The biologics story
In 2009, Health Canada approved 19 single-molecule entries into the marketplace. It also approved 10 biologics for use, proving that new higher-cost therapies are coming to market in increasing numbers (Figure 3, see PDF).
Looking ahead to 2010 and beyond, the virtual depletion of single-molecule pipelines for new blockbuster drugs is a profound change from what industry pundits have become accustomed to. New biologics are dominating (Figure 4, see PDF), and their sales are forecast to grow at twice the rate of traditional products for the next five years, led by new drugs for cancer. There are currently about 1,100 new cancer drugs in the biotech pipeline, an impressive 200 in Phase III clinical trials, around 400 in Phase II, less than 200 in Phase I and less than 300 in the research or pre-clinical stage. Cancer, infectious diseases, neurology and cardiovascular are the top four areas of new biotech products.
The prediction that the top 10 drugs will soon comprise mostly specialty or biologic products is well known: as many as seven of 10 biologic substances could make their way on to this list by 2015. This is good news—these products work and work well—but if this occurs, the underlying financial model of employee group benefits is threatened, which should greatly concern plan sponsors and other industry participants.
Pharmaceutical firms have been in pursuit of biotechnology for many years, and this is not simply a move to generate added revenues. These firms were among the first to recognize that the future of the industry is biotech or biologic products. Anti-cancer antibodies will be among the most prized assets in this class—which, by 2013, will be a market that exceeds $160 billion and will account for 50% of the top 100 drugs by 2014.
Research shows that biologics are the story and will remain so for the next decade or more. Pharmaceutical firms are moving to acquire biotech firms and fund their research. Last year, Roche moved to acquire Genetech outright (they had previously been in a partnership), Abbott acquired BASF and AstraZeneca acquired Cambridge Antibody Technology. These moves are strategic and point to the future, when smaller firms will develop products and will then be targeted by larger firms to bring these products to market. Again, this will be good news down the road for new treatments and therapies but will put even more pressure on drug plan sponsors to manage the costs.
The problem with subsequent entry biologics
It might seem logical that there could be generic versions of biologics—and, therefore, price relief—but this is not going to happen, at least not in the traditional manner. Subsequent entry biologics, or “bio-similars,” are better viewed as independent products, not generics of biologics. Simply put, it is not possible to duplicate a biologic substance.
Consider this definition of biologic from the U.S. Public Health Service Act: “a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product applicable to the prevention, treatment or cure of diseases or injuries of man.” Creating any substance that fits that definition is an amazing feat; duplicating it in a standalone environment is not within the realm of contemporary science. A product such as Lipitor is a single molecule or simple compound, whereas biologics may contain thousands if not millions of molecules. The best we can hope for is a similar product. Compounding this issue is the relatively slow response time from Health Canada in creating the regulatory process for the evaluation and approval of bio-similar products—despite having already approved Omnitrope, the first bio-similar for sale in Canada.
The underlying message in all of this is that drug plan costs are set to increase in a manner that we haven’t seen before. It is debatable whether private payers will be able to manage the looming cost pressures. Market costs for large amount pooling are increasing rapidly, and very few underwriters are willing to entertain new products to manage this risk.
With no national pharmaceutical strategy in place for the country, private payers will be forced to act. Given the budgetary problems that federal and provincial governments are having, it appears as though private payers will have to craft their own solution and then wait for governments and legislation to catch up. Furthermore, 2010 is the year to consider placing a maximum on your drug plan. Even if it is not implemented, there is a pressing need to evaluate your exposure to the significant risk of drug plan cost increases, now and in the years to come. BC
Scott Warner is a senior underwriter, accident & health, Canada, with Chartis Insurance.
scott.warner@chartisinsurance.com
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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the April 2010 edition of BENEFITS CANADA magazine.