Biologic drugs represent a relatively new wave of medications that has come to market and is dramatically changing both the lives of patients and the finances of drug plans. As a practical definition, biologics are proteins, or a chain of amino acids, which allow for very targeted therapies. The U.S. Food and Drug Administration (FDA) identifies them as “any virus, therapeutic serum, toxin, antitoxin or analogous product applicable to the prevention, treatment or cure of diseases or injuries of man.” While these drugs have been proven to be effective, they can also be quite costly.
The market for biologics is growing at a much faster pace than that of other pharmaceutical drugs, placing significant cost pressures on employers, insurers and patients. They are currently the fastest growing component of the pharmaceutical industry and continue to grow. More than 300 biologics and vaccines targeting more than 200 diseases are currently in clinical trials or awaiting approval from the FDA.
Biologics offer significant clinical benefits and striking improvements in outcomes compared to traditional therapies. Several studies have shown that treatment with biologic drugs is associated with higher rates of abatement of disease symptoms among patients. For chronic diseases for which conventional treatment options have failed, biologics have often proven to be an effective option.
Although the benefits of biologics are apparent, these drugs have a sizable price tag. In the context of the current economic crisis that is affecting the Canadian economy as a whole, it is important to look at the impact of this high cost on private insurers.
According to data from Brogan Inc.’s database, private drug plan sponsors spent more than $600 million on biologics in 2008 alone, comprising about 12% of total national private drug plan expenditure. This represents a growth of 21% over 2007. Moreover, total expenditure on biologic drugs grew at an annualized rate of 26% between 2003 and 2008.
Looking more closely into the costs associated with treating three specific conditions—psoriasis, multiple sclerosis and rheumatoid arthritis—the costs of biologic treatment options are startling. Total national private market expenditures on biologic drugs in each of these categories were substantial: $20, $160 and $165 million, respectively, in 2008. On average, the cost of treating a patient with a biologic drug is between $15,000 and $35,000 per year. The impact on private payers is even more pronounced when you consider that this could be as much as 100 times the cost of treating these patients with small molecules.
Even more extreme are the costs associated with treating rare diseases such as Pompe, Fabry or Gaucher’s disease with biologic drugs. Although these are exceedingly rare conditions, the cost of treatment could reach upward of $1 million per patient per year.
It is common to assume that with several biologic drug patents approaching expiration, the introduction of subsequent entry biologics (SEBs) would bring ample cost savings to private payers. However, at present, it is uncertain whether or not this will occur.
Identical copies of biologic drugs cannot be made, and bioequivalence is more difficult to establish than with traditional generics. Small variations in the drug could potentially lead to adverse health outcomes. The fixed and variable costs of SEBs are also higher due to the complexities of the manufacturing process. All of these factors make it difficult to predict how the market for SEBs will develop.
Despite their high costs, biologics have brought extensive symptom relief to many patients for whom traditional therapies have failed. Whether or not the anticipated savings through SEBs can be realized, plan sponsors should not overlook these drugs and their effectiveness.
Rita Wakim is an economist with Brogan Inc.
rwakim@broganinc.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the June 2009 edition of BENEFITS CANADA magazine.