Biosimilar Entry and the Pricing of Biologic Drugs

Biosimilars are close copies of biologic drugs, a group of complex pharmaceutical products that cannot be exactly replicated. The United States Congress passed regulation promoting biosimilar entry in 2010. Since then, the FDA has approved more than 30 biosimilars. We study how the entry of biosimilars has affected price, volume sold, and formulary placement of their corresponding reference biologic drugs. We find that reference biologics react to biosimilar entry much more aggressively than small-molecule brand drugs do to generic entry. We use a simple model to argue that differences in the perceived quality of biosimilar products can explain this discrepancy, and show empirical evidence in support of our theory. The model and empirical results suggest that biosimilars could eventually replace originator biologics, similar to how generic drugs replace brand products, provided that future research confirms the current medical evidence on biosimilars' safety and efficacy.