Pfizer’s Anticompetitive Suit: A Slippery Slope to Competitive Bidding?

When Pfizer first announced its lawsuit against Janssen’s parent Johnson & Johnson in September 2017, it pointed to exclusionary contracting, “anticompetitive” behavior of Remicade®’s maker as the reason for its very limited market access.

The lawsuit claimed that Janssen has withheld or threatened to withhold rebates if payers do not keep Remicade in an exclusive preferred position. The degree to which health plans knuckled under to these demands may only be inferred from the 3% marketshare Pfizer’s Inflectra® now holds. For these drugs, which are still typically covered under the medical benefit, “nonpreferred positioning” usually means no coverage. For drugs covered under the pharmacy benefit, this is not the case.

In August, the Eastern Court of Pennsylvania ruled against J&J in its request that the lawsuit be dismissed. While discovery in the case may be ongoing, we could not find mention of a resolution date for the suit.exclusionary contracting

For the sake of argument, let’s say that the Eastern Court of Pennsylvania rules in favor of Janssen. In other words, exclusionary contracting was not an anticompetitive behavior. That means the status quo is intact, but some factors may affect this situation going forward. These include the Center for Medicare and Medicaid Services’ desire to move part B drugs (the medical benefit) to part D (the pharmacy benefit) for Medicare beneficiaries.

The scrutiny on rebate contracting coming from several sectors, and lack of transparency, may also independently influence future use of these pharmaceutical company tactics. I helped conduct a market research project recently on a nonspecialty drug. As part of these interviews, we were asked by the client to inquire about the range of rebates they were receiving from competitor manufacturers. Their responses were requested as a range (e.g., 20% to 30%), not specific contract details, and we had no intention of providing reports of individual payer deals, only anonymous, aggregate information. We expected little to no response to that query, and that is exclusionary contractingexactly what we received.

Let’s discuss the other potential outcome, in which the Court rules in favor of Pfizer. That implies that this exclusionary contracting practice is indeed anticompetitive. If this is the case, we may be on a very slippery slope. What is the difference between payers and pharma companies engaging in a “1 of 1” contract when there are multiple potential products and a “1 of 2” contract? In both cases, drug makers are committing payers to anticompetitive behavior (as perhaps defined by the Court’s new precedent).

The preferred drug tier (whether preferred generics, preferred brands or whatever) is supposed to be for products with proven clinical, patient care, or economic advantages. Truthfully, payers rarely place medications in the preferred tier for reasons other than net costs or rebate contracting, which is based on marketshare.

Now add in the potential effects of the Administration’s desired shift to part D, where pharmacy benefit rules can be applied. That exposes injectable products that were shielded under Medicare part B to commonly applied formulary placement practices.

To be complete, Janssen’s strategy was not solely based on Remicade. It may be found to have bundled Remicade with other agents in deals to exclude Pfizer’s products. The Court may also react specifically to Janssen’s contract stipulation that threatens to withhold rebates connected to future use of the product, to increase its leverage.

However, if the Court determines that 1 of 1 or exclusionary contracting with rebates are the root of the anticompetitive behavior, why should 1 of 2 or even 1 of 3 contracts in a drug category with 5 similar agents be less so? This is the slippery slope that could undo rebate contracting, and push us towards a system that more resembles a competitive bidding process like in Europe. Alternatively, it could accelerate the move towards outcomes- and value-based contracting. The result could be a system-wide revamping of the drug formulary and the pharmacy–drug maker relationship.

In other biosimilar news…Sandoz has signed a licensing agreement with Abbvie, allowing it to market its biosimilar version of Humira in 2023. The agreement, as with Abbvie’s settlements with other biosimilar makers, halts all patent litigation with Sandoz in exchange for a licensing royalty paid to Abbvie.

Biosimilars and Drug Rebates: A Foot in the Door to Access?

