AARP Got Follow-on Biologics Analysis Wrong

As the health care reform debate rages, I have been been looking at the potential impact of follow-on biologics (or biosimilars) on the drug industry. I came across an article from the AARP Rx Watchdog Report (May 2009) that made an argument in favor of follow-on biologics regulation. Granted, the AARP is not necessarily impartial, but the analysis from the AARP's Public Policy Institute is a bit misleading.

The AARP compares the treatment costs for small-molecule drugs and biologics and argues that biologics are too costly when used to treat the same condition, such as rheumatoid arthritis or multiple sclerosis. This argument can be misleading because the AARP does not compare the efficacy and safety of small-molecule drugs vs. biologics. It's like comparing an old Pinto to a brand new Mercedes Benz and saying that the Mercedes is too expensive. Of course, people are willing to pay more for the Mercedes because there is more value in such a car, as should insurers for better treatments.

The AARP also argues that sales of the top selling biologics more than cover the average cost of developing a biologic ($1.2 billion). First of all, the sales have to cover the development costs in addition to other costs. Otherwise, drug companies would not be in business for long. Secondly, it's unfair to cherry pick only the top selling drugs; it's not an apples-to-apples comparison.

I agree with the AARP that biologics have (to a certain extent) contributed to rising health care costs. I'm not a pricing expert, but some biologics (not all) do seem to be overpriced. It's obvious that rising health care costs are unsustainable. I also believe that follow-on biologics regulation is inevitable. Refer to the FTC findings on follow-on biologics competition for more analysis.