Complex, powerful drugs called biological products, or biologics, now account for about two-fifths of all pharmaceutical spending and 93% of spending growth since 2014. The rise of biologics, which are harvested from biology rather than being synthesized chemically, has been a boon to patients suffering from cancer and other diseases, but the costs of these medicines are an increasing concern to policy makers. Biosimilars, which have no meaningful clinical differences from biologics, are supposed to tame biologic prices when patents expire, but so far they have had minimal effect, saving a mere $240 million a year, according to a new study by the Pacific Research Institute.
The situation is so frustrating that a group of researchers published a two-part article this spring in Health Affairs that argued for abandoning the biosimilars regime altogether, declaring biologics a “natural monopoly,” and having the government set prices according to a formula. (More details on that proposal – and the response – below.) Another article, by an intellectual-property scholar, termed biosimilars “a distraction.” Perhaps we’re asking biosimilars to do too much, too soon. On the other hand, biosimilars are already having a significant impact in Europe. Why haven’t they lived up to their promise here? Can the Virtuous Cycle Apply to Biologics? In recent years, the average price of a prescription in the U.S. has leveled off and even fallen. September was the fourth month in a row that the Bureau of Labor Statistics reported a decline in its pharmaceutical price index. A major reason is that regulatory changes have made it easier to bring generic drugs to market to compete with branded drugs whose patents have expired. Generics now account for 90% of all prescriptions, up from 75% in 2009, according to a May study by IQVIA. From 2014 to the end of 2017, generic drug prices fell by one-third. And when additional generics hit the market, the prices of their branded competitors fall as well. This virtuous cycle, however, does not apply to the vast majority of biologics, which are becoming more and more important, especially in treating cancers and autoimmune diseases such as rheumatoid arthritis and ulcerative colitis. Because biologics are made from living organisms, they are large and complex molecules. For example, a Congressional Research Service (CRS) report in June pointed out that aspirin “contains nine carbon atoms, eight hydrogen atoms, and four oxygen atoms while the large biologic drug Remicade contains over 6,000 carbon atoms, almost 10,000 hydrogen atoms, and about 2,000 oxygen atoms.” Biologics are expensive to develop, and, frequently administered in doctors’ offices and hospitals, they are also priced higher than other drugs. Last year, 11 of the 15 top-selling drugs in the U.S. were biologics, with total sales of about $85 billion. An analogue – but not a precise one – to the relationship between a brand-name chemical drug and a generic is the relationship between a biologic and a biosimilar. While generics are exact copies of branded chemical drugs, biosimilars are almost. CRS provides this definition: A biological product may be demonstrated to be “biosimilar” to the reference product if data show that the product is “highly similar” to the reference product, notwithstanding minor differences in clinically inactive components, and there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. Even developing a product that is “highly similar” to a biologic is daunting. “The investment needed to develop and market a biosimilar is considerably higher than the $1 million to $4 million that is required in the generic market,” wrote Erwin Blackstone and P. Fuhr Joseph Jr. in 2013 in a paper for the journal American Heath & Drug Benefits. “It takes 7 to 8 years to develop a biosimilar, at a cost of between $100 million and $250 million.” Until recently, biosimilars faced daunting regulatory hurdles as well. Then, in 2010, Congress passed the Biologics Price Competition and Innovation Act (BPCIA) as part of the Affordable Care Act. The BPCIA created an abbreviated pathway for biosimilar approval by the Food & Drug Administration. Still, the number of biologics actually approved has been meager and the number actually reaching the market is minuscule. Savings of $50 Billion to $250 Billion Over 10 Years The potential for savings, however, is immense. In an earlier study, CBO estimated that biosimilars would reduce prices by 40%. Research published in July by the Pacific Research Institute found that if currently approved biosimilars became reasonably competitive -- gaining a 50% market share against branded biologics – savings would increase to $4.8 billion a year (or about 20 times current levels). With more approvals in more therapeutic classes, biosimilar savings could become much greater. A separate study by the Rand Corporation two years ago estimated total savings of $54 billion from 2017 to 2026, and a study by the pharmacy benefit manager (PBM) Express Scripts in 2013 forecast savings of $250 billion over the next 10 years. So far, however, the FDA has approved 23 biosimilars, with only nine of those currently being marketed in the United States. Approvals are accelerating, with six in 2018 and seven so far in 2019, including two anti-cancer drugs. By contrast, Europe developed a regulatory framework five years earlier than the United States and has approved about two and a half times as many biosimilars, including 16 in 2018 alone. Unlike in the U.S., in Europe, approved biosimilars are reaching patients and saving money. For example, the CRS study points out that the three FDA-approved biosimilar competitors to the top-selling drug in the U.S., Humira, will not reach the market until 2023. In Europe, however, four Humira biosimilars