The Cost-Effectiveness of Small-Molecule Drugs vs. Biologics
New study shows that small-molecule drugs and biologics have similar incremental health gains, but with lower costs for small-molecule drugs, the value is far greater.
In a new study in Health Affairs titled Small-Molecule Drugs Offer Comparable Health Benefits To Biologics At Lower Costs (first author Clifford and senior author/lab of James Chambers), the authors compare the (average) health gains, costs and cost-effectiveness data for small-molecule drugs vs. biologics. The study reviewed all drugs approved by the US FDA between 1999 and 2018 and reviewed the literature for publications covering cost-effectiveness data for each approved drug indication (e.g., for drugs with multiple approved indications, each approval was treated as a separate observation). The authors tried to focus on including estimates for which the drug was compared to the standard of care at the time of the FDA approval (which could include best supportive care). They excluded studies funded by the manufacturers.
Small-Molecule Drugs Provide Better Value
Based on 271 (of all 622 approved drug-indications), median incremental health gains for small-molecule drugs vs. biologics were 0.10 and 0.084 QALYs, respectively (the difference was not statistically significant). Looking at the drugs with the largest modeled QALY gains, there was a good mix of small-molecule (e.g., Orfadin, Kalydeco, and Gleevec) and biologics (e.g., Crysvita, Cyramza, and Enbrel).
However, there were substantial cost differences; incremental costs were $4,738 (small-molecue) and $16,020 (biologics). These cost differences naturally implied substantial differences in the cost-effectivness estimates. Median ICERs were $108,304 (small-molecule) and $228,286 (biologics), indicating that the median biologic does not pass typical cost-effectiveness threshold tests.
Snapshot of Exhibit 3 in the study Small-Molecule Drugs Offer Comparable Health Benefits To Biologics At Lower Costs.
Thinking about Policy
Since various incentive schemes exist to promote R&D activities, it is important to consider the population health and efficiency consequences of such schemes. For example, the US Inflation Reduction Act that now (reasonably) allows Medicare (the most influential payer in the world?) to negotiate prices with producers has different rules for small-molecules and biologics. The negotiated price can kick in after 9 years for small-molecule drugs and after 13 years for biologics. Since it is safe to assume that the negotiated prices will be lower than the non-negotiated prices, this gives additional (relative) incentives for developing biologics. As pointed out in the study, this is something that policy-makers may wish to reconsider given the data on which type of drugs provide better value (at least currently).