The term ‘biosimilar’ refers to an alternative similar version of an off-patent innovative originator biotechnology product (the ‘reference product’). Several biosimilars have been approved in Europe, and a number of top-selling biological medicines have lost, or will lose, patent protection over the next 5 years. We look at the experience in Europe so far. The USA has finally implemented a regulatory route for biosimilar approval. We recommend that European and US governments and payers take a strategic approach to get value for money from the use of biosimilars by (1) supporting and incentivising generation of high-quality comprehensive outcomes data on the effectiveness and safety of biosimilars and originator products; and (2) ensuring that incentives are in place for budget holders to benefit from price competition. This may create greater willingness on the part of budget holders and clinicians to use biosimilar and originator products with comparable outcomes interchangeably, and may drive down prices. Other options, such as direct price cuts for originator products or substitution rules without outcomes data, are likely to discourage biosimilar entry. With such approaches, governments may achieve a one-off cut in originator prices but may put at risk the creation of a more competitive market that would, in time, produce much greater savings. It was the creation of competitive markets for chemical generic drugs—notably, in the USA, the UK and Germany—rather than price control, that enabled payers to achieve the high discounts now taken for granted.

Background: This paper addresses the question of what a reasonable price for an orphan drug is. The research proposes a way to adjust an established payer/HTA body incremental cost-effectiveness threshold (CET) to take account of differences in patient populations and costs of research and development in order to sustain prices that generate rates of return from investments in developing orphan drugs that are no greater than the industry average. Methods: We investigated the cost of conducting research for orphan drugs as compared to non-orphan drugs, as well as patient population sizes targeted by orphans and non-orphans. We provided an empirical illustration based on novel drug approvals of orphan and non-orphan drugs of the FDA between 2011 and 2015 (N = 182). Results: Using, for illustration, the NICE incremental CET (£20 K per QALY) as an anchor and adjusting by R&D costs and expected market revenue, we estimated the adjusted reasonable CET for orphan drugs to be £39.1 K per QALY at the orphan population cutoff and £78.3 K per QALY at the orphan population mid-point. For ultra-orphan drugs the adjusted CET was £937.1 K. Conclusions: We propose one general method for establishing a reasonable price for an orphan drug, based on the proposition that rates of return for investments in developing orphan drugs should not be greater than the industry average. More research is required on data and assumptions, but with the data and assumptions we use, we find that in order to secure such a reasonable price for an orphan drug, the CET for orphans would need to be higher. This could be one approach for establishing the maximum allowable price society should be willing to pay, although decision-makers may still wish to negotiate a lower price, or refuse to pay such a premium over the value-based price in order to treat these groups of patients.

The conclusions could act as a guide to support the optimal design of incentive policies and schemes within health organisations when healthcare professionals are intrinsically motivated.

Payers need to think strategically in medium/long term to maximize benefi ts from biosimilars. Concerns about biosimilars' interchangeability/substitution (with their reference product) and uncertainty about outcomes act as barriers for their uptake. This paper recommends a policy which provides: (1) incentives for budget holders to use safe and eff ective lower-cost products; (2) market support to collect real world outcomes evidence to increase prescribers' confi dence in biosimilars.

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