Let’s not Knock Innovation, but Biosimilars Exist for the Sake of Competition

A recent Twitter conversation between a blogging colleague of mine and a German advocate of precision medicine propelled this post: What is the real benefit of biosimilars? Does biosimilar development detract from efforts to produce innovative medicines? Is the main societal benefit biosimilar cost savings?

biosimilar cost savings

Biosimilar Development Is Separate From Innovation Development

The main reason that the Biologics and Biosimilars Price Competition and Innovation Act (BPCIA) was signed into legislation was related to cost containment. For biologics, there was no pathway for the evaluation and approval for lower-cost copies in the US health system, akin to the generic-brand name dynamic for conventional drugs. Adding competition has been the first and only point. The specialty drug trend had been rising rapidly, and the long-term estimates were frightening: Costs associated with specialty drugs like biologics threaten to eat 48% of the total drug spending pie in the United States by 2020.

Two factors were responsible. The first, increasing specialty drug utilization, has been especially difficult to address. The pipeline is congested with biologics. Medical societies are increasingly incorporating biologics into their guidelines and clinical pathways. Prescribers have grown more comfortable with these agents, and payers have limited tools at their disposal to put the brakes on their use.

The second, price increases, are well known and publicized. Without competition, drug companies tend to test what the market will bear, and to this point, they have borne quite a bit. Unlike in Europe, where the tender system of pharmaceutical purchasing has resulted in better cost containment, the US payers have been accustomed to stomaching large price increases through increased use of rebate contracts with price guarantees. But the overall costs continue to rise, as contracts expire and new ones are drawn up. Thus, the list prices for drugs like Enbrel® and Humira® have skyrocketed, with Humira’s more than doubling in a few years.

There is no evidence to say that biosimilar manufacturers would have engaged in the development of innovative new agents had they not devoted resources to this area. Indeed, pure-play biosimilar makers, like Coherus or Adello, were only introduced to produce biosimilars. Other makers, such as Samsung Bioepis, are joint ventures of existing manufacturers to do the same. Biogen recently raised its stake in Samsung Bioepis to nearly 50% of the company’s shares. This could be construed as a case of an originator company pouring $700 million into a biosimilar manufacturer, which could be using that money directly for other purposes. Finally, firms like Apotex, Mylan, Sandoz, and Hospira (now part of Pfizer) are heavily involved in generic drug manufacturing. Biosimilar development was a natural extension for them. Even big pharma players, such as Amgen, Merck, and Pfizer, are more commonly engaged in biosimilar marketing partnerships rather than purely R&D efforts (e.g., Amgen/Allergan, Merck/Samsung Bioepis, Pfizer/Celltrion).

One can also make an argument that pharmaceutical innovation is more evident at the drug discovery level. These days, big pharma seems less interested in pursuing drug discovery than in purchasing it.

The Societal Benefits of Biosimilars

The EMA and FDA biosimilar pathways were created to introduce competition that would lower drug costs. This in turn would make innovative biologic therapy available to more patients. Biosimilar cost savings could drive greater access to important drug technologies.

With the EU’s longer and more extensive experience with biosimilar medications, costs have indeed been saved. Although this has varied by country, it is undeniable.

In the US, with very limited economic experience with biosimilars (filgrastim and infliximab), savings figures are more theoretical than real. Although the infusion of a biosimilar into the new market may reduce wholesale acquisition price of the reference drug a bit, it will have a greater effect on net pricing, after rebates. And, of more immediate importance, the new biosimilar has the potential to halt further price increases for the originator product. This aspect of biosimilars cost savings cannot be overemphasized. Between the first adalimumab biosimilar approval and the initial availability of these products in 2023, the list price of Humira can increase upwards of 40% (or more, if Abbvie veers from its pledge to limit price increases). The initial price of the first adalimumab biosimilar will thus be much higher than if it was launched last year. On the other hand, adalimumab biosimilars will launch in the EU in October of this year, which should effectively lower cost products and limit their EU members’ exposure to future Humira price increases.

