A Reason to Worry About the Nascent Biosimilar Industry

I’m sensing a good deal of cynicism among payers today. Maybe the current specialty pharmacy trend makes them doubt that, in reality, biosimilars will not bend the cost curve significantly. After all, with multiple, frequent price increases in the originator drugs, what will an initial 15% discount on a new biosimilar actually accomplish (e.g., by Inflectra® or Zarxio®), other than turning back the clock 12 months on pricing?

The consensus seems to be, at least with multiple stakeholders attending the Biosimilar Multistakeholder Summit in San Diego on December 1–2, 2016, that the biosimilar industry could be stunted or certainly harmed by the nature of the products’ value proposition and by the economics of payers themselves.

Consider the following: the principal benefit of biosimilars relates to their value—specifically, an economic value. Since they are essentially inexact copies of the originators, biosimilars are not expected to have clinical or safety advantages over the originators. In fact, comparative clinical investigations of biosimilars are designed only to prove noninferiority, not superiority in any way to the originator. That restricts their possible proof of value to lower cost (and thus, hopefully, improved patient access—but this is also not certain).

Under this mindset, if the biosimilar is introduced at a minor discount to the current net price of the originator, the health plan, insurer, or pharmacy benefit manager could simply go back to the originator’s manufacturer and say, “Beat this price if you want to maintain your marketshare.” And the manufacturer can, because the vast majority of all revenues at this juncture of the lifecycle are profit. Their initial investment in clinical product development being paid off in the first years after approval, and their early more-expensive efforts resulting in today’s status with extensive marketshare. In addition, their most recent, frequent price increases have created even more room to negotiate their prices or rebates.

In this case, the biosimilar manufacturer is pressured to offer more aggressive contracts, at a time soon after they are trying to recoup the costs of product development ($100 million to $600 million) and the inevitable patent litigation. According to participants at the meeting, even purchasing samples of the originator product from its manufacturer for analytical and comparability studies required by the US Food and Drug Administration (FDA) could amount to sums more associated with “ransom.”

In the other case, assume that at least 2 biosimilars for the same originator product have entered the market. The net pricing and rebates should drive sales revenues down much faster. With adalimumab, it would not be surprising to see 3 FDA-approved biosimilars entering the market the day after the fight over Humira® patents are settled. Assuming no collusion is involved, free competition should cut the pricing of these agents by far more than 30%. For smaller players, this could be extremely difficult to bear, considering the patent fight has resulted in the loss of hundreds of millions of dollars in lost revenue by the need to delay launch. As an additional note, the extended delays in launch resulting from ongoing patent litigation may render the controversial 180-day notification period moot.

One possible scenario discussed by the participants was the possible sale of their low-profit biosimilar business to foreign companies with the least-expensive manufacturing costs (e.g., India, China, etc) and the exit of North American and Western European drug makers. Another more likely scenario is the short-circuiting of the market, as established companies like Shire (acquirer of Baxalta) or very small biotech firms like Epirus realize that the biosimilar business has far less profit potential than they thought and decide to leave the arena (or are forced financially to do so).

Biosimilars can, of course, improve patient access, right? Well maybe not. We’ll examine that issue in our next post.

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