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One of the most highly-anticipated new drugs in recent years recently took a huge step towards public availability. In September, the U.S. Food and Drug Administration (FDA) approved Amjevita™ (adalimumab-atto) as a biosimilar to Humira® (adalimumab) for multiple inflammatory diseases.1 Both Humira and Amjevita are aimed at treating conditions like rheumatoid arthritis, psoriatic arthritis, and plaque psoriasis.1

The term “biosimilar” is used instead of the more familiar term “generic” to describe products intended to compete against biological drugs like Humira. This is because producing biosimilar drugs is a much more complicated process than for traditional generics:

  • Producing generic forms of traditional brand name drugs is relatively straightforward. Once you get down to their constituent ingredients, brand name drugs and their generic versions are chemically identical.2
  • But biologics and biosimilars are generally derived from living organisms, including cells from humans, animals, or various microorganisms.1 These living systems are inherently complex and variable, which makes getting an exact compound match of an existing biologic drug virtually impossible.3 (The original biologic version of a drug is often called the reference product.)
  • Therefore, the term biosimilar applies rather than generic. Biosimilars are highly similar to their reference product, but they can have allowable differences because they are made using living organisms.4

Biosimilars in general have long been expected to help address the problem of extremely high costs for many biologic drugs. While less than one percent of commercial plan subscribers use biologics, they cost far more than ordinary drugs – between 30-70 times more.5

Amjevita in particular has been eagerly anticipated. The reason is because this drug is meant to compete with Humira, one of the biggest-selling drugs in the world. Rheumatoid Arthritis is a monster drug category, accounting for 25% of all specialty drug spending. Humira alone takes up one quarter of those costs:

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Currently, Humira costs between $1800 to $2400 per month before insurance coverage.6

Financial analysts and some Pharmacy Benefit Managers (PBMs) remain very optimistic about the cost-savings opportunity presented by biosimilars like Amjevita.  Projections vary, depending on their assumptions. One very optimistic projection is that American companies could save up to $250 billion between 2014 and 2024 if biosimilar prices are 20%-30% lower for just 11 products, including Neupogen® (filgrastim), Avastin® (bevacizumab), Epogen® (epoetin alfa), Humira, Herceptin® (trastuzumab), Neulasta® (pegfilgrastim), Remicade® (infliximab) and Rituxan®(rituximab).7

The discount figures referenced above are based on the actual pricing experience seen in other parts of the world, where biosimilars have been in broad use for some years now. For example, in the European Union (EU) countries, discounts have ranged between 10%-30%.5

New caution flags

Recently it appears that at least some observers are revising their opinions on biosimilars. While biosimilars are still expected to help improve patient access and save billions of dollars in health care costs, those expectations seem to be dampening.8

For example, look back at the savings projection given above – $250 billion over a 10 year period for just 11 drugs. A more recent prediction, using a shorter time frame (2016-2020), but accounting for all biosimilars, shows savings of just $56-$112 billion.9

There are several reasons for this new caution.

First, as noted, earlier projections were based on the experience in other countries, largely in Europe. However, the FDA took much longer to arrive at a streamlined approval process for biologics and biosimilars than many other regulators. So while today there are 23 biosimilars in use in the EU, only four biosimilars received FDA approval in the U.S.8,10

Secondly, the 30% discount assumption is probably over-optimistic. Generally speaking, we know from our experience with generics that the really dramatic price drops only happens when there are several copies of the branded drug on the market. All of them compete against each other and collectively pull the overall prices down.11

With so few biosimilars on the market in the near/intermediate future, there is little guidance as to how big – or small – any discounts off the reference drugs might be. What we do know is that there are only two biosimilars actually available for sale in the U.S.: Zarxio®and Inflectra™. Both of them have announced discounts of only 15% off the published price for their respective reference drugs.8,12

Thirdly, the slow approval pipeline has an impact on the necessary work of education that will need to happen for both doctors and patients regarding biosimilars. It’s not going to be as simple getting either to switch to a new product as it was for generics because, as noted, the two are only similar, not identical.8

Doctors are generally known to be conservative with respect to embracing new drugs.13 There certainly are exceptions to this observation, for example, they were quick to use the recent class of hepatitis C drugs. However, at least so far here in the U.S., there are indications that they may be especially skeptical about the prospect of using biosimilars.