were launched at the start of 2019 with two more to come. Sanford C. Bernstein & Co. analyst Ronny Gal predicts that, by year-end, biosimilars will account for half the market in countries where they are being sold. “The Impact of Biosimilar Competition in Europe,” an IQVIA study last year, looked in depth at the effect on prices and concluded: The seven established therapy areas with biosimilar competition show a consistent picture of reduced average list prices in European countries. The increased competition resulting from biosimilars entering the market affects not just the price of the respective biosimilars referenced product, but also the price of the whole product class. It can have almost as large an impact on the total market price as it has on the biosimilar/referenced product price. In the case of EPO’s in Portugal, the price decease of the total market was -66%. EPO stands for Epoetin, a drug that stimulates the production of red blood cells and fights anemia. Overall in Europe, biosimilars to Epoetin have driven prices down 27%, according to IQVIA. A separate FDA study found that the entry of a single biosimilar in a non-U.S. OECD market lowered prices by 30% compared with the previous price of the biologic. With three or four biosimilars in a therapeutic class, prices dropped 35% to 43%. The IQVIA study also found that lower prices led to more demand and, thus, improved patient access. In other words, for the United States, more competitive biosimilars mean, not just lower spending, but a healthier nation. Obstacles Biosimilars Face The United States is usually in the vanguard of both medical innovation and the policy that encourages it. Why does Europe seem to be so far ahead? Besides development costs, biosimilars face a host of obstacles to getting to market here. One problem that seems fairly simple to address is lack of good information. Among the remedies discussed in the Biosimilars Action Plan, released by he FDA in July 2018, is better communication. Many pharmacists and physicians – not to mention members of the general public -- are still unclear on what biosimilars are and how they perform. There are worries that they are unworthy substitutes for branded biologics. The FDA has initiated an outreach and education campaign, but, as a June article in STAT claimed, “misinformation about these products” is abundant. Wrote Hillel Cohen and Dorothy McCabe, two pharmaceutical executives who are members of the Biosimilars Forum Education Committee: Some biologics manufacturers and groups have issued misleading, incomplete, and inaccurate information about the safety and effectiveness of biosimilars in an attempt to slow acceptance of and access to biosimilars. This mischaracterization is pervasive and threatens to stall system-wide health care cost savings and the advancement of biosimilars in the U.S. with untoward fear mongering. In speech at Brookings last year, Scott Gottlieb, then the FDA Commissioner, pinpointed another obstacle. He called competition in the biologics space “anemic because consolidation across the supply chain has made it more attractive for manufacturers, Pharmacy Benefit Managers [PBMs], Group Purchasing Organizations and distributors to split monopoly profits through lucrative volume-based rebates on reference biologics—or on bundles of biologics and other products—rather than embrace biosimilar competition and lower prices.” Is Competition Being Thwarted by PBMs and Biologics Makers? In other words, the high rebates paid to PBMs and others by makers of biologic products – companies that make other popular medicines as well -- are a disincentive for plans to offer biosimilars to members. “The branded drug makers,” said Gottlieb, “thwart competition by dangling big rebates to lock up payors in multi-year contracts right on the eve of biosimilar entry.” He added that the FDA was “concerned that volume-based rebates may encourage dysfunctional clinical treatment pathways. We’ve heard from multiple sources that some payors are requiring step-therapy or prior authorization on the reference biologic before patients can access a biosimilar. We see no clinical rationale for these practices.” Joshua Cohen, a pharmaceutical analyst, elaborated on this theme in an article in Forbes: In some ways, the U.S. biosimilars market behaves more like a branded than a generics market, where, in each therapeutic class consisting of originator biologics, biobetters (follow-on originator biologics), and biosimilars, different brands compete on price or rebates. Originator biologics manufacturers increase rebates to retain market share, and in some cases negotiate formulary exclusivity with payers to preempt biosimilar competition. If available to them, they also introduce biobetters to the market, which compete on the grounds of improved quality, dosing, or convenience. In turn, biosimilar makers must offer payers substantial rebates to gain market share through favored formulary tier placement. Additionally, it’s vital that they invest heavily in marketing their product to obtain buy-in from payers, physicians, and patients. The courts may step in to address this problem, or Congress and the Administration might follow through on earlier plans to rein in PBMs, whose opaque rebates enjoy an exemption from anti-kickback laws. But, clearly, a bottleneck exists in the United States but not in Europe. Another obstacle is patent litigation. Stealing intellectual property is wrong, and patents spur innovation. But critics say that patient access is suffering when biologics makers, especially, game the system. The CRS study stated, “The launch of several biosimilar products has been delayed due to ongoing patent litigation and settlements between brand biologic and biosimilar companies. For example, AbbVie has