At the September 5–7, 2018 GRx+Biosims meeting, I had the opportunity to moderate a session with three highly experienced biosimilar industry executives. They included Gary Deeb, Senior Vice President, Global Licensing and Business Development, Lupin Pharmaceuticals; Chrys Kokino, MBA, Head Global Biologics— Commercial, Mylan; and Mike Woolcock, MBA, Senior Vice President, Commercial Operations, Apobiologix. In the hour-long session, we covered a range of sticky topics. This post sums up some of the information gained on one aspect—the question of price transparency, recent FDA action to address drug rebates, and whether deemphasizing drug rebates will help biosimilars gain access.

One issue that is getting an awful lot of attention lately is the question of price transparency. This has been highlighted by the difficulties that Pfizer has had in gaining traction for its infliximab biosimilar, resulting in claims of exclusionary contracting by Janssen to protect the latter’s marketshare. One of the principal tools used by the reference biologic manufacturer is its power to rebate. When a drug has the lion’s share of utilization, rebates become very potent inducements to payers to provide or maintain preferred or exclusionary status on formulary. Therefore, the issue of biosimilars and reference drug rebates can be an important one for the industry.

biosimilars and rebatesIn response to the challenges of biosimilars gaining uptake in the US, Health and Human Services Secretary Alex Azar has been investigating whether safe harbor laws that currently protect drug rebates from anticompetitive lawsuits can be changed. This move can affect revenues for both pharmacy benefit managers (PBMs) and payers who share in the rebate monies. It raises a related question, however: Would biosimilar manufacturers be better off competing on list pricing (i.e., wholesale acquisition cost) alone? And does the issue of biosimlars and rebates really matter?

In the backstage green room, this topic generated much discussion among our panelists. And quite frankly, the answer to this question is not yet in.

In previous market research and access projects performed for pharma and their agencies, it has been clear that health plan medical directors and pharmacy directors would prefer competition based on discounted WAC, whereas PBMs prefer to retain their rebate revenue. However, the plans do share in drug rebate revenue to varying extents, which they are quick to point out are helpful in holding down premium increases or funding other projects beneficial to members and patient care. Hence, they are stuck in the rebate trap as well. They are not generally eager to add a new preferred drug even if the manufacturer is offering powerful discount WAC plus competitive rebate; they realize that the rebate revenue is based mostly on how much marketshare the drug maker can gain (and how quickly it can amass marketshare).

The biosimilar industry representatives at our panel discussion were similarly reticent. Does it represent an opportunity to break the exclusionary contracting hold of companies like Janssen? Without high rebates to cement a reference drug’s place as a preferred or the only covered biologic, other manufacturers can get their foot in the door and compete for marketshare based on price alone. This does not mean that prices would necessarily be more transparent, however. One would expect that discounted prices negotiated (from one plan to another or one PBM to another) would differ and remain confidential in nature. In other words, Kaiser Permanente Southern California could still only guess what Blue Shield of California was paying for infliximab and vice versa.

If the average sales price (ASP) methodology were unchanged, one would expect the ASP, which reflects discounts and rebates, to be closer to the WAC price by the amount no longer rebated. But the wild card in this scenario would be the pharmaceutical and PBM industries’ reaction. Is there a way to reclassify rebates as some other payment, like “administrative fees”? Our panelists believe that the PBMs, for example, will not easily forfeit a revenue line representing pure profit, regardless of its size. One would need to anticipate some attempt to retain this revenue.

The issue of biosimilars and drug rebates may only be shifted, in the end. Payers would still want to see the lowest net cost for any product. In 2018, they don’t care too greatly about how this is achieved, through rebates, discounts, portfolio contracts, or other means. If pharmaceutical rebates were deemphasized, my own guess is that at least biosimilar manufacturers would not be disadvantaged once approved, simply because they don’t have any existing marketshare. And it would also test a payer’s fortitude in foregoing its own drug rebate revenue.

Anti-kickback Safe Harbors, Drug Rebates, Biosimilars, and FDA

Over the next couple of weeks, I’ll be issuing a series of posts to further analyze some of the Food and Drug Administration’s (FDA’s) new Biosimilars Action Plan.

