Impact of biosimilars

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What is the impact of biosimilars on contracting in the inflammatory space such as RA?

Matt Mitchell
81 months ago

2 answers

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The competition is hotting up and the patient related barriers need to go

Nikhil Baijal
81 months ago
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The answer is it depends on a multitide of bi-directional factors in each unique RA product market and site of care. Contracting activity is predicated on forecast models base on introducing supply and demand for a new biosimilar and generally a function of specific payer related niche markets within a product launch plan.
Any market place presumption in regard to the relative therapeutic equivalence (relative safey and efficacy measured against the reference BLA product) of a distinct biosimilar molecue for a patient cohort covered by Medicare with multiple comorbidities could present issues as even anecdotal social media feedback from patients may positively or negatively impact patient uptake and physician prescribing patterns. Medicare is a highly politicized healthcare program and MEDPAC does not operate in a political vacuum free from the pressures of constituencies and special interests.
While payer benefit designs and coverage policies may favor biosimilars, the reality for commercially covered patients is that once their annual deductibles of between $5,000 and $10,000 dollars (US) (the patient pays the negotiated contract rate out of pocket just like a self-insured employer would) are met, the patient has little incentive to seek a change in therapy from a BLA product to a biosimilar if the patient is already responding well to BLA therapy. Since the price differential between the biosimilar and the BLA reference product is seldom more than single stand deviation (perhaps 10 to 20 percent) upon launch of the biosimilar, the reality is that the switch rate/market conversion rate generally does not approach that found in the NDA-ANDA paradign as there is no automatic substitution at the point of sale but instead a dispense as written reality. This is distinguishable from a brand to brand therapeutic market basket pricing paradigm in which there is formulary placement competition and/or disruptive competition from multiple generic manufacturers which iteratively offer discounts off the brand product WAC/AWP to induce large brick and mortar retail pharmacy chains to exclusively stock the generic manufacturer's entire line of products on retail pharmacy shelves. In this latter brand-brand-generics paradigm, it is a race to the bottom in which margin erosion drives out the least efficient manufacturers until only the largest manufacturers are left as only these can survive on low product margins due to their superior economies of scale and the contribution margins from a multitude of other low margin products.
The typical biological-biosimilar product market will be very different. The price differential will resemble that found by and between 93 octane and 89 octane gasoline at a US gas station pump wherein the cost differential alone, will seldom create demand and convert market share. Biosimilar contracting activity would be limited to providing immediate access as of the expected FDA market approval date. Proffered payer discounts would be minimal and would be frankly counter-indictated since they would not generate market share conversion but would erode critical ROI revenue. All one needs to do to test this theory in real work practice is to walk into any supermarket in America and compare the undiscounted shelf price of the same package size of Coca Cola to Pepsi to observe market price stability in action by and between 2 different but competing products. The pricing is particularly dynamic as pricing in such a de facto product market duopoly tends to evolve into a relatively stable state of inertia since lasting market share shifts become harder to achieve the longer the products are on the market.
The BLA-Biosimilar market paradigm, (unlike the above discussed paradigm for brand-brand-generic) is similar to that found with the introduction of paragraph 4 authorized generic (AG) product, there are stark differences.
With an AG, there is for each NDC 11 package size, a single generic manufactuer which by virtue of being first to file with the FDA is afforded 180 days of market exlusivity and can sell a less expensive ANDA (generic) version of the NDA (brand) product at 85 to 90 percent of the NDA WAC/AWP cost and still expect to immediately convert 80 to 90 percent of the existing script volume based on automatic generic substitution at the point of sale due to AB rated therapeutic equivalence.
