Tucked away inside Obamacare are 18 pages that could create a new $20 billion-per-year market. The section of Obamacare known as the "Biologics Price Competition and Innovation Act'' authorized the creation of a pathway to approval in the U.S. for biosimilar products. These biosimilars are basically generic versions of biologics, which are drugs derived from living organisms.

While controversy continues to rage about the benefits and costs of much of Obamacare, the consensus is that the introduction of biosimilars into the U.S. should be a big plus. However, three years after passage of the act, little progress has been made. Here's why.

Increased use of generic drugs has helped tremendously in controlling prescription drug spending. The nation's largest pharmacy benefits manager, Express Scripts (NASDAQ:ESRX), says that less expensive generics contributed to lower spending last year on treatments for common diseases such as high cholesterol. This marked the first time in two decades that these costs were reduced.

Despite this good news, total prescription drug spending still increased by 2.7%. Why? Americans spent more on specialty drugs, which are used in the treatment of diseases including cancer, hepatitis C, and rheumatoid arthritis. Generic alternatives aren't available for many of these drugs, in part because some of them are biologics. The U.S. had no approval process for biosimilar versions of these biologic drugs before 2009.

However, Obamacare includes provisions that authorized the secretary of Health and Human Services to establish a pathway for approval for biosimilars. The measure was one of the few parts of the law that garnered broad bipartisan support in the House and Senate. Both major political parties appeared to realize the potential for biosimilars to help control medication costs over the long run.    

IMS Health projects that the U.S. market for biosimilars should generate $20 billion annually by 2020. This baseline assumes that biosimilars will comprise 8% of the total biologics market by that point. IMS Health thinks that growth could possibly surpass this level, with biosimilar sales of more than $25 billion by 2020.

Express Scripts seems poised to be a winner with the growth of biosimilars. Like other pharmacy benefit managers, or PBMs, the company makes higher profits on generic drugs compared to brand drugs. While biosimilars won't be as profitable as these generics, increased availability of biosimilars could open up new avenues for Express Scripts to boost earnings.

Companies that successfully launch biosimilars should also reap the benefits of the new approval pathway. IMS Health's study published in late 2011 about the potential for this new market highlighted Teva Pharmaceuticals (NYSE:TEVA) as a prime example of one of these potential success stories. Teva currently ranks as one of the leading makers of generic drugs.

The heralded bonanza hasn't materialized yet, though. While a handful of "follow-on biologics" have been approved by the Food and Drug Administration, so far no biosimilars have gained approval through the pathway authorized by Obamacare.

Teva did get FDA clearance for marketing Neutroval, a biosimilar for Amgen's Neupogen. However, that approval came through the already-established Biologic License Application, or BLA, process rather than the newer biosimilar pathway introduced in Obamacare.

What about the Teva program touted by IMS Health as "poised to compete" in the new world of biosimilars -- development of a knock-off of Rituxan? In late 2012, Teva and partner Lonza stopped late-stage development for the drug. The companies stated that they were "evaluating the path forward for a Phase III trial based on the latest changes in the regulatory environment."Lonza CEO Richard Ridinger told Reuters that the cost of developing biosimilars was "considerably more" than first anticipated. 

Part of the problem is that the FDA has moved in slow motion. As of April 2013, only four draft guidance documents have been released. Regulatory uncertainty has been a primary reason that no company has even applied yet for biosimilar approval through the new pathway.

Another issue is that current makers of blockbuster biologic drugs aren't going down without a fight. AbbVie (NYSE:ABBV), which makes the world's top-selling drug Humira, petitioned the FDA last year to prevent approvals of biosimilars for Humira because the agency would have to use the company's trade secrets to do so. The company also plans to battle against potential competitors for possible patent violations.

Some roadblocks for biosimilars can't be easily solved. Manufacturing the drugs is complex and requires large investments. Companies entering the biosimilar market face significant technological and financial hurdles.

Beyond the minefield
So far, the introduction of biosimilars in the U.S has not been so good. However, the problems are not insurmountable.

Most importantly, the federal government needs to get its act together. Clear guidelines for the biosimilar approval process would enable more companies to move forward with seeking approval for biosimilars. The potential benefits can still be obtained, with investors and the U.S. public emerging as winners. For now, though, the hoped-for $20 billion biosimilar bonanza is bombing.