Drug rebate contracts Outside of patent litigation, the greatest barrier to biosimilar access is the current drug rebate contracts agreed to by pharmaceutical companies, health plans, and pharmacy benefit managers (PBMs). This contracting system persuades payers to maintain coverage of a heavily rebated biosimilar rather than providing access to a lower retail priced drug. Scott Gottlieb, MD, FDA Commissioner, has said that payers will need to start considering whether their rebate revenue on originator biologics are more valuable than the viability of the biosimilar industry overall. The real question is, what can the federal government do about drug rebate contracts?

Dr. Gottlieb believes that they are anticompetitive and cause higher drug prices over time; drug rebate contracts may be in direct conflict with the intent of the federal anti-kickback statues that allow them in the first place. In May, he and Health and Human Services (HHS) Secretary Azar indicated that they may ask for a review of the safe harbors provided for drug rebates.

Anti-kickback Safe Harbors and Drug Rebate Contracts

The anti-kickback statute has been in place since 1971, but these specific safe harbors, protecting drug companies from anti-kickback laws, were introduced more than 2 decades ago. The federal government provides an excellent resource for information about these safe harbors at the Federal Register website. In brief, the safe harbors define exceptions to situations where organizations are receiving “remuneration” for providing goods or services. A rebate given as an incentive to provide a drug (i.e., on formulary) or to utilize more of a product (i.e., “performance rebates”) would currently qualify for safe harbor protection.

Last week, HHS moved on this issue, filing the proposed rule “Removal of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.” Although the content of the filing has not yet been released, the title and previous statements on the matter by Secretary Alex Azar, do not bode well for drug rebate contracts and payers and the PBM industry tied to them.

America’s Health Insurance Plans, a national trade group for payers, supported a study supported that disputes one of these assertions. The study, conducted by Milliman, concludes that among part D plans studied, rebates did not independently cause higher drug costs. The greatest rebates were found in drug categories with the most competition from other brands (not generics). Instead, Milliman found that the use of rebates was in direct proportion to the degree of competition in a drug category. “Over the four-year period from 2013 to 2016, brand drugs with manufacturer rebates in 2016 had higher price trends than brand drugs without rebates,” according to the report. In other words, the rebates helped mitigate the price increases.

Although a bold move by the Department of Health and Human Services, removing drug-rebate safe harbors will be tricky. It will threaten the bottom lines of the PBM industry. Rebates comprise a significant portion of their revenue. Health plans also receive a portion of that revenue; they claim that these rebates are used to hold down premium costs. In any case, plans and insurers will need to evaluate how to account for less rebate monies but perhaps lower drug prices. For these reasons, we can expect quite a pushback from these sectors should the federal government proceed.

Specialty Drugs Mostly Under the Medical Benefit

Furthermore, all biosimilars (approved and investigational) are classified as specialty drugs by their cost, storage needs, and/or route of administration. This means that they are more likely covered under the medical benefit than the pharmacy benefit. It is thus also likely that the PBM’s specialty pharmacy units or their specialty pharmacy partners will be directly affected by any biosimilar-targeted changes in the anti-kickback laws.

The Trump administration also indicated the desire to move several drugs from coverage under Medicare part B to part D. Whereas Medicare does not currently negotiate prices with pharmaceutical manufacturers, private Medicare insurers can. This may enable price negotiation under part D providers and Medicare Advantage plans. Ironically, might this be a rebate-related negotiation?

How Will Biosimilars Be Affected by Trump’s Drug Price Reform Measures?

Trump on BiosimilarsWhen President Trump announced the broad strokes of his drug price reform initiative, some of these measures seemed on target to benefit the biosimilars industry. However long awaited, makers of originator biologics seemed not to be worried about its implications. The President may not be able to effect much change, without causing unintended adverse consequences.

According to its blueprint, the Trump Administration “believes it is time to realign the system in four ways: increasing competition, improving government negotiation tools, creating incentives for lower list prices, and bringing down out-of-pocket costs for consumers.”

Increasing competition is critical to improving biosimilar access. But this cannot be achieved with one action. Several areas—some addressed and others not by the blueprint—are key.