However, the price-volume analysis for a Biosimilar introduction into a BLA product market in the RA clinical disease space is an altogether a different animal or paradigm. A Biosimilar manufacturer that is first to market (effectively creates a significant disincentive to follow on competitors given the substantial capital and resource investment). Thus, it us unlikely that any RA therapeutic market basket would see multiple competing biosimilars going head to head against one or more BLAs in pursuit of post-market approval date market share through aggressively discounted pricing. Rather, most biosimilar manufacturers will seek out relatively stable BLA markets and be satisfied to garner 30 to 50 percent market share conversion by offering pricing just below the reference BLA product. If the Biological manufactured foolishly lowers its WAC/AWP price which would create accounting nightmares for any lagged price concessions not earned at time of sale, then in the ensuing pricing war, both parties end up in a lose-lose deflationary spiral where transient market share gains become increasingly expensive in terms of lost profit margins and top line revenue (something Wall Street analysts and investors would punish with market cap erosion once the quarterly profits dipped more than expected due to the introduction of the biosimilar).
The BLA-Biosimilar pricing paradigm therefore is much more akin to two NDA products competing for market share within a therapeutic market basket wherein each manufacturer vies for market share via a zero-sum-gain discount/rebate strategy with payers based on national market share and formulary placement. From a contracting standpoint, there would likely be few opportunities to contract with PBMs to favorably drive market share through a uniform and enforceable national biosimilar formulary as standardization is still the exception and not the norm in the commerical space. Paying rebates and admin fees to PBMs with captive mail order specialty pharmacies is unlikely to influence prescriver script writing patterns but would erode margins out of the gate at product launch.
Moreove as 90 percent of more of all PBM and health plan comemrcially "insured" covered lives are not "fully insured" (wherein the plan or the PBM assumes actuarial risk for medical costs exceeding premium revenue) but are rather self-funded by employees, unions and employers out-pf pocket, there are limited opportunities to contract efficiently. Moreover, once members spend through initial deductibles under the pharmay and/or medical benefits, they too have little incentive to focus on cost or solicit the prescriber to prescribe the biosimilar over the BLA product absent treatment issues or side effects with the BLA product.
Of course commercialization also depends on supply side stability and any limitations on biolosimilar supply would quickly frustrate the best product launch market conversion plan and perhaps even create a windfall pricing increase opportunity for the remaining BLA supplier.
The point being that that risks for biosimilar manufacturers including the uncertainlty of FDA approvals, the risk of FDA regulatory enforcement for CGMp violations as well as the usual slew of patent troll stike suits are considerable. For these reasons plus the complexities associated with biosimilar manufacturing and distribution, it is extremely unlikely that the RA marketplace would ever resemble a NDA market after the introduction of multiple generic manufacturer competitors. Unlike the NDA-ANDA paradigm, there will be no mandated point of sale substitution favoring a biosimilar over the BLA product, since unlike a AB rated generic, the large molecule moeity of the biosimilar is not identical to the BLA molecue and so any VC or investment banker premise that there is any upside due to perceived de facto clinical interchangeability is dangerously flawed. Rather the reality is that BLA and biosimilar products are very likely no equally safe and efficaceous for each individual patient or for entire patient cohorts with certain and specific comorbidities. Absent controlled pre-market approval clinical trials for a biolosimilar, there will be no empirical evidence for a payer or MEDPAC's Pharmacy and Therapeutics Committee to recommend more favorable treatment (less burdensome prior authorization or costly formulary placement) for the biosimilar over a BLA product.
Additionally, the biosimilar is also unlikely to enjoy fewer FDA imposed post market approval date restrictions (i.e., REMS, FOCUS and ETASU) which means the need for prescriber and patient detailing, education and ongoing patient monitoring via distribution hubs is also unlikely to be less costly than that for the BLA product. This is another reason why biosimilar-BLA product markets are unlikely to be more competitive in terms of pricing than the curent AG-NDA product market is during the 180 day parahraph 4 exclusivity period. So pre-biosimilar launch contracting activity may very well be focused on access, distibution rights and HUB requirements to support commercialization and FDA compliance.
While the mechanisms and regulations are much more complicted and nuanced and would require far more space to elaborate on, the notion that the biosimilar is a pancea to the high cost of specialty medications is without empirical merit. There is no incentive for either manufacturer to reduce margins in pursuit of profit past a point of equilibrium which will likely be achieved within months of FDA market-date approval.

Rob Fellman, JD
81 months ago

Have some input?