Entry and competition in generic biologics

Patents for several blockbuster biological products are expected to expire soon. The Food and Drug Administration is examining whether biologies can and should be treated like pharmaceuticals with regard to generics. In contrast with pharmaceuticals, which are manufactured through chemical synthesis, biologies are manufactured through fermentation, a process that is more variable and costly. Regulators might require extensive clinical testing of generic biologies to demonstrate equivalence to the branded product. The focus of the debate on generic biologies has been on legal and health concerns, but there are important economic implications. We combine a theoretical model of generic biologies with regression estimates from generic pharmaceuticals to estimate market entry and prices in the generic biologic market. We find that generic biologies will have high fixed costs from clinical testing and from manufacturing, so there will be less entry than would be expected for generic pharmaceuticals. With fewer generic competitors, generic biologies will be relatively close in price to branded biologies. Policy makers should be prudent in estimating financial benefits of generic biologies for consumers and payers. We also examine possible government strategies to promote generic competition. Copyright © 2007 John Wiley & Sons, Ltd.