Consider the results of a recent survey. Just under 1,800 U.S. doctors were asked, “In general, do you feel biosimilars will prove safe and effective enough for you to prescribe them when more become available?” Only 44% were willing to say ‘yes,’ while fully 56% of the respondents said either ‘no’ or that they would need more information.14

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The final reason for caution centers on the unique development process and complex ‘living system’ design properties of biologic products. Biologic molecules are precision-engineered for the work they do. They are drastically larger in size and vastly more complex than traditional chemical drugs. This size and complexity makes them perfect subjects for patent protection: Each biologic drug can be protected by hundreds of different patents.15

We have addressed this topic at length in our earlier series on biologic and biosimilar drugs. [See here, and here.]

Simply put, the fear has been that drug makers could use the patent system to delay biosimilar versions of their biologics for extended lengths of time. In sum, they could use lengthy, strategic patent litigation to artificially extend the effective length of a brand’s exclusivity – resulting in higher costs.3

That fear appears to have been well-founded. In fact, only two of the four biosimilars approved by the FDA are available for sale in the U.S. The other two remain unavailable, mired in court proceedings that may drag on for years.

[Technically, as of this writing Inflectra™, biosimilar to Remicade,® was not quite yet available. Shipments to wholesalers were scheduled to begin in late November of 2016.12]

We need to understand that patent protection for biologic drugs is not just one thing, it’s a system of layers. Each layer of patents guards a different aspect of the drug, or its use, or manufacturing process, and each has different lengths of protection. This chart illustrates some of the patent types that apply to Humira:

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AbbVie (makers of Humira) says its product is protected by many patents covering all aspects of its manufacturing process, formulation and indications. Their stated plan is to wage patent litigation and hold Amjevita off the market until at least 2022.16

The most recent statements from Amjevita’s manufacturer make it clear that, despite the FDA approval, they are most unlikely to attempt to launch their drug to the market – not in 2016, and not in 2017, either. (Drug makers are technically free to launch an approved drug to market once they receive FDA approval. However, if there are pending patent issues as in this case, they must do so “at-risk.” That is, they could be subject to severe financial penalties for any profits they made if the litigation goes against them.) 17

As a result of these legal maneuverings, OptumRx continues to push back its own estimate of when Amjevita may finally reach the market. In the most recent edition of the OptumRx quarterly pipeline report (Q4/2016), the market-ready date for Amjevita is tentatively shown as 2018+.18  

A similar story is unfolding for one of the other three biosimilars to win FDA approval, Erelzi™ (etanercept-szzs), aimed at another giant selling biologic, Enbrel® (etanercept). Like Amjevita, Erelzi received its FDA approval earlier this year (August 2016) and yet, there are no plans for it to reach market any time soon. Enbrel’s maker, Amgen, has filed a patent infringement lawsuit against Sandoz (a division of Novartis), maker of Erelzi. Amgen believes that Enbrel should be granted an injunction by the court to block sales claiming patent protection until 2029.19

The FDA is rushing to resolve the approval problem, and that could help build more confidence among doctors and patients to accept biosimilars.8 But the legal tangle looks ominous, and will almost certainly need some kind of new solution.

Consider that there are only a handful of companies with the resources to spend the kind of time and money required to make a biosimilar.11 A traditional generic drug can come to market in just a few years for between $2-5 million.13 But developing a biosimilar might cost between $100 - $200 million, and take eight to ten years.20 Adding another 5 or 6 years to the end of this process, as we have been discussing above, would substantially increase the development time and cost.

