Biologic drugs a good buy in U.S.

The soaring cost of prescription drugs is a major concern in the United States, but drugs in one important category — biopharmaceuticals, or drugs produced through biotechnology — actually do not cost more in the United States. Michael F. Furukawa, assistant professor in the School of Health Management and Policy at the W. P. Carey School of Business, and his co-author found that while the United States is by far the biggest user of biopharmaceuticals, the prices for these drugs in the United States are comparable to those in a broad range of countries.

The soaring cost of prescription drugs is a major concern in the United States. Consumer advocates have demanded government action to bring prices down, while individuals and even some local governments in the United States have ventured across the border to Canada and Mexico to buy cheaper drugs.

But drugs in one important category — biopharmaceuticals, or drugs produced through biotechnology — actually do not cost more in the United States, according to Michael F. Furukawa, assistant professor in the School of Health Management and Policy at the W. P. Carey School of Business, and Patricia M. Danzon, professor in the Health Care Department of the University of Pennsylvania's Wharton School.

In a joint study, the researchers found that while the United States is by far the biggest user of biopharmaceuticals, the prices for these drugs in the United States are comparable to those in a broad range of countries. "We found, surprisingly, that biologic drugs were not priced higher in the United States than other countries," said Furukawa. "For identical formulations and adjusted for income, prices actually are higher in other countries."

Keeping prices high overseas

These findings were published recently in Health Affairs, a leading health policy journal. Using a database of all sales of pharmaceuticals, including biotechnology and conventional drugs, Danzon and Furukawa developed price indexes that accurately reflect the cost of drugs in different countries. The researchers analyzed the data from the United States, five major European Union countries, Canada, Australia, Japan, and Mexico.

Furukawa said he and Danzon had expected to find that biotechnology drugs are costlier in the United States, which does not regulate the price of the products, while most of the other countries studied do have price controls. The firms that sell non-biologic drugs typically have kept U.S. prices high to recoup the cost of research and development, while price regulation tends to lower drug prices in other countries.

But this dynamic appears not to be at work with biopharmaceuticals. Comparing biotechnology drugs across countries, the researchers found that all of the countries examined except for Canada, Mexico, and Spain have higher prices than the United States. Furukawa said the price controls employed by countries apparently are not targeting biotechnology drugs, which remain a relatively small segment of the drug market.

"We call it flying under the regulatory radar," he said. The researchers also examined prices adjusted for per capita income to account for affordability in different countrie,s and found results even more striking. "Prices adjusted for income are higher in nearly all countries than in the United States, ranging from 5 percent higher in Japan to 243 percent higher in Mexico," Furukawa and Danzon write in their journal article.

Hope for cures

Drugs developed through biotechnology have been growing in importance in medicine, offering promising treatments for diseases previously thought to be incurable. Overall spending on this relatively new class of drugs has been rising rapidly in the United States. In the year ending in June 2005, biopharmaceuticals accounted for 12.9 percent of money spent on drugs in the United States or $119 per person.

Between 2001 and 2005 U.S. spending on biopharmaceuticals grew 127 percent. Although spending on biopharmaceuticals also is on the rise in other countries, the United States far outpaces all others, according to Furukawa and Danzon. Aggregate sales in the United States are six times the next largest market, Japan. On a per capita basis, the United States also is far ahead of other countries, spending twice as much as the second-ranked country, France.

Analyzing the data further, Furukawa and Danzon discovered that the high spending on biopharmaceuticals in the United States is not the result of more doses or higher prices. Indeed, measured in doses per capita, use of biopharmaceuticals is not especially high in the United States.

The researchers note that Spain, Germany, Japan and Italy all recorded higher doses per capita than the United States. But in the United States, the biotechnology drugs being used are newer and considerably more expensive. They include the anti-neoplastics, which are given in the treatment of cancer, and anti-rheumatics, for the treatment of rheumatoid arthritis.

More availability, more use

Furukawa and Danzon tried to uncover the reasons for the different spending patterns on biopharmaceuticals in the United States and other countries. They identify what they believe is the key factor: availability. Drugs are approved for use and distributed faster in the United States, which does not have as elaborate a regulatory structure as most of the other nations studied.

The researchers note that since 1996, the United States has approved more biopharmaceuticals than any other country. "The United States also leads in the availability of biopharmaceutical molecules, followed by Germany, France, and Spain and the United Kingdom. Similarly, of the 69 new biologics launched since 1996, the United States has the highest percentage," Furukawa and Danzon write. The United States also is quickest to launch new biologics, the researchers found.

They measured the difference between the first launch of a product in one country and its launch date in any other country. The lag was shortest in the United States. Said Furukawa, "We have much greater access and quicker access to the new drugs. That is what is driving the higher use.

The researchers raise the question of why in matters of price, biopharmaceuticals are different from non-biologic drugs. Biopharmaceutical prices are fairly comparable across countries, while conventional drugs are more expensive in the United States. Furukawa and Danzon suggest a number of factors are at work.

Biopharmaceuticals often are administered in hospitals, and drugs used in hospitals are exempt from price regulation in many countries, according to the researchers. Furukawa and Danzon also speculate that regulators may be reluctant to set prices because of pressure from patient advocacy groups that want quick access to biopharmaceutical drugs to treat incurable conditions.

And most countries have industrial policies that promote the biotech industry, and price regulation could undermine those efforts, the researchers noteIn any event, the international picture on prices for biopharmaceuticals is favorable to the biotechnology industry, according to Furukawa. "It's somewhat encouraging for the biotechnology drug sector that there are opportunities to recoup their investment in research and development," Furukawa said.

Bottom Line:

• While prices for conventional drugs tend to be higher in the United States than in other countries, prices for biotechnology drugs in different countries are comparable. U.S. prices for biopharmaceuticals are similar and in some cases lower than in other countries.
• The United States spends by far the most on biotechnology drugs, both in absolute terms and on a per capita basis. The main reason is the high use in this country of newer and more expensive drugs for treatment of cancer, rheumatoid arthritis, and other serious diseases.
• In the United States biotechnology drugs are more available and come on the market faster than in other countries. Since 1996, the United States has approved more biopharmaceuticals than any other country.
• High spending on biopharmaceuticals in the United States is largely a result of the greater availability and utilization of new drugs, rather than higher prices.