been the subject of Congressional inquiry for its use of a so-called ‘patent thicket’ to protect” its biologic Humira. The FDA approved three biosimilars to Humira in 2016, 2017, and 2018, but, under settlements between the manufacturer and AbbVie, none will be launched before Jan. 31, 2023. No doubt, a major reason that European biosimilars reach market more quickly is a difference in patent regimes. Other obstacles include a confusing system for naming biosimilars that adds four random letters as the suffix to the non-proprietary name, the difficulty that companies developing biosimilars have in obtaining samples from branded biologics makers, and the thorny issue of interchangeability. While pharmacists can substitute a generic for a branded drug on their own, they cannot substitute a biosimilar for a biologic unless the biosimilar is deemed “interchangeable” – a designation that, so far, no biosimilar has achieved. Speaking at a conference earlier this year, Gal argued that the FDA should “collapse the requirements” for interchangeable and biosimilar products into a single designation. Achieving approval as a biosimilar is already a high bar. Are Biologics a ‘Natural Monopoly’? Some analysts are maintaining that policy and educational obstacles are not at the root of the problem. In an article in Health Affairs in April, Preston Atteberry, Peter Bach, and Jennifer Ohn of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, and Mark Trusheim of MIT argued that biologics, unlike small-molecule chemical drugs, should be seen as “natural monopolies.” They write, “The biologic and chemical differences between small-molecule and biologic drugs, not policy decisions” explain why generics have increased competition but biosimilars have not. Biosimilars, they write, are too expensive and time-consuming to produce, and because they are not exact copies, they will always elicit questions about clinical adoption. “Addressing these challenges consumes development time and money, increases the risk of regulatory failure, increases sales and marketing costs, and raises the expected profit threshold a prospective biosimilar manufacturer requires before considering entering the market,” they add. “Analysts have concluded that biosimilars are unviable for any reference product with annual revenues less than $897 million—a threshold that many biologics fail to meet.” In a second article, the authors revealed their solution, which, they say, could generate $250 billion to $300 billion in savings over five years. A biologic could retain their exclusivity as intellectual property, as currently, but when that period expires, the government would order the price drastically cut, along the lines of reductions that ensue when generics enter the market of a chemical compound. “The lowered price,” write the authors, “should equal the costs of production (including facility repair and replacement) and market distribution, plus an appropriate profit.” The article has brought strong responses. Alex Brill and Dominic Ippolito of the American Enterprise Institute, also writing in Health Affairs, argue that biologics are not “natural monopolies” – like, for example, an electric power company – and that the limited evidence shows that biosimilars do, in fact, “appear to generate the kind of competitive forces that most experts had predicted.” An anonymous response to the first of the Atteberry pieces, points out that the National Health Service in the U.K. “recently secured biosimilar adalimumab at >80% discount, saving >£300 Million GBP/$400 Million in one tender. [Here is a link to an article on the subject.] This was the single most expensive specialty drug on our hospitals’ formularies. The 2018/19 financial year looks to deliver half a billion pounds of savings to reinvest back into healthcare.” Proposed Policy Changes to Ease the Biosimilar Pathway While consumers have an incentive to choose a generic that, under a pharmaceutical insurance plan, might cost $10 out-of-pocket over a branded drug that costs $200, no similar consumer incentive exists for a biosimilar over a biologic. That must change. Prescribers, as well, lack strong incentives. Currently, their reimbursement under Medicare is the same, no matter whether they choose a biologic or a biosimilar. But the bill approved in July by the Senate Finance Committee proposes increasing the add-on payment percentage of the biosimilar from 6% of the manufacturer’s average sales price to 8%. creating greater incentive for physicians to choose the biosimilar product. There are other potential legislative correctives to encourage biosimilar uptake as well. For example, Medicare plans currently receive stars for achieving certain quality and performance targets. The stars make the plans more enticing to consumers. On Oct. 6, Reps. Paul D. Tonko (D-NY) and Bob Gibbs (R-Ohio) introduced the Star Rating for Biosimilars Act (H.R. 4629), directing HHS to add availability of cost-saving biosimilars as a new condition for achieving stars. That’s an added incentive for plans to encourage biosimilar use. Employers, however, need to become more active in pushing insurers and PBMs to clarify why biosimilars are not more available to plan members. If a branded biologic has a biosimilar competitor, why isn’t the plan promoting the use of the less expensive biosimilar? The answer may lie in the rebates that the biologic manufacturer is paying to the PBM. The truth is that the virtuous cycle exists. It took decades for public policy to change so that generics would become more available and competitive. Let’s hope that the process for biosimilars moves faster. Clearly, however, this is not the time to give up on the promise of biosimilars to constrain drug prices.
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