There may be few areas of the biosimilar industry more frustrating to payers, manufacturers, and observers than the delays in market access due to patent mazes and litigation. Attempts to manage address intellectual property rights of biologic makers ranged from the insertion of the “patent dance” process in the BPCIA to calls for the Federal Trade Commission to step in and declare certain patents anticompetitive and thus invalid.
Peter B. Bach, MD, at Memorial Sloan Kettering Cancer Center, has been at the forefront of efforts to address high oncology drug prices. With Mark Trusheim, MS, from the MIT Sloan School of Management, they published a column in the New York Times on March 15, which reiterated an extremely aggressive approach to the dual problems of patents and pricing. We first reported on this approach in 2019, and thought it was worthwhile reassessing, based on the biosimilar situation in 2021.
P-Quad or the Pequod?
Under Production Plus Profit Pricing (P-quad), the 12-year period of market exclusivity would set a stronger standard for the biologic product lifecycle. “After 12 years, and regardless of patents, the maker of the original biologic would set a price that guarantees a 10% profit over and above the cost of making and distributing its product,” according to Dr. Bach’s plan.
This would, in effect, obviate life-cycle extension as an incentive for creating patent thickets for a particular product. There would likely be other reasons to file new patents to protect intellectual property, including for potential licensing of a pharmaceutical or its manufacturing process, newer formulations (e.g., routes of administration or less-painful versions of an injectable). The all-consuming, retain-multibillion-dollar-sales-at-any-cost drive for share value growth would be gone. Maybe overnight.
By the time 12 years of market exclusivity are complete, the manufacturers of biologics have generally earned multiples of their initial research and development costs on the product. The vast proportion of revenues late in a pharmaceutical product’s lifecycle is profit. For a biologic agent like Humira® this may be a tiny fraction. (Note: This is a pure guess on my part, but with $16 billion of US revenue alone, how much could production and distribution be? $200 million is only 1% of the total.)
There are societal costs and benefits to the P-quad approach. One will likely be a rapid winding down of originator-sponsored research to improve a drug once marketed. Another would be a scuttled biosimilar industry. Drs Bach and Trusheim write that a 10% profit is more than most U.S. industries generate. That may be so, but we’re not talking about just any industry here. If this leads, as intended, to a gargantuan cut in total drug revenue at the end of the 12-year exclusivity period, there may be too little to sustain interest by the biosimilar makers of today. This effect is magnified if more than one biosimilar maker will have to share the smaller pie.
A Biosimilar Market to Ensure Drug Supply
On the other hand, the existence of a biosimilar market may no longer be based on the need for competition; rather it would be focused instead on ensuring supply, once the biologic maker is no longer interested in maintaining a 10% margin for a specific drug.
On the really big plus side, such an approach would undoubtedly reduce biologic prices. It would seriously hinder patents beyond those defining composition of matter and original manufacturing processes from delaying drug launch. In fact, the patent courts would have a lot fewer cases relating to biologics.
Furthermore, such a plan could also eliminate the use of rebates for older agents—if a price has been so discounted, what’s the point of offering a further rebate?
I wouldn’t be persuaded by the potential argument that the search for innovation will be harmed by reducing the opportunity for handsome profits beyond the 12-year period. The pharmaceutical industry is well able to earn considerable profits on a drug and contribute value to shareholders over the course of 12 years.
The authors’ stipulate that biosimilar competition has not yet resulted in anticipated drug price reductions. Based on data from IQVIA and Bernstein Research, this is not really the case in terms of marketed biosimilars in 2021. They argue that the price of trastuzumab today remains 26% higher than the 2007 price of Herceptin in today’s dollars. That may be true, but the prices are coming down. Just not as quickly as many expect they would. The real problem is that the price of biologics facing delayed biosimilar introductions has gone up. In past columns, I’ve expressed how the initial reductions in the cost of Enbrel® or Humira® will only reflect modest rollbacks. For example, based on yearly WAC increases of 9%, initial net price discounts on Humira in 2023 would have to be 54% to reflect the product’s cost in 2018. With that product, however, this may actually occur because of the intense competition upon biosimilar launch.
Maybe a restriction to 10% profit margins is not the right level for obtaining a balance between drug pricing and sustainability of the biosimilar industry. The immediate effects of decisive measures like P-quad are hard to gauge. The longer-term implications are even harder to estimate.