How is International Reference Pricing used within biosimilar pricing?

Introduction

Biologics are complex medicines derived from biological sources such as living cells or organisms, making them larger and more complex than traditionally synthesised drugs. Biosimilars are similar versions of biologic medicines in terms of quality, safety and efficacy which are developed using the same manufacturing process upon the patent expiry of the originator. However, due to the inherent variability and complexity of biologic medicines and their manufacturing processes, biosimilars are not regarded as generics as they are not exact replications. This leads to slightly more difficult regulatory approval processes than generics which includes abbreviated clinical trials and means they are not held to the same rules in terms of pricing.¹

Typically, the similarity of a biosimilar to their reference biologic is sufficient to allow biosimilars to gain market access without a full HTA (Health Technology Assessment) submission (for more information on HTA processes regarding biosimilars, visit our other Remap news articles as part of ‘Biosimilar Month’), thus the only barriers to market access are price setting and other matters such as funding and procurement.

Currently, the pricing approach of biosimilars is variable across different countries with a mixture of international reference pricing (IRP), internal reference pricing, mandatory price cuts, and tendering.² This article will focus on how IRP is used for biosimilars and what its advantages and disadvantages are.

How widely is IRP used for biosimilars?

International Reference Pricing is used sporadically for the pricing of biosimilars and is often used as a complementary measure to help ensure lower prices. Of 35 countries studied across mainly Europe and the rest of the world, 18 used IRP in some format for price setting of biosimilars (See Table 1). Across these countries, there is a range of rules and country reference baskets used. There was an even split of countries using the lowest price (9/18) or some form of average price (9/18) to set prices, and the majority of countries (14/18) reference prices at the ex-factory level, with the remainder using pharmacy purchase price or retail price.

Countries typically recalculated prices every 6-12 months, however Austria, Ireland and New Zealand had no price recalculations, and Romania only recalculates prices every five years. There was a range of country reference basket sizes, from three countries in Croatia, Spain and New Zealand to 27 in Slovakia and 31 in Poland.

To note is that of these 18 countries using IRP for biosimilar pricing, only Greece, Iceland, Portugal and Slovenia use it as their main rule for setting prices. The remainder of the countries use IRP as part of a combination of pricing calculations to try and set the lowest price, often taking the lowest of the reference price and a mandated price cut versus the original biosimilar. Few countries used IRP only informally as a tool for price referencing, such as New Zealand who use IRP as a tool in price negotiations to determine a fair price.  

What are the advantages of IRP for biosimilars?

• International reference pricing, if used correctly, could lead to the price of biosimilar drugs being lowered which would facilitate greater access and have a lower budget impact on country healthcare systems.^3,4
• International reference pricing is easily implementable, especially where there is a constraint on resources such as in smaller countries, as it can be easier to use than other price-setting methods.

What are the disadvantages of IRP for biosimilars?

• If a price changes in one market, it can have a massive knock-on effect within other markets. This can include volatility of exchange rates.⁴
• Depending on the size of reference baskets, the complexity of referencing rules, and the frequency of recalculations, there could potentially be a large administrative burden set by IRP. For example, Slovakia, with a reference basket size of 27 countries, recalculate their prices every six months, which leads to reliance on the pharmaceutical industry putting prices forward.
• IRP could lead to higher prices in lower-income countries if used incorrectly, for example, if the country reference basket doesn’t include countries of similar economic status.
• Depending on IRP rules, some pharmaceutical companies may choose to avoid launching in certain markets to avoid prices being lowered by recalculations in larger markets which reference them.

Conclusion

There are both advantages and disadvantages to using international reference pricing for the price-setting of biosimilars, which depend on how well it is implemented in each market. There is scope for IRP to facilitate lower prices of biosimilars, but this comes with the risk that if implemented incorrectly it could lead to increased prices. Currently, IRP is used mainly as a supportive measure when setting biosimilar prices, and this may be the best way forward as it allows countries to benefit from the potential for lower prices while not facing the potential disadvantages.

Sources:

1. European Medicines Agency. Biosimilar medicines: Overview. 5/5/2017. Updated 29/10/2019. Accessed 19/10/2022. https://www.ema.europa.eu/en/human-regulatory/overview/biosimilar-medicines-overview
2. Generics and Biosimilars Initiative. Pricing of biosimilars. 23/03/2012. Accessed 19/10/2022. https://gabionline.net/biosimilars/research/Pricing-of-biosimilars
3. Simoens S, Verbeken G, Huys I. Biosimilars and market access: a question of comparability and costs?. Targ Oncol. Accessed 19/10/2022. DOI 10.1007/s11523-011-0192-7
4. World Health Organisation, “External Reference Pricing: WHO Guideline on Country Pharmaceutical Pricing Policies. A plain language summary”, https://apps.who.int/iris/bitstream/handle/10665/341894/9789240024083-eng.pdf?sequence=1&isAllowed=y#:~:text=External%20reference%20pricing%20tries%20to,used%20for%20further%20price%20negotiation.