 

Reining in Drug Patent Abuse

Aimed squarely at drug makers who try to extend exclusivity through multiple patent filings, this is the one action that could improve biosimilar prospects. Limited biosimilar access is caused by the inability to market these drugs after Food and Drug Administration (FDA) approval. Patent litigation is the number 1 issue here. The President said, “Our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies.”

Trump Drug Cost Reform BiosimilarsWithout significant overhaul of the drug patent system (or the system for ruling on the validity of patents), this is unlikely to benefit biosimilar manufacturers in the near term. This effort could take many years and may have negative effects on the protection of legitimate intellectual property.

This is likely to result in little relief for the biosimilar industry.

 

Price Disclosures in Consumer Advertising

The fact that originator specialty biologics—the medications targeted for biosimilar competition—cost thousands of dollars may be a revelation to consumers who pay fixed copays for them. President Trump’s plan would require manufacturers to disclose the cost of the drug on direct-to-consumer advertisements.

Biosimilars The assumption is that this would be required across the board, including biosimilars. Would consumers recognize that their Renflexis® biosimilar costs thousands less than Remicade® in terms of wholesale acquisition cost? Not likely. In terms of net cost to the payer (not the patient generally), the price differential is far less. Even if the true costs were posted on consumer advertising, Mr. and Mrs. Smith would still hear or see that Renflexis costs thousands of dollars. They may even be further confused, because their out-of-pocket cost will likely be far less, unless a deductible applies.

 

An Emphasis on Value-Based Purchasing

The Obama Administration was committed to expansion of value-based purchasing. The present administration wants to further explore the potential of this policy, but it has not spelled out any specifics. It could be a boon to biosimilars based on the implications of value-based purchasing itself. After all, biosimilars are in existence to provide better value. More details are needed on its extent and whether implementation will occur through Health and Human Services or through Congress before useful opinions can be rendered.

 

Lower Drug Prices in US, Higher Elsewhere

The United States has very little ability to compel drug prices to rise for health systems in Europe, Canada, or Mexico, for instance, and as a result, lower them in this country. Pharmaceutical companies charge what the market will bear. Unless the Trump Administration can somehow convince the UK to pay more for Rituxan®/MabThera®, Humira®, or Enbrel®, these drug prices will not be altered.

There are reasons these countries pay the prices they do. It is related to their bidding or tender systems and the fact that other countries will exclude coverage at higher prices.

Trump Drug Cost Reform Consider another practical issue—why does a price increase in Germany mean a price decrease in the US (and for whom—Medicare, Medicaid, 340b facilities, commercial plans)? If such a move could be achieved, how does the Administration convince drug makers to apply those greater revenues obtained globally to greater discounts or rebates to Americans? It is more likely that the pharmaceutical industry will pass the increased profits to shareholders.

If these specialty drugs were forced to lower their price in the US, would that apply to biosimilars as well? That may not work towards long-term viability of the industry, depending on the measures taken.

 

Removing Rebates and Improving the Value of Biosimilars

One thing can actually improve cost transparency and possibly force pharmacy benefit managers (PBMs) to change their value model. If the Congress decides that drug rebates run afoul of laws against kickbacks, this could compel far lower wholesale acquisition costs (WACs). It would also have the effect of lowering patients’ cost sharing. Co-insurance is commonly based on the WAC not the net cost of the drug to the payer or PBM.

In this case, biosimilar manufacturers’ true WAC discounts can be applied directly and drive the “rebate trap” out of existence.

Applying this rule to commercial plans, Medicare Advantage, and part D providers would be a direct improvement in the current situation and could lower system-wide health costs. That assumes that manufacturers don’t sense an opportunity to raise prices by say 8% when they no longer have to pay 15% rebates.

 

Missed Opportunity: Using the Negotiating Power of Medicare

If the Administration was interested in reining in drug costs, the first serious step would be to let the Medicare program negotiate with manufacturers. This large purchaser getting its best deals from the natural competitive marketplace. It may require some adjustments in Medicaid “best price” assumptions, however.

It does seem that biosimilar makers could benefit from several of the policy changes proposed by the Trump Administration. However, the blueprint released is just that—weak on details and not specific to avoiding unintended consequences. Furthermore, it does not anticipate the reactive responses of the stakeholders involved. I guarantee there will be much more discussion as the government’s actions are announced.

