Christina Corridon co-wrote this blog post with Pratap Khedkar.
Despite 16 approvals in the last four years, just six biosimilars currently are being marketed stateside. The U.S. biosimilars market hasn’t progressed as anticipated, yet some experts are wondering whether the biologic follow-ons can redeem themselves with a breakout year in 2019.
The U.S. biosimilars market has a tough road ahead. The WAC list price differential between biosimilars and the originator drugs is hovering around 30%, on average, which likely isn’t speeding biosimilars’ adoption in the U.S. Rather than playing the long game and waiting for the U.S. landscape to become more attractive, some biosimilar manufacturers like Momenta are choosing to exit the market. And others like Pfizer have shuttered their preclinical biosimilar programs to focus their efforts elsewhere. On the flip side, the Trump administration has zeroed in on drug pricing and biosimilars as priorities—and, of course, the two are intertwined.
Given the state of the biosimilars market today and the challenges that are stacked up against it, how likely is it that 2019 will be the year that biosimilars will begin to gain more substantial market share in the U.S.?
Increased Regulatory Support Should Help Clear the Way
In his keynote at the J.P. Morgan Healthcare Conference in January, FDA Commissioner Scott Gottlieb compared biosimilars’ slow uptake to that of generics, and said that he was confident that the biosimilars market can overcome industry challenges. At the same time, he acknowledged that certain regulatory steps need to be taken to improve the approval process.
The agency has publicly shared its plan of action, but so far, progress has been slow. The Biosimilar Action Plan, released in July 2018, outlines the agency’s plans to reform the regulatory processes for biosimilars, and to promote competition and improve patient access. In early December, the FDA released new guidance documents on biosimilar development.
But as the case has been in other areas of biosimilar progress, two regulatory steps forward could be followed by one step back. For example, one factor to consider is whether the government shutdown will delay drug applications and stymie any progress that’s been made on the biosimilar front, despite the FDA’s good intentions.
Biosimilars Appear to Be Working in Europe, so What’s the Deal in the U.S.?
The biosimilar numbers in Europe paint a very telling picture: More than 30 biosimilars have gained approval across the pond and 26 are on the market. Furthermore, the price tags for biosimilars are up to 80% lower in Europe than in the U.S., meaning that cost is a more effective driver of adoption overseas.
Biosimilar manufacturers like Biogen and Celltrion that have tasted success in the EU market have increased their investments in the space. Biosimilar manufacturers may be finding the European market attractive, but they need to get their launch timing and commercialization strategies right. And that certainly doesn’t mean that the market is immune to exits: In fact, Boehringer Ingelheim has decided to shutdown biosimilar development outside the U.S.
If Trump’s reference-to-EU pricing plan for medical benefit drugs holds, the prices set for biosimilars in the U.S. will come down considerably over the long term (after 2025). When we also consider the long-term sustainability issues that biosimilar manufacturers face, the margin for medical benefit biosimilars might not be enough. But there are other factors at play, too: The potential for success tied to the order of entry likely is behind Sandoz’s decision to withdraw its FDA application for Rixathon, even though the biosimilar is marketed in Europe. What role do each of these factors play in the increasing number of companies choosing to retreat from the biosimilars market?
It’s well known that the regulatory issues that confound manufacturers in the U.S. simply don’t exist at the same level in the European market. But regulatory issues aside, why is there such a discrepancy in biosimilar approvals—and market prices—between markets?
Slow progress in the U.S. biosimilars market can be attributed, in large part, to misaligned incentives among healthcare stakeholders. Namely, payers, providers and patients have fallen out of sync—and a lot of it is tied to the price of biosimilars. Here are a few disconnects when it comes to stakeholder expectations for biosimilars:
- Payers: The potential for discounts (vs. the name brand biologic) has been part of the conversation since the very first mention of a biosimilar, and payers latched onto that concept. They want a steep discount right from the start, and they care about the level of the discount. Payers tried the 15 to 20% discount level (off of the WAC), but it didn’t work. Now they’re going for discounts in the 30 to 35% range, but will it be enough? The results of payer qualitative market research conducted by ZS in 2018 indicate that, directionally, payers need a 20 to 40% net price difference to be interested in incentivizing or preferring a biosimilar. Further, managed care organizations would need discounts of about 50% to switch stable patients; otherwise, they won’t switch.
- Providers: Health systems and physician-owned practices make money on the spread between the cost of a biosimilar and what they get paid for it, the latter being a figure that drops proportionally to discounts from six months ago. The spread only remains open if the price keeps dropping as well, so naturally providers care about the downward slope of the price line. They want the price gap to go lower, but how will their prescribing behavior change if it doesn’t?
- Patients: Patients may begin to expect more patient support programs attached to the biosimilars. In addition to winning on price, many biosimilar manufacturers are exploring other innovative ways to differentiate beyond clinical differences by offering, for example, a service that provides appointment reminders for an infusion or an app for a breast cancer patient on a given drug. But the level of robustness of the services (for example, a service that provides appointment reminders for an infusion or an app for a breast cancer patient on a given drug) could differ depending on the investments that the biosimilar manufacturer is willing to make. Which is more important to patients: support services or low prices?
Manufacturers will end up with very little margin if they need to satisfy all of these stakeholders, on top of the high cost of manufacturing. One thought is that companies can make up the difference in volume. Particularly in the case of more chronic diseases, healthcare providers unfortunately are reluctant to switch established patients, and treatment-naïve patients are only a quarter to a third of the pie, so there’s much less opportunity volume-wise too.
Given all of these factors—including multiple entrants per molecule—the ROI of biosimilars as a business will be lower than anticipated and spread over a longer time period, which makes shareholders unhappy. That’s why we’re beginning to see some companies like Momenta exit the market entirely, and big players like Merck and Pfizer reduce their biosimilar portfolios—making it unlikely that the year ahead for biosimilars in the U.S. will seem much different than the preceding four to five years. As we look beyond 2019, when will biosimilars gain traction in U.S. healthcare, and will fewer companies be in the running to reap the benefits?