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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).

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Originally published on 03/15/2021 in New York Times

P-quad achieves the policy goal that biosimilar competition aims for

Congress created a system that allowed pharmaceutical companies to charge high prices for their new products. But the pricing protection is only supposed to last a few years. Then Congress depends on knockoff copies competing on price to ensure all drugs eventually become affordable. Generic drugs for decades have been taking on small molecule pills and tablets. For the past decade, biosimilars have tried to take on large molecule biologics. The generic model is working well. The biosimilar one, well, not so much.

Enter P-quad. When a biologic drug's market exclusivity is up, the company would continue selling it in return for a guaranteed profit of 10% to 20% - margins far higher than most commodity producers receive.

Peter Bach and Mark Trusheim lead an in-depth exploration on the current state of the biosimilar market, ethics of human subject trials for costly and lengthy biosimilar drugs, and how to implement P-quad policy. When all is said and done, policymakers could anticipate billions in savings and a restoration of the pricing structure they intended when they passed the 2009 BPCIA law.

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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. 

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