Lessons for Biosimilars From the Generic Drug Industry

The utilization of generics in the US is vast, upwards of 86% of all prescriptions in 2017, according to the latest research by IQVIA. The pace of generic drug approvals by the Food and Drug Administration is also impressive, with 767 last year. This does not ensure the future of the generic drug industry, however, said Doug Long, MBA, IQVIA’s Vice President of Industry Relations. If we’re not careful, biosimilars in the pipeline could suffer a fate similar to that for newly approved generics.

Doug Long, IQVIA
Doug Long, IQVIA

In his yearly update presented at the Academy of Managed Care Pharmacy 2018 annual meeting on April 25, Mr. Long said that despite near-record numbers of generic approvals over a three-year period, “only 30% of these generics were actually launched. That’s not happened before.” The reason is that the manufacturers, upon receiving approval, reevaluate the marketplace prospects for their product and the competition. “They decide not to throw additional money into a losing proposition,” he stated. In fact, of the 767 generic approvals, only 73 were first-time generics. Ninety percent were simply piling competition onto already crowded drug categories.

He terms it a race to the bottom, but not a death spiral for generics. That is, “we’ve already reached the bottom, and we will come off of it” at some point. Generic drug manufacturers’ reticence to launch will help change the market direction.

Biosimilars have vast potential to save health care dollars, but only if they are launched. In a couple of instances, manufacturers have reviewed their biosimilar positions (Shire, EMD Serono) while early in the pipeline. Though it is reasonable to expect a paring back of prospective biosimilar drug makers, we hoped this would happen once the marketplace becomes saturated. That of course has not happened.

More Evidence of Value in Generics

Although several generic drugs have been associated with steep price increases, the net price change in 2017 for generics was -7.2%, according to Mr. Long. Most of this was the result of large rebates. Despite 86% generic drug prescribing, generics account for only 13% of the revenues. “I think there will be more generic drug shortages as a result of this revenue picture. People are refusing to launch after receiving approval, based on the dynamics of the marketplace,” he said. There will be more patent expirations and opportunities for first-time generics, “but I have less optimism on the biosimilar side.”

“Of 9 biosimilar approvals, we have only 3 launched products,” emphasized Mr. Long, “accounting for just $1 billion in total value of US marketplace in biosimilars.” He was hopeful that biosimilars for Remicade would have “broken the dam,” but this hasn’t happened. “Instead, payers have chosen to take the rebates, not the biosimilars. That resulted in only a 3% marketshare as a result for infliximab biosimilars.”

He noted that the average rebates given to payers and pharmacy benefit managers is 25% for biologics overall. Rebates in the autoimmune area averaged 20%, but payer market research routinely confirms that Janssen’s Remicade® rebates well exceed this figure.

Note: IQVIA is the child of the marriage between Quintiles and IMS.

 

FDA’s Gottlieb to Health Plans: Move Away From Short-Term Rebates on Reference Drugs to Enhance Long-Term Biosimilar Savings

According to Food and Drug Commissioner Scott Gottlieb, MD, the managed care sector’s willingness to accept larger rebates from manufacturers of originator biologics to preserve formulary coverage may seriously hinder the long-term success of the biosimilar industry. And more importantly, the ability to control biologic costs through competition.

FDA Commissioner Scott Gottlieb, MDIn remarks made to a national meeting of America’s Health Insurance Plans’ (AHIP) in Washington, DC, Dr. Gottlieb worried that biosimilar manufacturers may start to believe that “the system is rigged against them.”

In terms of patent litigation, that certainly may seem true. However, Pfizer’s complaint that Janssen is undercutting its discounts by providing plans and insurers additional rebates would seem to be a practice that big pharma has used for years (Pfizer included). Therefore, Dr. Gottlieb is asking payers to turn aside those rebate offers and instead cover the biosimilars, at least for new patients.

He stated that the FDA is “invested in making sure that the new biosimilar pathway works, and that we can help facilitate a robust market for these products. So, we take note when we see market practices that can reduce the incentive for sponsors to invest in the development of biosimilars in the first place.”

