We may think of biologic drugs as being very new, but the first one was approved way back in 1982 (Humulin® insulin).1 And for nearly as long as there have been biologic drugs, we have been waiting for their near-copies called biosimilars to provide some much needed price relief.
We don’t mean to imply that there are no biosimilars. As we will see, there are a few here in the U.S.
For biosimilars to truly “arrive,” they need to make a substantial contribution to softening the soaring costs of biological drugs. But that has not happened yet. Compared to other markets in developed countries, the U.S. has been slower to adopt biosimilars.2
So it was a little disheartening to see that several pharmaceutical manufacturers are dropping some biosimilar development projects. In January of 2019, it was confirmed that Pfizer had dropped five biosimilar development programs. In late 2018, Momenta also dropped five biosimilar programs, while Merck dropped one.3
One fact is striking about these decisions that will become important as we go along: Both Pfizer and Momenta said that they had dropped these biosimilar projects in order to devote more resources to developing new drugs.3
We need to ask: is this just a coincidence? Or is something going on in the biosimilars space that we need to know about?
Biosimilars, like generic drugs, are versions of brand name drugs, and may be more affordable to patients. But biosimilars are not generics.4
Generic drugs have the same active ingredients as the branded drugs they copy. This is one reason why generics are considered interchangeable. That is, a generic may be substituted for the branded product without the involvement of the prescriber (subject to state law).4
But biologic drugs are produced in a living system, such as a cell, and cannot be exactly duplicated. This has implications for many things, including for interchangeability.4
Legally, a biosimilar is highly similar to and has no clinically meaningful differences from an existing FDA-approved biologic drug. And in order for a biosimilar to be considered interchangeable, it must meet additional requirements based on the Biologics Price Competition and Innovation Act.4
These distinctions will become important as we go forward.
For some time, the outlook has been that biosimilars should provide competition for branded biologics. This is seen as a natural progression that should help moderate biologic spending.5
In 2015 Deloitte consulting counted approximately 250 biosimilars in development around the world, and projected biosimilar sales to reach $25-$35 billion by 2020.5
In 2017 the RAND Corporation predicted that biosimilars would save the U.S. around $54 billion from 2017 through 2026.6 On a worldwide basis, the IQVIA Institute has estimated that competition from biosimilars could bring down spending on biologics by up to $78 billion by 2022.7
Unfortunately, the optimistic projections for biosimilars tend to blur stark differences between the European Union (EU) – where biosimilars are very widespread – and market conditions here in the U.S.
For example, in the EU, there are some 40 biosimilar equivalents for sale covering nearly 70% of all therapy areas covered by biologic medicines.8 In contrast, through January 2019, the U.S. Food and Drug Administration (FDA) had approved just 17 biosimilars in the U.S. Of these, fewer than half are actually on the market.9
Consequently, out of all the biosimilars sold in the world, fully 87% were sold in the EU, compared to only 2% in the U.S.10
Five barriers in the U.S.
There are several factors that have combined to slow the growth of the biosimilar market in the U.S. We can briefly review some of the bigger ones here:
It is very expensive and time-consuming to bring a biosimilar to market. Where a new generic might cost only a couple million dollars to develop, a new biosimilar might cost up to 100 times more –close to half a billion dollars.11
Compared to the EU, the FDA was comparatively slow to issue final regulations for an approval pathway for biosimilars. And, until recently, Centers for Medicare and Medicaid Services (CMS) payment policies in Medicare Parts B and D were unfavorable to biosimilars.11 The FDA has recently announced a plan to streamline the regulatory process.11
Small-molecule generic drugs have been one of the biggest cost-containment stories in the pharmacy world.12 A cornerstone of that success is that a pharmacist may substitute a generic for a branded drug, even without the prescriber’s intervention (subject to state laws).
As we saw above, the situation with biosimilars is more complicated, due to being based on living systems. Currently the FDA is proposing changes to clarify interchangeability between reference biologics and biosimilars.11
Manufacturers deploy aggressive pricing and rebate strategies to limit the use of new biosimilars. Contracts can provide that larger rebates may be available based on minimum use of a specific biologic drug. Or, they might reduce rebates on a biologic if the payor tries to move some patients to a biosimilar under certain circumstances.10 (A new Trump administration proposal would likely end the practice of PBM rebates in the Medicare and Medicaid risk programs. If enacted, this could lead to higher utilization of low-cost generic and biosimilar drugs.13)
U.S. law allows drug makers to construct thick walls of defensive patents designed to deter biosimilars. For example, while Humira® has been out of its initial exclusivity period since 2016, the earliest a Humira biosimilar can appear in the U.S. is 2023.14 But this ignores additional layers of patents that may yet still come into play. When we first wrote about this in 2015, Humira’s manufacturer predicted that they would face no biosimilar competition for nearly two decades past the initial FDA market exclusivity period.15
Barriers create uncertainty
Taken individually, each of these barriers causes delay, adds additional costs, and diminish the savings effect of biosimilar drugs. But together, they combine to create uncertainty, which may be the most serious barrier to biosimilars in the U.S.16
FDA Commissioner Scott Gottlieb has talked frankly about the chilling effect of these uncertainties. In a speech to a major industry group last year he said, “Once biosimilar makers see that the system is rigged against them, what’s the incentive for a biosimilar maker to pour money into future investments to develop these lower cost alternatives?” 16
The question of incentives is key. If someone is making an investment, should they put that money into biosimilars, or would they be better off putting that money into developing a new branded drug?