Biosimilar cost savings can have real benefits in terms of improved access. Payers’ incentives to use biosimilars (if they are motivated to implement them) can result in lower patient cost sharing. For example, a fourth-tier biologic may be subject to a 20% cost share, whereas a third-tier biosimilar may carry a flat copay of $100. This can make a difference in terms of therapeutic choices available to patients.

In conclusion, the German correspondent is only partly right. Biosimilars are not innovative. They are highly complex, cost-control medications. Do they detract the focus of manufacturers from new innovative products? There’s no evidence of this. However, we are beginning to see limited evidence in the US of the societal benefits, namely cost savings, they can bring.

What Will Be Considered a Biosimilar in 2020?

Payers, providers, and patients in the US are narrowly focused on a limited set of biosimilar products; we all know them well—the anti-TNFs, the colony-stimulating growth factors, and most recently some antitumor drugs (e.g., trastuzumab, rituximab, and bevacizumab). In 2020, before the first biosimilar to Humira® hits the market, some medications may be reclassified as biosimilar status.

Tucked away in the Biologics Price Competition and Innovation Act of 2009 (BPCIA) is a set of obscure provisions that has the potential to create a good deal of confusion at that time.

“Transition drugs.” If you’re familiar with the term, you’re one of the few. Some medications are “transitioning” in the next couple of years. Specifically, drugs that will be transitioned include the insulins, but also other naturally occurring proteins, such as hyaluronidase, human growth hormones, and menotropins.

The mechanism is actually quite simple. Today, these products are all approvable under the original Food, Drug, and Cosmetics (FD&C) Act of 1962. By 2020, these agents will be approvable as biologics under the BPCIA. That means that they will not only be categorized as a biologic, but they will be subject to biosimilar—not generic—competition. No more new drug applications or abbreviated new drug applications, only biologic license applications of the 351(a) and 351(k) varieties.

In March 2016, the Food and Drug Administration (FDA) issued draft guidance on these transitional producinsulin-pensts. As the Regulatory Affairs Professional Society described it earlier this year, “Put simply: FDA will not approve any pending or tentatively approved application for a biological product under the Federal [FD&C] Act after 23 March 2020.”

This may have the effect of slowing approval of today’s so-called follow-on biologics, which will have to go through the 351(k) application process. For example, Lilly received approval for its insulin glargine product under a 505(b)2 application. This application process allowed Lilly to use clinical data from Sanofi’s originator product Lantus®. Under the letter of the new law, because no insulin glargine product has been approved via the biologic license application route, there are no “reference” or originator insulin products.

This can result in labeling and exclusivity period issues as well, possibly discouraging manufacturers of these products from applying for FDA approval. “Nothing in the [BPCIA] suggests that Congress intended to grant biological products approved under section 505 of the FD&C Act—some of which were approved decades ago—a period of exclusivity upon being deemed to have a license under the PHS Act that would impede biosimilar or interchangeable product competition in several product classes until the year 2032,” FDA said.

A legislative proposal was introduced in 2015 by Representative Michael Burgess (R-TX), which would have asked the Government Accountability Office to review the provisions and their potential impact before the 2020 transition took place. The proposal did not advance in the House.

A search revealed no updates on the legislative or regulatory sides of the fence, so we assume the transition will occur as intended. Currently stated policy by the FDA is that all biologics will receive a new four-character suffix to their nonproprietary names. Will this apply to the older insulins and growth hormones as well? Will coding, descriptors, or nomenclature for Lantus® have to change to reflect a new status as a reference biologic product? Or will this only apply to medications approved after March 2020 (in which case, there could be a confusing dichotomy here).

It could get a bit messy, folks.

Controversy Over the Cost to Bring Pharmaceuticals to Market

This is one of the prickliest topics in the health care industry, and it has been as long as I can remember. One of the publications I worked with was called Product Management Today. Long defunct, this periodical followed the pharmaceutical industry quite closely. As a result, we were familiar with Tufts University’s Center for the Study of Drug Development. This was the first organization to publish what was considered credible figures as to what it cost to bring a drug to market.