Dr. Gottlieb put it to health plans succinctly: “Payors are going to have to decide what they want: The short-term profit goose that comes with the rebates, or in the long run, a system that functions better for patients, providers, and those who pay for care…Do they want to continue to benefit from monopoly rents today, or help generate a vibrant biosimilar market that can help reset biologic pricing—and drug pricing more generally— through competition.”

He suggested that payers help increase biosimilar uptake by lowering or waiving copays for biosimilars or removing prior authorization requirements when biosimilars can be prescribed. “FDA has a strong interest in seeing the biosimilar market grow,” he reiterated, “but some of that is going to be up to the choices you all make.”

What Will Cost Savings on 2023 Adalimumab Biosimilars Really Be Worth?

AbbVie executives are sticking to their pledge to restrict annual price increases on Humira® below 10%, but even payer price protections won’t mitigate the increasing expenditures before adalimumab biosimilars hit the market. In 2023, when adalimumab biosimilars become available, the savings biosimilars represent may not be real savings at all.

Pharmaceutical companies generally seek to lock in preferred coverage status for their agents through the use of rebates, which lowers the net costs. Typical in these contracts is a price guarantee, which shields the payer from annual (or more frequent) price increases for the duration of the contract. The contract life is one or two years, after which the health plan, insurer, health system, or pharmacy benefits manager must renegotiate—that means significantly higher costs for each successive contract renewal.

Humira adalimumab

Drug price increases for self-injectable medications like adalimumab, are reported on top of its wholesale acquisition cost (WAC), or the list price. Rebates are applied to WAC pricing. Therefore, if for example, a manufacturer announces 9% price increase to drug X, that applies to the WAC price and does not include consideration of rebates or price guarantees secured by a payer. Rebate information is notoriously difficult to obtain, as payers and pharmaceutical companies consider them proprietary.

However, in a January piece in the New York Times, the author cites research by SSR Health, which concludes that the price of Humira with rebates rose 100% since 2012 to an average of approximately $38,000. Assuming AbbVie executives hold to their price increase pledge, raising their prices by only 6% per year, by 2023 when patent expirations will bring a rash of biosimilars to market, Humira’s price after rebates would have risen 33.8%, to $50,844. If the price is jacked up 9% per year, that would be an increase of 53.9%, to $58,482. This is assuming of course that AbbVie does not increase the rebate at each contract negotiation to offset the higher net cost. To make this dystopian vision complete, let’s not forget that the full savings will not obtained over a population unless all utilization is fully converted to a biosimilar from Humira. That may require an interchangeable biosimilar product (which has not yet been approved) .

As we reported last year, the Institute for Cost-Effectiveness Research established that to meet accepted thresholds for cost-effectiveness, Humira would have to be discounted 55% from its list price. Rises in the cost-effectiveness thresholds (currently $100,000–150,000 per quality-adjusted life-year) would never keep up with this pace of price increases. By 2023, Humira will be even further off the mark in terms of providing value.

The most important point of this, is that the cost savings of the biosimilars that are finally introduced could be an illusion. If a price war in 2023 for newly available adalimumab biosimilars results in 50% discounts, we may have received little but a roll back in costs to those of today. From the perspective of 2018, that’s not savings. That is price stability.

I wrote in 2016 of the same effect for Enbrel®. Because Amgen had taken multiple price increases in the previous years, the WAC cost jumped 37%. And in 2018, no biosimilar is presently marketed for prescription in the United States. The relative discount by Sandoz (presently the sole US company with an approved biosimilar etanercept) needed to actually save payers money for etanercept will not be realistic.

Is There an Escape From the Rebate Trap?

The rebates given to pharmacy benefit managers to secure a drug’s place on the formulary have become a difficult barrier to coverage for new products. The rebate income for these PBMs is sometimes passed on to health plans, insurers, and employer purchasers, but more often it is not.