Clear signs point to where the market is heading: it’s heading into new drugs – not biosimilars.
According to recent figures published by the PhRMA group, there were over 6,000 new products in developments as new molecular entities (NMEs).17 This graph shows projects in various stages of development (Phase I, II, or III):
1. Managed Care. Biosimilars: The Pipeline Seams Seem To Be Bursting. March 9, 2017
2. PhRMA. The Biopharmaceutical Pipeline: Innovative Therapies in Clinical Development. July 17, 2017.
Now we can see the significance of the reporting on why Pfizer and Momenta said that they had acted to drop multiple biosimilar products in development. Both said it was in order to devote more resources to new drugs for rare conditions.3
It appears they have plenty of company. Assuming that the figure mentioned of 250 biosimilars in development is close to correct, new drug projects swamp that activity by over 2,400%.
These companies are simply following the financial logic of the market. Consider that the oncology class alone has projected sales rising to $233 billion by 2024.18 So it’s hardly surprising to see over 4,000 new oncology drug trials underway – over 60% of the total in the pipeline.17
These uncertainties have led at least one group to conclude that the U.S. biosimilars market has reached a tipping point. If the barriers we’ve discussed are not swiftly resolved, biosimilar manufacturers may be forced to re-evaluate the financial logic of their plans.10
As a McKinsey report pointed out last summer, the current biosimilars business model relies on robust and growing demand in the U.S. to offset those hundreds of millions of dollars in development costs.19 Yet the U.S. market is beset with the uncertainties we’ve discussed.
This brings us back around to the news about drug makers abandoning some of their biosimilar projects. Obviously, we don’t know their thinking for sure. But one ominous sign is that as of 2017, there were only 65 products in the FDA’s Biosimilar biological product development (BPD) program, which is designed to expedite the review process for new biosimilar products.10
At what point does the perception of uncertainties in the U.S. market give way to the certainty of resistance and delay? Wherever that point lies, we must admit the possibility that drug makers will start pursuing new drugs that they calculate will yield a better return on their investment.
This might be bad news for anyone who is responsible for paying the cost of prescription drugs.
OptumRx will continue to monitor these developments, as well as all new drugs that are coming to market.
- Smithsonian National Museum of American History. Humulin N, NPH, human insulin (recombinant DNA origin) isophane suspension. Accessed January 30, 2019.
- Avalere Health. Use of Step Through Policies for Competitive Biologics Among Commercial US Insurers. Published May, 2018. Accessed February 11, 2019.
- Center for Biosimilars. Pfizer Confirms That It Has Terminated 5 Preclinical Biosimilar Programs. Published January 15, 2019. Accessed February 4, 2019.
- U.S. Food and Drug Administration. Biosimilar and Interchangeable Products. Page last updated October 23, 2017. Accessed on February 11, 2019.
- Deloitte Consulting LLP. Winning with biosimilars: Opportunities in global markets. Published 2015. [PDF] Accessed January 30, 2019.
- RAND Corporation. Biosimilar Drugs May Reduce U.S. Health Spending by $54 Billion Over Next Decade. Published October 23, 2017. Accessed January 18, 2019.
- IQVIA Institute. 2018 and Beyond: Outlook and Turning Points. March 2018. Accessed January 29, 2019. [PDF]
- Biosimilar Medicines Group. Current Policy on Access to Medicines and Health in Europe: The role of Biosimilar Medicines. Posted September 2018. Accessed January 18, 2019.
- U.S. Food and Drug Administration. Biosimilar Product Information, FDA-Approved Biosimilar Products. Page last updated January 18, 2019. Accessed February 11, 2019.
- Matrix Global Advisors (MGA). Steps to Reducing Barriers to Biosimilars in the United States. Published September, 2018 [PDF] Accessed January 30, 2019.
- Managed Care. FDA’s Gottlieb Aims To End Biosimilars Groundhog Day. Published January 25, 2019. Accessed February 4, 2019.
- Association for Accessible Medicines. Generic Drug Access & Savings Report 2018. Accessed on February 4, 2019.
- Forbes. Trump's New Pharmacy Benefit Manager Rebate Rule Will Reshape Prescription Drug Prices. Published February 2, 2019. Accessed February 4, 2019.
- Investor's Business Daily. AbbVie Patent Deal Staves Off Amgen Competition, But Others Lurk. Published October 2, 2017. Accessed January 23, 2019.
- Seeking Alpha. AbbVie's (ABBV) CEO Richard Gonzalez on Q3 2015 Results - Earnings Call Transcript. Published October 30, 2015. Accessed February 4, 2019.
- U.S. Food and Drug Administration. Capturing the Benefits of Competition for Patients. Published March 7, 2018. Accessed February 4, 2019.
- PhRMA . The Biopharmaceutical Pipeline: Innovative Therapies in Clinical Development. Published July 17, 2017. Accessed January 30, 2019.
- EvaluatePharma. World Preview 2018, Outlook to 2024. Published June, 2018. Accessed February 4, 2019.
- McKinsey & Company. McKinsey Insights. Five things to know about biosimilars right now. Published July, 2018. Accessed January 30, 2019.
STATEMENT REGARDING FINANCIAL INFLUENCE:
This article is directed solely to its intended audience about important developments affecting the pharmacy benefits business. It is not intended to promote the use of any drug mentioned in the article and neither the author nor OptumRx has accepted any form of compensation for the preparation or distribution of this article.