Cost savings from follow-on biologics

June 25, 2008

A major issue in the pharmaceutical world involves the licensing of biological drugs. (Biological drugs are products derived from living organisms.)

CBO has now issued a cost estimate for S. 1695, which would establish an abbreviated regulatory procedure for licensing, by the FDA, ofbiological drugs that meet certain requirements and that are similar to certain existing biological drugs. Savings to public and private purchasers of biologics would result from the availability of these lower-priced versions that would be approved by FDA for marketing under the bill. Such competing products are commonly referred to as "follow-on biologics (FOBs)," "biosimilars," or "biogenerics."

CBO estimates that:

  • Enacting S. 1695 would reduce total expenditures on biologics in the United States by $0.2 billion over the 2009-2013 period and by about $25 billion over the 2009-2018 period. (Over that 10-year period, such savings would equal roughly 0.5 percent of national spending on prescription drugs, valued at wholesale prices.)
  • Direct spending by the federal government would decrease by $46 million over the 2009-2013 period, and by $5.9 billion over the 2009-2018 period; most of those savings would accrue to the Medicare program.Federal revenues would increase by $6 million over the 2009-2013 period and by $0.8 billion over the 2009-2018 period, because insurance premiums paid by employers would be lower and taxable wages would consequently be higher. As a result of those changes, CBO estimates that enacting the bill would reduce budget deficits (or increase surpluses) by a total of $52 million over the 2009-2013 period and by $6.6 billion over the 2009-2018 period.
  • Implementing S. 1695 would increase federal discretionary spending, on net, by nearly $30 million over the 2009-2013 period and by $5.3 billion over the 2009-2018 period, assuming appropriation of the necessary amounts, mostly because the bill would authorize discretionary spending equal to the estimated amount of savings to the federal government under the legislation. These sums exclude FDA's costs to administer the new regulatory program established under the bill.

Analyzing this proposal has raised many complicated issues, and Julia Christensen of our Budget Analysis Division and Anna Cook of our Health and Human Resources Division have worked tirelessly on the cost estimate over an extended period of time. In my view, the product reflects CBO at its best!