A big issue is that managed care organizations tend to become addicted to millions of dollars in rebate “income,” and this mindset prevents serious consideration of new medications at competitive costs. The health plans don’t see the benefit of incurring the administrative costs of moving masses of patients from the preferred product to a new one, or seeing this revenue stream interrupted, without an overall further improvement in net costs.

Managed care plans have long said that discounts of 25% or more will be necessary to release the rebate stranglehold of preferred products. In the case of infliximab, this has not yet occurred, based on recent minor inroads made by Merck’s Renflexis® biosimilar, despite larger discounts. Until greater competition is available, which drives down the WAC prices (and then average sales prices [ASPs]), barriers to accessing new medications will remain. In fact, when competition does increase, makers of the originator products, like Janssen, can simply ratchet up their rebates to maintain a hold on sales (and a billion-dollar plus profit).

Perhaps the best way around this is to force a change in the marketbasket. This can be accomplished in a couple of ways. The first, by instituting separate tiers for biosimilars and reference agents, takes the biosimilars out of the 1 of 2 preferred drug contracting restrictions, and allows patients to access biosimilars as well as preferred brands.

A second way is to reconsider biologic agents according to indication-based contracts or mechanism-of-action (MOA) based differences. Therefore, the marketbasket is modified to consider anti-TNFs separate from interleukins, allowing preferred agents in each separate category. This would allow, for instance, for more effective psoriasis agents to be well covered, and maintain the preferred position of Humira® and Enbrel® for appropriate patients.

A third way is to work out some innovative value-based contract, in which the manufacturer and health plan/insurer reaches an agreement on (usually) the expected outcomes of drug use and additional rebates or performance guarantees if the medication fails to deliver on this performance. The most important consideration in this agreement is the practicality of measuring an outcome of interest or ensuring adherence.

The rebate trap seems to be ensnaring more manufacturers of new biologics and biosimilars. Without greater consideration of the overall good, this trap can cause systematic problems for the pharmaceutical industry and discourage drug innovation and accessibility.

Pfizer Sues J&J on Anticompetitive Practices on Infliximab in the US

In late May, Merck was named in a UK lawsuit by Pfizer, which has been trying to expand its market for Inflectra®. Merck, which markets Remicade® (infliximab) in the EU, was accused of anticompetitive practices. On September 20, Pfizer brought a similar complaint against Johnson & Johnson (the parent of Janssen and the manufacturer of Remicade®) in the US, according to a lawsuit filed in US District Court (Eastern District of Pennsylvania).

Whereas Pfizer has made some inroads to the US market, since its launch at the end of 2016, Janssen has done a good job of blocking and tackling—playing the contracting game. The lawsuit claims that Janssen has withheld or threatened to withhold rebates if payers do not keep Remicade in an exclusive preferred position. Pfizer may have invited such action to an extent by entering the market at a 15% discount to the originator’s wholesale acquisition cost (WAC). Many experts expected this type of approach by Janssen. Payers were candid in their reluctance to switch to the biosimilar, especially if Janssen would counter the modest discount with rebates that narrow or eliminate the difference in net costs. In other words, a greater discounted price may have opened the market to Pfizer more rapidly, because Janssen may have been less aggressive in its efforts to match the net cost.

In an August earnings call, Pfizer indicated that although Medicare is covering Inflectra, its overall US marketshare was only 2.3%.

According to the press release announcing Pfizer’s lawsuit, “[Johnson & Johnson’s] exclusionary contracts and other anticompetitive practices have denied U.S. patients access to therapeutic options and undermined the benefits of robust price competition in the innovative and growing biologics marketplace for patients… J&J’s systematic efforts to maintain its monopoly in connection with Remicade® (infliximab) by inappropriately excluding biosimilar competitors violates federal antitrust laws and undermines the principal goals of the federal Biologics Price Competition and Innovation Act (BPCIA).”

This may be the first time that routine contracting efforts to defend against generic competition and maintain a monopoly within a drug category have been cited as a violation of antitrust legislation. What may have amplified Pfizer’s ire was its assertion that several insurers originally placed Inflectra at parity coverage with Remicade. These payers changed their position after “J&J threatened to withhold significant rebates unless insurers agreed to effectively block coverage for Inflectra and other infliximab biosimilars.”