In the early 1990s, that number was published in the Journal of Medical Economics to be about $231 million. Remember, these were generally small molecules, and the drug industry consisted of dozens of big manufacturers identifying their molecular targets, characterizing them, and cultivating them through the clinical trial process. In 2003, this number was revised upward to somewhere north of $800 milWeb image 3lion. In 2016, the Tufts team recalculated the numbers, and it found essentially a 10-fold difference (not accounting for the inflationary change in the value of the dollar between 1991 and 2016). They indicated that it costs $2.7 billion to bring a product to the market today, which also considers the cost of failed drug development. In other words, they added the opportunity cost to a pharma company for a drug that was withdrawn or failed clinical trials (any stage). In their 2016 analysis, they took as their drug sample, 106 investigational drugs, 87 being small-molecule compounds and the remaining 19 biologics. I’m guessing that if biologics represented more than 18% of the sample, the total average estimate could have been even greater.

The cost to produce a biosimilar is considerably less. This is partly the result of the lesser clinical trial requirements compared with new chemical entities. Although this figure has not been convincingly calculated, I’ve heard it cited to be anywhere up to $250 million. This seems to be reasonable, based on the development requirements. Unfortunately, several biosimilar manufacturers have to wait to market their agents because of patent litigation, and that in itself represents a cost.

Today, the results of another study was released, which offers a very different number. Published in JAMA Internal Medicine, authors from Oregon Health and Sciences University and Memorial Sloan Kettering Medical Center found that the median cost to produce 10 cancer medications was really $648 million (range, $204 million to $2.602 billion)—add another $110 million or so for opportunity costs. This included 5 drugs that received fast-track approval. Not only did the researchers use US Securities and Exchange filings that cited manufacturer-reported costs, but they limited the analysis to only manufacturers without a previous approved drug on the market. The drugs evaluated included several monoclonal antibodies, so it was reflective of complex molecule development.

I’d like to point out another question that perhaps skews the calculation. Rarely these days does “big pharma” get involved with new drug identification and characterization. True, they are often involved in the expensive clinical trial phase, but do we read in the paper weekly that a drug discovery company has licensed or sold the product to a big pharma entity (or even sold the company itself)? And what is the guarantee that they are not overpaying for the price of the drug or the company?

The upshot of this is that the 10 companies evaluated in the more recent study had cumulative revenues resulting from their new agents of $67 billion from the time of approval (until December 2016 or the time it sold or licensed the product to another company). The range per product was ranged from $204.1 million to $22.3 billion. It sounds overall, that they were good buys for the big pharma companies but not necessarily for the health care system.

In other words, whether it cost $648 million, $800 million, or $2.7 billion, the research and development costs for these new agents are made back in a year or less. It is hard for us to listen seriously to pharma companies who use the cost to develop the agents, or their having to eat the cost of failed agents, as credible justification for the prices being charged.

Unlocking the Rebate Trap: A Challenge for Biosimilars

An article published in JAMA Internal Medicine on May 1 caused a bit of a stir on the biosimilar blogosphere. The authors, from Yale University, posited that biosimilar manufacturers cannot win the rebate battle. And they are at least partly right.

Using a pretty extreme example of rebating/pricing and utilization in the biologic marketplace, they found that if 50% of patients switched to a biosimilar, the payer could be paying more money for the drug category in total compared with simply accepting the high prices and rebates of the originator’s manufacturer. Under the scenario set forth, the health plan or insurer would in fact not be saving the money expected, because of a so-called “rebate trap.”

In their example, the originator’s WAC was $50,000 and with a 50% rebate, the payer’s net cost was $25,000. The biosimilar, on the other hand, was priced at only $10,000. Based on 1,000 patients in total taking the autoimmune drug, they assumed that 50% of patients started using the biosimilar instead of the originator product. This would evoke the originator’s manufacturer to completely withdraw their rebates. The result is that the net cost on the remaining 50% who are still taking the originator product would now be $50,000 (not $25,000). That may be true; however, if the rebate no longer exists, what is the incentive for the health plan to cover the originator product? Without interchangeability in play, it may be difficult to switch patients, but with this price difference, payers will be motivated to exclude the originator. The decision of the originator drug manufacturer to not compete will make that decision much easier.

