New Proposal: Forget Biosimilars, Move to Fixed Price Formulas

Claiming that US savings would accrue from $200 billion to $300 billion within 5 years, a group of authors published in a Health Affairs blog a different concept for controlling the cost of biologic agents. They believe that biosimilars will never gain the savings intended by the Biologics Price Competition and Innovation Act (BPCIA). Savings of more than $87 billion for Medicare and Medicaid, they believe, could be a strong inducement.

ADDRESSING BIOLOGICS AS A NATURAL MONOPOLY

Emphasizing that today’s biologics are a form of a “natural monopoly,” biosimilar manufacturers will be generally disincentivized to crack the market. The authors from Memorial Sloan Kettering Cancer Center and Massachusetts Institute of Technology explained that a natural monopoly is the result of a market where the barriers to entry are too high to encourage significant competition. The current biologic market exclusivity of 12 years, the cost to develop a biosimilar (relative to that for a generic agent), patent issues, and the barriers to substitutability have collectively limited the number of drug makers willing to enter the competition today. This natural monopoly has thus resulted in the marketing of only eight biosimilars in just four drug classes since 2012.

Addressing this issue requires a much more aggressive regulatory approach, they believe. After loss of market exclusivity, the price of biologic products should be subject to a formula that drops the price commensurate with the actual cost of maintaining the supply chain. They write, “The lowered price should equal the costs of production (including facility repair and replacement) and market distribution, plus an appropriate profit.”

Although the development of the formula can vary, they emphasize that transparency is the key element. “What is critical is that the formula be clear; be relatively easy to determine and audit; protect payers from prices substantially above the economic marginal production cost; and protect manufacturers from excessively low prices resulting from the government regulator exerting monopsony buying power.” The entity deciding on the lower price must also be a completely independent body, without connection to the manufacturers or the purchasers.

A REGULATORY APPROACH TO BIOLOGIC COSTS

This approach would parallel how Medicare pays for hospital services; profit margins are not set by the manufacturers on drugs for which market exclusivity has expired. The assumption is that these drug makers will have long ago earned several multiples of the research and development cost, and can produce these agents at a profit for 70% to 90% less than current pricing.

This regulatory proposal has a couple of interesting positive features. First, it decouples patent issues from access to far lower drug costs (an essential, failed objective of the BPCIA). Second, it eliminates any discussion of rebates and rebate traps. Third, it removes any question of prescriber/patient discomfort with the use of biosimilars.

POTENTIAL FOR DRUG SHORTAGES

However, it does not answer the longer-term concerns: What happens when the manufacturer of etanercept, for example, decides that he or she does not want to spend their opportunity cost on producing a drug that produces now relatively low profits? That manufacturer will either stop producing (i.e., there will not be any etanercept available because there are also no biosimilar manufacturers of it) or sell the product to another drug maker, which may then have to essentially be regulated as an interchangeable biosimilar maker. That might even be an opportunity for EU biosimilar makers to obtain US marketshare.

Furthermore, what would happen to the biosimilar makers who have already exposed themselves to very high development costs and financial risk? For those currently marketing their products, the target pricing ranges are certainly well below the net prices they offer today. Are their interests in the specific biosimilars “bought off” by the government or reference biologic makers? The authors believe that this will need to be the case, and they set aside up to $20 billion of their $200–$300 billion savings for this purpose.

POLITICALLY UNREALISTIC OR ECONOMIC REALISM?

The reference drug manufacturers would strongly oppose this proposal, whereas the payers, providers, and patients will appreciate the price savings. It would be a bloody battle indeed, exposing biologic makers to widespread price controls.

True, the attrition in the biosimilar space is already high, and the regulation of biosimilars in different countries has not resulted in consistent outcomes. For example, several agents are approved for use in Europe but have gained little more than rejection letters in the US.

The need for such a proposal is further evidence that few are satisfied with access to biosimilars in the US and the price reductions that have been seen to date. The authors’ proposal offers a measure of “pricing justice” for those who are greatly frustrated with the games that have been played by an industry bent on serving their shareholders by retaining maximum profit margins until the bitter end. Yet it does have the potential to result in new drug shortages, and wipe out the biosimilar industry as we know it in the US.

Is this a sledgehammer approach? Absolutely. However, if the overall biosimilar situation does not improve rapidly in the US, this will likely not be the only proposal that moves towards a regulatory solution and away from competitive markets.

Comparing Biosimilar Approval Progress by the FDA and EMA

It is widely reported that European biosimilar development is way ahead of that in the US. In a number of ways, this is true. However, when talking about biosimilar development in the EU compared with the US, we really should take a look at the bigger picture.

