National PBM reform does not address private labeling by PBMs and their subsidiaries directly, but it does imply that PBM private labels will not hold up over the long term.
Since the announcement of the Federal Trade Commission (FTC) and Express Scripts (ESI) settlement, there has been some speculation regarding the effect of the settlement and national PBM reform overall on the potential growth of the private-label biosimilar channel. Whereas neither the national PBM reform provisions of the Consolidated Appropriations Act (CAA) nor the FTC settlement directly addresses private labeling, you could make the argument that this relatively new revenue channel will be negatively affected.
Spread Pricing Before or After Reaching the Pharmacy
The spread-pricing provisions of the CAA address spread pricing inside the pharmacy but not outside of a pharmacy. That is, a PBM’s distributor, like Cordavis, may purchase the unbranded biosimilar from a manufacturer, like Sandoz, at one price, and relabel it and resell it at a higher price. This is not subject to national PBM reform: Like a drug manufacturer at launch, the distributor can name a list price for its relabeled drug.
A PBM’s Fiduciary Responsibility and Conflict of Interest
The strongest, significant barrier to the private labeling status quo is the fiduciary responsibility imposed on PBMs. A PBM-owned private-label distributor creates a conflict of interest that is hard to reconcile.
Although a PBM’s private-label biosimilar may be amongst the least-expensive drugs available, but for a self-insured employer client, for instance, why would you tolerate this incentive, which allows a PBM to earn more money off the backs of your covered workers?
The PBM’s transparency and reporting mandates would seem to ensure that a potential conflict-of-interest situation is disclosed to its clients. Drug unit sales or at least biosimilar market share must be reported on a regular basis.
Thus, the PBM will have to justify its coverage preference for the private-label brand(s). Again, if pricing of that private-label brand is amongst the best deals around, that might be justification enough.
Take into consideration the costs of a private-label product: A share of the profits must go to the original biosimilar manufacturer as part of this relabeling arrangement. The profits must also pay for any other costs related to the relabeling of the product. This also does not consider any royalties that the biosimilar manufacturer may still be paying to the reference drug maker under any patent or launch settlement. As a result, the private-label product is unlikely to be the least expensive (by net price) biosimilar in a drug category. This is definitely not the case with Quallent’s products, which are more mid-WAC than low-WAC.
Rebate Revenues and the Gap That Must Be Filled
The question thus remains whether the private-label channel will continue to grow in influence or withers away as a result of PBM reform. The mandates for rebate pass-throughs will leave a sizable hole in PBM revenue. As national pressure has ratcheted up the urgency for rebate transparency, the PBMs have been working to shrink their dependence on rebate revenues. This has been achieved mostly by increasing administration and service fees. For the big 3 PBMs, this meant raising new revenues through private labeling. Therefore, PBMs will no doubt be reluctant to drop this relatively new, significant revenue source. It may take several years before the provisions of national PBM reform truly affect the private-label channel. For the biosimilar industry, these are extremely important considerations, as private labeling has, depending on the company and drug, increased and decreased biosimilar market access. For drug categories with heavy competition, every biosimilar company worries about making a private-label deal and the implications for failing to make one.
It should also be noted that private labeling has just entered the realm drugs covered under the medical benefit (e.g., McKesson’s pegfilgrastim private label). The implications of this development in the race for Keytruda and Opdivo biosimilars cannot be overemphasized.
Overall, national PBM reform is a very good thing for the biosimilar industry. If private labels are a casualty of this trend, you won’t find much sympathy on the biosimilar side of the fence.
This article was written by our Director of Content, Stanton Mehr. Stan is has been writing commentary and reporting news about the biosimilar industry since the submission of the first biosimilar 351(k) application to the FDA 13 years ago. Since that time, BR&R has been tracking the US biosimilar marketplace, with the industry’s original, comprehensive and updated database of biosimilar filings with the FDA.