The worst outcomes would be if biosimilar makers have to assume spending prolonged periods in legal limbo, waiting for the chance to recover their investment. That could change their financial calculation about whether it makes sense to enter the market in the first place, leading to reduced competition and higher prices over the long term.20

Of course, there’s no guarantee that the courts will uphold these patent claims exactly as the drug makers wish. That is in the process of playing out right now.

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What does it all mean?

All of the factors we’ve mentioned here – slow approvals, smaller-than-expected discounts, reluctant acceptance, and patent fights are intertwined. Low market penetration by biosimilars, whether due to a slow approval process of patent litigation, limits their ability to pull down prices. This, in turn reduces the incentive for doctors and patients to try the new drugs, which further reduces penetration/uptake.

Actuaries have been working with these factors to produce various future scenarios regarding biosimilar savings. This graph shows a range of possibilities for a hypothetical firm with 10,000 members – high, medium and low:

Chart showing employer projected savings from biosimilars assuming 10,000 commercial members

The high range (#1) assumes robust market penetration (30%), high patient acceptance rates (100%) and a 30% price differential compared to the reference drugs. The low scenario (#3) assumes much lower penetration (15%), patient acceptance (50%) and price differential (20%).5

Yet even the high range shown here reflects quite modest savings. Assuming overall health care costs of $81.5 million for our hypothetical 10,000 member employer, the saving of just over $600,000 represents less than 1% -- (0.8%) savings.5

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Conclusion

The conclusion we must face is that providers, benefit plans and pharmacy benefit managers are probably much further from a new era of competitive biosimilar drug prices than we might have hoped for even a year or two ago. All of the factors we’ve discussed will require time to unfold, beginning with the approval process.

Ultimately, a mature biosimilar market should feature robust competition at the individual drug level, fast uptake by physicians and their patients, and a predictable legal process that protects the interests of all stakeholders. However, by one estimate, our experience in the U.S. in developing a biosimilar market will lag that of the EU by somewhere between six to nine years.5

From where we currently stand, establishing all of these conditions may seem like a tall order, even when stretched-out over a decade. However, this is the only path that leads to significant savings from biosimilars.

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References

1. U.S. Food and Drug Administration. Press Release: FDA approves Amjevita, a biosimilar to Humira. Sept. 23, 2016. Accessed at: http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm522243.htm on 11.14.2016.

2. Amgen, Inc. Biosimilars Versus Generics. Accessed at: http://www.amgenbiosimilars.com/the-basics/biosimilars-versus-generics/ on 03.02.2016.

3. PharmExec.com. Biosimilars: The Litigation and Patent Challenges to Come. May 4, 2015. Accessed at: http://www.pharmexec.com/biosimilars-litigation-and-patent-challenges-come on 02.29.2016.

4. U.S. Food and Drug Administration. Information for Consumers (Biosimilars). Updated: Aug. 27, 2015. Accessed at: http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/ucm241718.htm on 03.02.2016.

5. Milliman White Paper: Understanding Biosimilars and Projecting the Cost Savings to Employers – Update. June 29, 2015. Accessed at: http://us.milliman.com/insight/2015/Understanding-biosimilars-and-projecting-the-cost-savings-to-employers-Update/

6. American Journal of Managed Care. Amgen's Biosimilar to Adalimumab Approved, Market Penetration Uncertain. Sept. 26, 2016. Accessed at: http://www.ajmc.com/newsroom/amgens-biosimilar-to-adalimumab-approved-market-penetration-uncertain on 11.16.2016.

7. Zacks Equity Research. Biosimilars in Limelight on FDA Approval of Amgen Drug.  Sept. 27,2016. Accessed at: https://www.msn.com/en-us/money/topstories/biosimilars-in-limelight-on-fda-approval-of-amgen-drug/ar-BBwGIzN on 11.16.2016.

8. Modern Healthcare. One year after Zarxio approval, future of biosimilars remains unclear. March 23, 2016. Accessed at: http://www.modernhealthcare.com/article/20160323/NEWS/160319919 on 11.18.2016.

