Captain Renault, chief of police in Casablanca, famously uttered, “Rick, I’m shocked! Shocked that gambling is allowed in this establishment,” as he pocketed his winnings. Similarly, no one connected with the pharmaceutical industry, health plan, insurance, or pharmacy benefit management (PBM) sectors should be the least surprised about the controversial practice employed by Janssen Pharmaceuticals to protect marketshare of its reference infliximab product (Remicade®). These same sectors have been pocketing their winnings for decades.
Pharmaceutical Rebate Roulette
The newswire buzzed in mid-June with the lawsuit filed by Walgreens and Kroger in the District Court of Eastern Pennsylvania. They claimed that Janssen’s parent (Johnson & Johnson) engaged in exclusionary practices to prevent access to infliximab biosimilar agents by Celltrion/Pfizer (Inflectra®) and Samsung Bioepis/Merck (Renflexis®). Hold on a second. Walgreens had previously owned a PBM and is now partnered with Prime Therapeutics, a PBM owned by Blue Cross Blue Shield plans, which benefited from the exclusionary rebate model that is the subject of its lawsuit. Kroger also owns a PBM, called Kroger Prescription Plans. Who are they thinking of, patients or themselves?
Pfizer is complaining about Janssen’s “anticompetitive practices” even though that manufacturer participated in similar actions to protect Lipitor® marketshare from the onset of generics. Pfizer can significantly drop its price, undercutting Janssen, which would result in lower net costs for plans and patients, in addition to increased marketshare for the biosimilar.
Exclusionary Contracting Nothing New
The whole point of rebates for payers is to leverage better net prices for these organizations in exchange for greater marketshare and preferred positioning for the pharma companies. Preferred positioning means a medication is available at the preferable formulary tier (with lower patient cost sharing) of products in the same class. So, if that if you agree to give my product preferred tier placement on formulary, I’ll expect that my marketshare will increase compared to noncontracted products These rebate contracts can be pretty weak: for example an “access” rebate of 5% or 10% if a plan agrees not to exclude coverage for the drug. On the other hand, they can be fairly aggressive: for a larger rebate, you agree that my drug will be the only drug of my therapeutic class competitors on the preferred tier (i.e., a “1 of 1” contract) or one of only 2 drugs on the preferred tier (i.e., a “1 of 2” contract). The lawsuits by Pfizer, and Walgreens and Kroger claim that Johnson & Johnson engaged in this 1 of 1 contract, which by its nature is exclusionary.
Multiple sources reporting the initial lawsuit also pointed to Janssen’s “Biosimilar Readiness Plan,” which was implemented with the Food and Drug Administration’s approval of Inflectra®. The Plan was simply its blueprint for negotiating the contracts to stave off the loss of marketshare after its 18 years without any direct competition. The problem was that it was too successful, limiting both Inflectra and Renflexis to single-digit shares of the infliximab market. This raised eyebrows at FDA, with Commissioner Gottlieb calling on plans to wean themselves off their reliance on rebate revenue.
Johnson and Johnson’s strategy to hold off the biosimilar infliximab market is little different than what other manufacturers do and have done for a very long time with their own drugs nearing patent expirations. Sometimes, they go the “authorized generic” route, striking a deal with another manufacturer to license the new product, thus allowing the favored generic manufacturer to launch earlier. They then provide a percent of revenues as a licensing fee back to the branded drugmaker. Other times, they sell their product to a generic manufacturer, knowing that the price will drop greatly when others enter the marketplace. However, in situations where the revenue stream can remain pretty high, even with competition, they will increase the size of the rebates to meet the lower retail price of the new products. This is the case with high-priced biologics. Johnson & Johnson will not want to cede billions of dollars in revenue without some aggressive tactics.
Lack of Price Transparency the Underlying Issue
One underlying problem that is being increasingly publicized is the lack of transparency in these rebate contracts. They are notoriously confidential. No one but the individual plan/PBM and manufacturer know the drug’s net price after rebates. One deal with Kaiser Permanente may be different from a contract with Cigna. Health plans that rely on PBMs to negotiate with manufacturers don’t often know the terms of the contract between the PBM and the drugmaker. In other words, they know they will get a specific amount of rebate revenue back, but may be unaware of the percent of the rebate that PBMs are keeping for themselves.
Adding to the complexity, Remicade (or an infliximab biosimilar) is most commonly covered under the medical benefit, which means it could be subject to a buy-and-bill arrangement with the physician or infusion center providing the infusion. On the other hand, some plans may be trying to move infliximab coverage to the pharmacy benefit, where they feel they can better control costs and utilization. Let’s also not forget that under the average sales price (ASP) method of reimbursement, the ASP is based on costs, discounts, and rebates. In other words, the more a product is rebated, the lower the ASP paid over time.
Why not Just Compete?
Overall, the lawsuits have shone a light on the “dark matter” of price transparency. That’s a good thing. Whether the plaintiffs ultimately win the lawsuit based on the anticompetitive effects of the practice will likely not immediately affect the marketshare of the biosimilar infliximab makers. Of course, the biosimilar manufacturers can simply lower their selling price or offer greater rebates to undercut Janssen. Almost all of these rebate contracts have clauses permitting one party to terminate it within a short notification period. No plan is married to the exclusionary contract. Unfortunately, divorcing themselves from the manufacturer’s rebates is something else. And biosimilar manufacturers fear a “race to the bottom” in pricing. However, this sounds less like competing, and more like complaining.
Captain Renault would have been very comfortable policing this ambiguous, deceptive environment.