The example assumes an extreme discount on the biosimilar. It will be difficult to obtain such large discounts in an environment where 15% discounts on WAC are the norm. What is more likely is that the originator manufacturer will increase their rebate to prevent greater biosimilar utilization (at that more modest savings), resulting in some savings over the pre-biosimilar environment. Otherwise, the question is whether the originator drug maker will cut out their rebates altogether. Not likely, if they want to maintain significant marketshare. In addition, the introduction of multiple adalimumab biosimilars will likely blow up the existing market basket for the autoimmune category, which could redefine the way in which these agents are contracted.

ICER: Current Biologics for Rheumatoid Arthritis Well off the Mark for Cost Effectiveness

The Institute for Clinical Effectiveness and Research (ICER) released its report on biologic treatment of rheumatoid arthritis on April 10th, and it wasn’t pretty. The group, which assesses the value of therapies based on effectiveness and cost, found that none of the available immunomodulators approach the cost-effectiveness threshold of $100,000 to $150,000 per quality-adjusted life-year (QALY).

Of course, the price of this drug class plays a large role in ICER’s calculation, utilizing a discounted wholesale acquisition cost (WAC) that reflected rebates and discounts. The base WAC was the price obtained from the February 2017 Red Book. Although this figure may not be accurate for individual payers, the conclusion of the study was that Humira® would have to be sold at roughly half its quoted $40,415 annual cost to reach an acceptable level of cost effectiveness. At the current net price used and when used as monotherapy, its cost per QALY was $232,644. AbbVie’s Humira adalimumab originator took the brunt of the heat in the study, because it was considered the most costly anti-TNF inhibitor. However, even Janssen’s Remicade® (infliximab), the least expensive anti-TNF inhibitor cited (at $28,906 per year), was not deemed cost effective, at $202,824 per QALY.

Of any biologic used to treat rheumatoid arthritis, Genentech’s interleukin-6 inhibitor Actemra® (tocilizumab, subcutaneous injection) was deemed to have the best monotherapy cost per QALY, at $168,660.

One issue for the immunomodulator class is that a major component of the calculation‑the number of QALYs over the time horizon (the lifetime of the patient‑was closely bunched. They ranged from 12.95 for adalimumab to 13.35 for tocilizumab IV, compared with 10.75 for conventional DMARDs. These figures were slightly lower when the immunomodulators were added onto conventional DMARD therapy (although drug costs were somewhat lower).

Although the calculation did not consider the real issues of dose escalation for certain medications, a sensitivity analysis showed that virtually under all scenarios, the biologic drugs failed to meet the ICER threshold for cost effectiveness. However, it should be pointed out that ICER’s evidence of efficacy was based on patients achieving a fairly low standard: 20% improvement in American College of Rheumatology scores. Therefore, the actual cost to treat patients to a higher standard of improvement should be greater.

The evaluation was done by the New England Comparative Effectiveness Public Advisory Council, an ICER group. According to ICER’s value-based benchmark prices for these targeted immunotherapies, WAC discounts must be slashed from 29% (for tocilizumab subcutaneous) to 55% (for adalimumab) to reach the $150,000 cost per QALY level. In other words, for a biosimilar of Humira to be deemed cost effective by today’s reckoning, it would have to require a WAC discount (or net cost through rebating) of 55% below that of February’s Humira pricing.

This magnitude of reduction in net costs would effectively bend the specialty cost curve in the US. However, without several biosimilar competitors for the same drug, this is unlikely for the monoclonal antibodies. Cost reductions of 50% or more have been seen in certain European countries for first-generation biosimilars, but this would represent an alarming “race to the bottom” for US manufacturers and might dissuade future biosimilar development.