9. Pharmaceutical Commerce. Biosimilars represent a $56-110-billion savings potential in 2016-2020, says IMS Institute. March 29, 2016 | Updated: May 11, 2016. Accessed at: http://pharmaceuticalcommerce.com/latest-news/biosimilars-represent-a-56-110-billion-savings-potential-in-2016-2020-says-ims-institute/ on 11.17.2016.

10. European Medicines Agency: European public assessment reports (EPAR) for human medicines. Report generated on 11.18.2016. Accessed at: http://www.ema.europa.eu/ema/index.jsp?curl=pages%2Fmedicines%2Flanding%2Fepar_search.jsp&mid=WC0b01ac058001d124&searchTab=searchByAuthType&alreadyLoaded=true&isNewQuery=true&status=Authorised&keyword=Enter+keywords&searchType=name&taxonomyPath=&treeNumber=&searchGenericType=biosimilars on 11.18.2016.

11. Congressional Research Service. Follow-On Biologics: The Law and Intellectual Property Issues. Jan. 15, 2014. Accessed at: https://www.fas.org/sgp/crs/misc/R41483.pdf on 03.24.2016.

12. Pfizer Inc. Pfizer Announces The U.S. Availability Of Biosimilar INFLECTRA® (infliximab-dyyb). Oct. 17, 2016. Accessed at: http://www.pfizer.com/news/press-release/press-release-detail/pfizer_announces_the_u_s_availability_of_biosimilar_inflectra_infliximab_dyyb on 11.18.2016.

13. Health Affairs, 33, no.6 (2014):1048-1057. Regulatory And Cost Barriers Are Likely To Limit Biosimilar Development And Expected Savings In The Near Future.

14. Medical Marketing & Media. What do physicians think about biosimilars? May 25, 2016. Accessed at: http://www.mmm-online.com/commercial/what-do-physicians-think-about-biosimilars/article/498542/ on 11.17.2016.

15. Bidness Etc. Why AbbVie was not Impacted by Amgen Humira Biosimilar Submission. Nov 30, 2015. Accessed at: http://www.bidnessetc.com/58311-why-abbvie-was-not-impacted-by-amgen-humira-biosimilar-submission/on 02.19.2016.

16. TheStreet Transcripts. AbbVie (ABBV) Earnings Report: Q3 2015 Conference Call Transcript. Oct. 30. 2015. Accessed at: http://www.nasdaq.com/aspx/call-transcript.aspx?StoryId=3628416&Title=abbvie-s-abbv-ceo-richard-gonzalez-on-q3-2015-results-earnings-call-transcript on 04.15.2016.

17. Biopharma Reporter. Amgen unlikely to launch Humira biosimilar at risk in 2017. Nov. 1, 2016. Accessed at: http://www.biopharma-reporter.com/Markets-Regulations/Amgen-unlikely-to-launch-Humira-biosimilar-at-risk-in-2017 on 11.18.2016.

18. RxOutlook.® 4th Quarter 2016. Accessed at: http://images.info.optum.com/Web/OptumInsight/%7B8a3f5474-87ce-4ce1-94ae-ed773a92e94d%7D_ORX6204_161109_B2B-NEWSLETTER_RxOutlook_FINAL.pdf?elq_mid=12608&elq_cid=746222 on 11.16.2016.

 19. Active Wall Street. FDA Approves Novartis Erelzi as biosimilar to Amgen’s Enbrel. Sept. 1, 2016. Accessed at: http://www.activewallst.com/2016/09/01/blog-coverage-fda-approves-novartis-erelzi-as-biosimilar-to-amgens-enbrel/

 20. Matrix Global Advisors. The Economic Viability of a U.S. Biosimilars Industry. Feb. 2015. Accessed at: http://static1.1.sqspcdn.com/static/f/460582/25983845/1424796699187/MGA_biosimilars_2015_web.pdf?token=8q2Fgfqbg6uB1MtMzDGIfsmfcBs%3D on 04.15.2016.