Furthermore, the suit claims that clinicians and hospitals were reluctant to purchase Inflectra, with the belief that insurers may not reimburse them for its use. These providers may have been further influenced by an insistence by J&J on their signing contracts that dictated significant discounts on Remicade only if they would not purchase Remicade or other infliximab biosimilars.

At this time, Inflectra is priced at an average 19% discount to Remicade’s wholesale acquisition cost (WAC). Pfizer says that it is offering additional discounts on top of this to persuade payers into covering their biosimilar. Merck’s launch of its own biosimilar infliximab (Renflexis®) comes with a price tag of 35% below that of Remicade, which adds tremendous pressure on payers to reconsider their positions. This also signals the early closing of Pfizer’s window of opportunity as the first biosimilar entrant, on which it gambled an at-risk launch.

Biosimilars and Generics: Are the Drug Companies Using Similar Tactics?

The rebate game seems to be overrunning patient affordability and common sense, according to an article in the New York Times. This has been a problem for biosimilars and other high-cost specialty brands, but now it seems to be extending to generics as well, with patients on the losing end of the deal.

Pharmaceutical manufacturers offer rebates to health plans and pharmacy benefit managerLee 2s to offset a drug’s higher wholesale acquisition costs (WAC) and entice these payers to cover their drug, often at preferred tiers. The result is that new products can be locked out of the formulary or placed on nonpreferred tiers, because the contract requires exclusivity. This has been called the “rebate trap.” The rebate trap was never really a problem for generics in the past, because they were far less expensive than the brands, and with generics made by several companies, the price and rebating competition was too fierce for branded manufacturers to compete.

The New York Times article cited the case of Adderall XR for people with attention deficit hyperactivity disorder (ADHD). The drug has been available as a generic for some time. However, Adderall’s manufacturer, Shire Laboratories, has aggressively rebated their product to compete with the generic, providing a net cost to the health plans and PBMs that is less than the generic. Shire wants to retain some revenues on their products rather than leave the battle to the generic manufacturers. There is nothing wrong with that, and it results in lower net costs—but not for many patients.

First, if the plan has a substantial copayment difference for generics and preferred products, this can mean the average patient will have to pay the higher amount (unless the plan makes adjustments and allows the patient to purchase the brand at the generic copayment level). Second, the rising number of people with high deductible plans (including pharmacy deductibles) will have to pay the higher full price of the branded drug than the generic (according to the Times’ sources, this is about $50/mo). Thus, until they have paid their deductible, these patients are disadvantaged by this rebate arrangement. Consider also that the rebate savings to the payer are rarely, if ever, passed on to the patient.

Here’s the kicker: The pharmacist may be required by the plan to go back to the doctor to ask that they redo their prescription, by checking off the box that requires it be dispensed as written (for the branded product only). This is after generations of pharmacists have been trained on automatic substitution of generics for brands and patients have been persuaded to accept it.

Although the problem is very evident with ADHD, the lack of multisource generics means less competition for other drug classes as well. This is not limited to one payer either. The article mentioned Humana specifically, but it is likely that other payers (national and regional) are also party to these contracts.

This scenario can also hurt competition for biosimilars. Before the entry of Merck’s Renflexis®, Janssen had only contended in the infliximab marketplace with Pfizer’s Inflectra®. Janssen has been willing to cut deals with payers to keep Inflectra off the formulary. However, this could also affect some patients, even though infliximab, an infusible product given in the doctor’s office is usually paid through the medical not pharmacy benefit. If these drugs were covered with a fixed copayment (e.g., $100), patients would not be harmed economically by using any particular product. However, if the patient pays a fixed coinsurance (e.g., 10%), that person may then pay more for the originator drug, because the co-insurance is often calculated according to the WAC (which does not include the rebate) instead of the average sales price ASP (which does).

The problem of rebate traps and the lack of transparency of the system is not new. It may be a different situation if the manufacturer–payer transaction was based solely on simple WAC discounts. There is simply too much rebate money up for grabs for plans and PBMs that the system can be changed easily.