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

generic, biologic, biological

Abstract:
Recent discussions in health reform circles have pinned great hopes on the prospect of innovation as the solution to the high-cost, inadequate-quality U.S. health system. But U.S. health care institutions - insurers, providers, and specialists - have ceded leadership in innovation to Indian hospitals such as Care Hospital in Hyderabad and the Fortis Hospitals around New Delhi, which have U.S.-trained doctors and can perform open heart surgery for $6,000 (compared to $100,000 in the United States). The Indian success is a window into America's stalemate with inflating costs and stagnant innovation.