Budget Proposal Floats an Idea to Discourage Pay-for-Delay Deals

The Department of Health and Human Services (HHS) had signaled in the past that it would seek to discourage the signing of “pay-for-delay” agreements. These agreements contribute to slow access to less-expensive biosimilars. The recently released budget proposal from the Trump Administration, though dead on arrival in Congress, does include a provision that could bring biosimilars to the market earlier.

Under this proposal, any reference product manufacturer involved in a pay-for-delay agreement would see drug reimbursements cut by close to 40%. Specifically, the originator drug would be paid at a new rate, ASP minus 33%, down from the standard ASP plus 4.2% (ASP + 6% not considering the financial sequester).

pay-for-delay agreements

The Trump Administration added that this new reimbursement rate would be imposed, not only for those signing other manufacturers to pay-for-delay agreements, but also if the originator manufacturer engages in “anticompetitive action” once marketing exclusivity expires. This action is likely a reaction to both the Pfizer v. Janssen Biotech lawsuit involving infliximab and the creation of patent thickets.

These provisions in the budget proposal do hold some potential. Yet the pharmaceutical industry will argue that the arrangements that are currently signed that delay launch for biosimilars of adalimumab and trastuzumab, for example, do not involve upfront payments to the prospective biosimilar manufacturers. They simply end expensive patent litigation, in exchange for royalty payments upon biosimilar sales commencing on an agreed-upon date. In contrast, pay-for-delay deals for generic drugs were just that —a large upfront payment by the brand manufacturer to persuade the generic drug maker to allow the former to rake in more profits.

Arrangements of this type do still significantly delay the launch of previously approved biosimilars. If one manufacturer decides to launch “at risk” (before patent litigation is resolved), that company could attempt to gain a large share of the market. Pfizer planned to do this with Inflectra®, but miscalculated the discounts that would be necessary to move marketshare. Janssen took action to drastically increase the rebates it offered, making it less attractive to payers to move away from Remicade®.

Perhaps the more intriguing question here, is what would be the definition of “anticompetitive action?” The administration could define this quite broadly (which no doubt will evoke actions, including lawsuits, to render the phrase harmless). If it defines the current drop-the-patent-litigation-for-royalties arrangements as anticompetitive, it could result in big savings for the government in lower payments for drugs like Humira® and Herceptin®. The definition of anticompetitive action could even be extended to exclusive positioning on formulary (in exchange for more rebate dollars). Of course, this also may depend on how the government, pharmacy benefit managers, and payers view rebates in the future.

If that should happen, don’t expect private payers to continue to reimburse for originator drugs at the higher rate. They will want similar savings (particularly if they cover both Medicare and commercial populations).

Back to reality for a moment: The budget proposal has no chance of approval in a Congress with a Democratic majority. However, this provision does signal how HHS wants to approach the pay-for-delay issue. And it may receive a warmer reception as part of other legislation.