name drugs. Makers of generics estimate that over the past decade they have saved the American health care system about $734 billion. Yet, we continue to spend more on drugs — in part because of the increasing use of so-called biologic medicines, which cost, on average, 22 times as much as ordinary drugs. In 2008, 28 percent of sales from the pharmaceutical industry’s top 100 products came from biologics; by 2014, that share is expected to rise to 50 percent.

Biologic drugs can be more expensive to manufacture; they are grown inside living cells rather than put together chemically, as conventional drugs are. But this does not fully account for their high prices. Another important factor is that they very rarely face competition from generic copies.

Congress has an opportunity to change this by including in health care reform incentives for generic drug makers to compete in the biologics marketplace. But unfortunately, both the House and the Senate versions of health care reform contain provisions that would discourage the development and significantly delay the approval of generic biologics.

The proposals before Congress would protect biologic medicines for 12 years after their approval by the Food and Drug Administration — that would be seven more years of market exclusivity than conventional drugs have. This extra protection for biologics would add billions of dollars to future health care costs.

Biologics, which include not only medicines like the breast cancer drug Herceptin and the arthritis drug Humira but also vaccines like the one that prevents HPV and cervical cancer, account for one in four new products approved by the F.D.A. For all their promise, biologics impose a heavy financial burden. A breast cancer patient’s annual cost for Herceptin is $37,000. People with rheumatoid arthritis or Crohn’s disease spend $50,000 a year on Humira. And those who take Cerezyme to treat Gaucher disease, a rare inherited enzyme deficiency, spend a staggering $200,000 a year.

The Medicare Payment Advisory Commission found that the top six biologics — including Avastin, a chemotherapy drug, and Remicade, a treatment for plaque psoriasis and rheumatoid arthritis — already consume 43 percent of the drug budget for Medicare Part B, which covers doctor visits and outpatient services. And the rate of increase in spending for biologics under Medicare Part D, the prescription drug benefit, significantly outstrips that of other drugs.

The health care reform bills passed in both the House and the Senate would delay generic competition for biologics for at least 12 years. Even after 12 years, the legislation would allow a drugmaker to extend market protection for its biologic by making minor modifications — a small tweak that would change its dosing, for example. In addition to blocking competition, this would reduce the industry’s incentive to create drugs. After all, given the option to extend protection on old therapies, why would any firm invest in new ones?

Some lawmakers in Congress say biologics need longer monopoly protection because they cost more to develop than conventional drugs do. But according to studies cited by the pharmaceutical industry’s own trade association, the average research-and-development costs of producing a biologic — $1.2 billion — are about the same as those of making a conventional drug — $1.318 billion.

At the same time, generic biologics face higher-than-normal barriers to entering the market: It costs more to develop manufacturing capacity for such products, and the F.D.A. approval process is more complicated and therefore more expensive. These barriers would suggest that biologic drugs should need fewer, not more, years of market exclusivity than conventional drugs have. In fact, when the Federal Trade Commission recently sized up the entry costs for generic biologics, it declined to recommend that biologics be granted any years of exclusivity protection.

Of course, one reason why the pharmaceutical industry would like 12 years of protection for biologics is that it would set the stage for lengthening the period of monopoly protection for conventional drugs as well. GlaxoSmithKline has already called for 14 years of exclusivity for conventional drugs.

Congress should allow biologics no more than five years of protection. That would provide drug makers plenty of incentive for innovation, and still protect consumers from the high prices that extended monopolies allow. Striking the right balance will ensure that Americans can afford the most effective medicines available.

Sanford Professor Anthony D. So is the director of the Program on Global Health and Technology Access at Duke, where Samuel L. Katz is a professor and chairman emeritus of pediatrics. This commentary was originally published in The New York Times.