New Study: States Could Save Up to $1.8 Billion Annually by Prioritizing Lower-Cost Biosimilar Medicines

A new Pacific Research Institute study estimates state employee health plans could save up to $1.8B annually by prioritizing lower-cost biosimilars versus expensive originator biologics, with 2024 spend on originators at roughly $20B. Savings range from nearly $900M (conservative) to almost $1.8B (aggressive), with California up to $179M and Texas/Florida/New York each potentially saving $100M+ in higher-adoption scenarios. The article also cites that biosimilars have generated over $56B in nationwide savings since launch and notes the savings opportunity should expand as more biologic patents expire.

Analysis

This is less a fundamental shock than a policy-aircover event: the near-term P&L transfer is from originator biologics to whoever can win formularies, rebates, and switching protocols. The biggest economic lever is not the discount headline itself, but whether public plans normalize biosimilar-first procurement, which would weaken the rebate wall that has protected several branded biologic franchises from true net-price competition.

The clearest beneficiaries are biosimilar-capable suppliers and payers with strong benefit-management infrastructure. UNH and CVS should see modestly better medical-cost trend and more leverage in state-plan bidding, while biosimilar manufacturers with scale and distribution access can pick up volume without needing brand-level awareness. The losers are concentrated biologic franchises where payers have the most room to swap: the pressure is most acute in autoimmune, oncology, and ophthalmology categories where public plans can force switching at renewal.

The contrarian point: the market tends to overprice adoption speed. State procurement is slow, fragmented, and often politically noisy; actual savings usually arrive after RFP cycles, not with a study release. Over the next 1-3 months, watch for explicit formulary language or state budget guidance; over 6-18 months, the real catalyst is whether large states replicate the model and whether originators respond by cutting net prices enough to blunt biosimilar share gains.

Key Decisions for Investors

• Maintain a mild overweight in managed-care/payer exposure (UNH, CVS) on a 6-12 month horizon; biosimilar adoption is a low-beta way to reduce specialty-drug trend and support contract wins. Falsify if next plan-year RFPs show no shift toward biosimilar preference.
• Relative value: long VTRS vs short ABBV over 3-6 months. VTRS has incremental upside from biosimilar penetration while ABBV is more exposed to net-price erosion in immunology. Risk/reward is attractive if state-plan language becomes more explicit, but stop out if ABBV guides resilient U.S. biologic pricing or VTRS misses execution.
• Do not chase XBI/biotech beta on this headline alone; wait for evidence of actual procurement changes or state-level policy adoption. If California, Texas, or New York issue biosimilar-first contracting guidance, then add a biosimilar basket trade.
• Alert item: buy PFE or AMGN on weakness only if their biosimilar franchises begin to show share gain in quarterly commentary. The thesis is volume transfer, not broad sector re-rating, so lack of measurable adoption should cap upside.