First of all, let me specify that I’m talking about biosimilar approvals, not launches. In the latter case, the US is way behind, not even viewable in the distance.

Obviously, the US lags because it got a later start, first in promulgating the BPCIA in 2010, and then in developing the biosimilar regulatory pathway. The US system then tried to shoot itself in the foot with the “patent dance,” which also does not exist in the EU. Even America’s inability to master the steps of the patent dance did not deter initial interest in biosimilars, from inside and outside the nation. Overall, the US failed to take great advantage of the pioneering work of European policy makers in divining a regulatory pathway for biosimilars, and has been playing catch up ever since. In a sense, however, the US’s regulatory machinery has caught up, and perhaps exceeded the pace of the European Medicines Agency (EMA) in approving biosimilars.

Biosimilar approvals

This is a complicated comparison, outside of numbers alone. The chart below offers a view to the Food and Drug Administration’s (FDA’s) 17 current approvals, all accomplished within seven years of the pathway being available (and the seventh year, 2019, is still young). An analysis of information from the Generics and Biosimilars Initiative demonstrates that only 13 biosimilars were approved in the EU seven years after the pathway was implemented.

A closer look reveals a couple of important points: (1) The EU’s first biosimilar approvals were for growth hormone drugs, which were not considered biosimilar products in the US (until 2020); (2) epoetin biosimilars dominated 2007 approvals with five; and (3) filgrastim biosimilars comprised the main approvals for 2008–2010 in the EU. Between 2009 and 2012, the EMA approved only three biosimilars, two of which were filgrastim molecules. In 2013, an impressive array of biosimilars were approved in the EU, including yet another filgrastim and growth hormone, two infliximabs, and follitropin. The EU has made tremendous progress with new molecules over the past couple of years, including the rush of rituximabs in 2017, and pegfilgrastims and adalimumabs in 2018, all corresponding closely with patent expirations. In fact, of the 54 biosimilars approved in the EU (as of December 2018) in its 13 years of experience with biosimilars, 30 (55%) were approved in 2017 or 2018.

That doesn’t mean the FDA hasn’t made missteps—there have been plenty. Remember, the patent dance was not FDA’s doing, that was statutory not regulatory. They do need to admit their responsibility on the four-digit suffixes and the long delay in finalizing guidances, especially on interchangeability. And there are certainly biosimilar drugs that were approved by the EMA but rejected by the FDA.

Overall though, the FDA has not been the reason only seven biosimilars in four drug classes are now available for prescription. Those are uniquely American problems.

Will the Government Shutdown Slow Biosimilar Approvals?

The partial federal government shutdown is having specific effects in various important areas of government, but it may not be particularly troubling for FDA user-fee funded activities.

Scott Gottlieb, MD, Commissioner of the FDA, has been especially busy on Twitter, trying to inform the public how the government shut down is affecting FDA operations. He made it clear that the agency is prioritizing its efforts on ensuring consumer safety.

During an extended tweet storm (the past 7 days), he has not directly addressed the effect of the shutdown on current drug approvals. However, since the pharmaceutical companies have paid into the drug approval activities of the Center for Drug Evaluation and Review, there may be sufficient funds and resources for ongoing approval activities. In a tweet last week, Dr. Gottlieb mentioned that FDA was bringing onto staff several new user-fee funded staffers. Yet, in a January 7 tweet, he promised additional information on how the shutdown would affect biosimilars; this has not yet been addressed.

In terms of biosimilars, two trastuzumab drug makers are expecting FDA decisions this quarter (Pfizer and Samsung Bioepis). However, Pfizer’s biosimilar launch is subject to a licensing agreement with Genentech (Roche), the maker of the reference product Herceptin®. Therefore, if there was a short delay in FDA approval, it will not likely have a material effect on availability for prescription. We anticipate that Pfizer will also be hearing from the FDA on its rituximab biosimilar in the second quarter.

This could raise a secondary problem with the shutdown: Will the current furlough cause a chain reaction of delays in the evaluation of existing biologic licensing applications? How long might it take the full FDA staff to catch up, if that is the case?

In a January 13 tweet, Dr. Gottlieb said, “The lapse in funding represents one of the most significant operational challenges in FDA’s recent history. But as an agency, we’re committed to fulfilling our consumer protection mandate, to the best of our abilities, under our current configuration.”

In other biosimilar news… A January 10 story in The Pink Sheet reported that Leah Christl, PhD, Associate Director of Therapeutic Biologics at FDA intends to depart the agency in the near future (a specific date was not given).