Drug Pricing Lab 03/15/2021

Curbing Biologic Drug Spending with P-quad

Peter Bach and Mark Trusheim's latest drug pricing idea: Have biologic innovators lower prices to "cost" plus a fixed (and generous) profit margin. The result? Huge financial savings for everyone.

Having your cake and eating it too with Production Plus Profit Pricing (P-quad)

There is a drug spending problem in the US and the spotlight is on large molecule biologics. It's been over a decade since the Biologic Price and Competition Act (BPCIA, 2009) went into effect and biosimilar competition as a savings strategy has fallen disappointingly short of policymakers' aspirations. Today, biologic drugs might comprise only 2% of all drugs dispensed in the US, yet they account for 40% of drug spending.

Don't believe it? Consider Humira: first approved for marketing in the US in 2002, currently protected by 247 patent filings, biosimilar entry postponed until at least 2023 (i.e., 21 years after Humira's first approved). As of 2020, Humira generated $16 billion in US net revenue and remains the top selling drug in the US. And the world.

When compared with biosimilars, P-quad would yield an additional $265 billion in savings overall.

In 2019, Bach and Trusheim argued biologics are effectively natural monopolies. Two years later, they come back with more data and more details, starting with a biosimilars market update. The problem – potential competitive entrants must first run risky, expensive, uncertain, and time-consuming R&D. On top of this being a barrier to entry, the team has now examined the cost and ethics of running clinical trials that have as their sole objective evaluating biosimilars. Tens of thousands of patient volunteers have been diverted to these studies instead of potentially participating in studies of innovative new therapies. They have also put together a policy solution with accompanying implementation strategy to mitigate such sizable biologic drug spending, coined “P-quad” for Production Plus Profit Pricing. To round out the series, they commissioned Milliman, an actuarial firm, to model savings from the P-quad policy compared to the current environment of relying on biosimilar competition. Spoiler alert: the projected savings are staggering.

Wondering if it is only Bach and Trusheim worried about foregone savings from failing biosimilar competition? Nope – here is a report from United Health Group pointing out the savings that could be achieved from biologics if their prices just fell when they are supposed to, even by far more modest amounts than P-quad policy would yield.

Read about all of this in the New York Times here and join the Twitter conversation here.

Quote source: Bach, Trusheim. The Drugs at the Heart of Our Pricing Crisis, New York Times.

Share

Research & Insights

We conduct non-partisan, independent research, and make our work accessible and informative to policymakers and the general audience alike. Browse our featured research or explore our work by article type.

Biosimilars: Market Changes do not equal policy success
Numerous articles and reports have trumpeted biosimilar market growth, but it's critical we do not lose sight of the sole objective for creating the biosimilar market: to reduce the cost of older biologic drugs for society and taxpayers.
Drug Pricing Lab 03/15/2021
The Drugs at the Heart of Our Pricing Crisis
The US drug pricing system is broken, but not irreparable. For large-molecule biologic drugs, enter: Production Plus Profit Pricing (P-quad, pronounced like Ahab's seagoing vessel).
NYTimes 03/15/2021
Modeling P-quad
The Drug Pricing Lab engaged Milliman to conduct an independent analysis of the Production Plus Profit Pricing (P-quad) policy proposal. The Milliman analysis estimates the projected spending on U.S. biologic and biosimilar drugs under a referent scenario where there is no biosimilar entry or competition, the existing ‘status quo’ scenario under the current biosimilar environment, and the Drug Pricing Lab’s P-quad policy proposal. 

This report was commissioned by Drug Pricing Lab.
Milliman 03/12/2021
Bottom-Up Pricing Estimate for P-quad
How much would biologic drugs cost under P-quad pricing? Two approaches to estimating fully loaded costs plus a profit (10% and 20% examined) suggest net discounts from current prices would be at least 65% to 75%
Drug Pricing Lab 03/12/2021
Ethics of Clinical Trials to Evaluate Biosimilars
Biosimilars require extensive, expensive, and time-consuming human testing prior to market entry, a process vastly different than generics. So why are we still doing them?
MedRx IV 03/09/2021
Abandon Biosimilars as Biologics are Natural Monopolies
Biosimilars will not effectively lower the price of biologic drugs after the period of market exclusivity.
HA Blog 04/15/2019
Production Plus Profit Pricing (P-quad) for Biologic Drugs
In 2019, Peter Bach and Mark Trusheim argued that biologics are "natural monopolies". Two years later, they revisit this idea with new data.
HA Blog
Xeljanz, the FDA, and nine years of patient harm
Quantifying population-level adverse events in the near decade between when safety concerns were identified and FDA action
Drug Pricing Lab 05/31/2022
Atypical antipsychotics: Decades of use, unfathomable harms
Using attributable risk calculations to quantify how many premature deaths resulted from atypical antipsychotic use in the elderly
Drug Pricing Lab 05/31/2022
Medicare Part B Premium Dynamics Explained
The Drug Pricing Lab commissioned Milliman to prepare a report exploring the impact of changes in Medicare Part B program costs on beneficiaries’ premiums and Social Security payments. This report focuses on the 2022 Part B premium for beneficiaries with various income levels to illustrate the payment dynamics and discusses the implications for related programs.
Milliman 12/23/2021
Comparing Factors that Influence Pharmaceutical Pricing and Access in the…
Drug prices in the United States are some of the highest in the world, which has triggered several policy proposals aimed at adopting pricing strategies used by other countries.
Drug Pricing Lab 12/20/2021
Biosimilars in Medicare Part D: pricing dynamics and considerations
The Drug Pricing Lab engaged Milliman to prepare a report summarizing the pricing dynamics affecting utilization of biosimilars in the current Medicare Part D marketplace and under the proposed Part D benefit design in the Build Back Better Act.

This report was commissioned by the Drug Pricing Lab.
Milliman 12/14/2021
Newsletter

Stay up to date on our work and news