More than three decades ago, the Hatch-Waxman Act ushered in a new model of pharma industry renewal by opening the door to effective generic competition after drug patent expiry and encouraging originators to invest in innovation. Viren Mehta, founding partner of Mehta Partners LLC, would like to see similar gains from biosimilar adoption.
The barriers to biosimilars adoption today bring back bitter-sweet memories of the regulatory revolution that eventually gave birth to the generics industry in the 1980s. Younger readers may find it rather incredible that in those days nearly every state of the US had anti-substitution laws on its books to keep generics away, thanks to successful lobbying by the industry. Was this industry action motivated by uncertain R&D productivity and outlook, or was poor R&D performance a consequence of drug companies enjoying easy money from ‘perpetual patent protection’? At the time, the tools of biotechnology were still in their infancy, and the potential benefits of biological medicines were yet to be experienced. Today, with most of the first-wave of biologics off patent, their biosimilars face a different set of barriers which may nonetheless once again put biopharma innovation at peril.
To be sure, ensuring that the biologic innovators rightfully earn handsome returns during the primary product patent life is essential not only for the health of the industry but also for the health of society. Thereafter, it is equally important for the health of the industry that it has a balanced set of incentives to continue to do what it does best: innovating and providing treatments for the next set of healthcare challenges, and once again earn a right to handsome profits.
The Generic Revolution
This in fact was the purpose and promise with which pharmacy benefit managers (PBMs) evolved. The key to their ultimate success was their systematic and successful state-by-state fight to get those anti-substitution laws overturned. Without those successes in the 1980s and 90s, the US may well have lacked the motivation if not the resources to invest in the modern-day biologic innovations that today account for about 30% of the total industry sales, and an even higher share of its profits. Four of every five pills dispensed in the US today are generic that sell for pennies to the brand name dollars.
By comparison, a decade ago, Japan was spending at least $15bn each year on off-patent brand name drugs that the US paid only generic prices for, and the cost of this perplexing profligacy has continued to rise with each succeeding patent expiry amidst that society’s reluctance to rebalance biopharma incentives. Some industry critics believe such easy cash flow within Japan’s cozy government-industry structure may have held back Japanese biopharma companies from continuing the prudent risk taking that had built their strong innovation track record.
While Japan has been slow in accepting generics, resistance to small molecule generics in the US also took a generation to overcome. Biosimilars acceptance should evolve more rationally for many reasons, not the least so that biopharma innovation that is at a tipping point can continue to blossom – rather than prudent risk-taking be smothered by barriers to biosimilar adoption just to yield easy money in the short term. Only one challenge stands in the way. Whereas there are dozens of small molecule generics priced at a dollar or two, there are only about a dozen biosimilar biologics selling at four, five, or even six-digit dollar prices around which a creative set of barriers to fair adoption of biosimilars are easier to erect.
PBMs Are Different This Time Around
The PBMs have been the first to recognize this opportunity. But although they were responsible for catalyzing adoption of small molecule generics in the US, their approach has been markedly different around biosimilars. The handful of PBMs that dominate the entire nation when it comes to deciding which drugs will be covered and with how much copay have turned the tables on society, joining hands with the off-patent biologics originators and locking in long-term contracts. In return unknown but presumably lucrative rebates the most powerful PBMs in the US have ensured that approved biosimilars cannot gain a market position.
These are the same PBMs that created such great value for society by championing small molecule generics, but they were young and idealistically hungry then, whereas today they are apparently intent on maximizing profits. This has earned the PBMs wrath of the rest of industry, not to mention much of the political establishment, and the opaque rebate practices they are now perfecting in the most lucrative segment – biosimilars – is particularly resented. Payers and politicians alike wonder if the wolf is not guarding the henhouse! (Also see “FTC Competition Hearings: PhRMA, Former Rep. Waxman Advocate Focus On PBMs” – Pink Sheet, 24 Aug, 2018.)
FDA Commissioner Scott Gottlieb has become one of the more vocal critics of what are becoming today’s equivalent of last generation’s anti-substitution laws, and a number of other anti-biosimilar barriers that the biologic innovators facing patent expiry have successfully enacted. (Also see “FDA Commissioner’s Rx For US Biosimilars Market: Reform Contracting Practices And Payment Models” – Scrip, 19 Jul, 2018.) These barriers include:
- ‘patent layering’ around ever-improving tools of biotechnology, including in manufacturing refinements, where the case-law to establish fairness may take a decade;
- ‘indication layering’ around interrelated therapeutic benefits of a single biological pathway, again something that may take a decade for scientific consensus to emerge that the FDA can include in fulfilling its regulatory obligation; and
- ‘rebate layering’, one of the least comprehensible of the industry practices.
A number of initiatives promise to bypass these barriers to streamline biosimilars adoption, to promote rational use of resources, and to spur further biopharma innovation to treat the next set of illnesses. One recent FDA analysis estimates that the US would have saved $4.5bn if all the approved biosimilars that are currently blocked by the practices outlined above were on the market in 2017. These potential savings are only going to multiply over the coming decade as the second and third wave of biologics go off patent.
Momentum For Change
The courts and the FDA may take a decade to adjudicate the fairness and prudence of layered barriers, but the stakeholders need not wait, as they can let the data and experience speak for themselves. The payers, prescribers and patients are increasingly vocal that they will not be constrained, unlike the FDA or the patent courts, and are doing exactly that. The pace of actions to motivate prescribers to accept biosimilars, and reimbursement policies to accelerate this acceptance, from the CMS (the government payer that foots about 60% of the US healthcare bills), and managed care organizations (MCOs), is not only picking up, but it is being strongly supported by the US government as well as a range of new consortia of hospitals and businesses. The rest of the world is ahead in implementing measures to broaden biosimilar use.
All they ask of PBMs, biologic originators and biosimilar companies is simply to deliver value. But that’s something that deserves a column of its own.
This column originally appeared on Scrip Biopharma Intelligence, September 11th, 2018