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HomeMarket'Biosimilars' Were Supposed to Tame Costs for Drugs Like Humira. It Isn't...

‘Biosimilars’ Were Supposed to Tame Costs for Drugs Like Humira. It Isn’t Working.

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This was expected to be the year that Humira,
AbbVie
‘s blockbuster $90,000-a-year arthritis treatment and the best-selling biopharmaceutical in history, loses its chokehold on the healthcare system.

After more than 20 years, the patents protecting
AbbVie
‘s (ticker: ABBV) cash cow expired at the beginning of 2023. That opened the door for a host of competitors known as biosimilars, drugs that function as the generic equivalent of complex treatments like Humira. The first, Amjevita from
Amgen
(AMGN), was launched in January; as many as seven more could arrive later this year.

Congress set the stage for this moment a decade ago, when it passed legislation creating a pathway to approval for biosimilars. The idea was to create a lever to control the price of biologics, an expensive class of drugs grown from living cells. Biologics now account for 46% of total medicine spending in the U.S., according to the
IQVIA
 Institute for Human Data Science—despite the fact that they made up just 2% of all prescriptions as of 2017, the most recent year for which statistics are available.

But to the delight of AbbVie shareholders, the consternation of healthcare reformers, and the surprise of all, the theory that biologic competition would end Humira’s dominance and undercut its price seems to be crumbling.

Recent projections from AbbVie suggest that its private negotiations with the middlemen who cut deals on behalf of the insurers, known as pharmacy-benefit managers, or PBMs, are going very well for AbbVie, and significantly less well for the biosimilars. In early February, the company said it now expects U.S. Humira sales to drop 37% in 2023, cutting global sales to $13.7 billion from $21.2 billion in 2022. That’s on the low end of AbbVie’s prior estimates; the company had previously said that U.S. sales could drop as much as 55%.

Piper Sandler analyst Christopher Raymond called the guidance “about as upbeat as we could have hoped.”

That’s good news for AbbVie, certainly. But it also has broad implications for the larger drug market and healthcare as a whole. Humira is just the first of a wave of successful, high-price biologics expected to face biosimilar competition in the coming years, and its fate is seen as a bellwether.

After Humira, the most significant biologic poised to be tested is
Merck
‘s (MRK) cancer treatment Keytruda, which brought in $20.9 billion in sales last year; its first biosimilar challengers are expected in 2028.
Johnson & Johnson
‘s (JNJ) Stelara, which treats some of the same conditions as Humira and captured $9.7 billion in revenue in 2022, is expecting competition later this year. And
Regeneron Pharmaceuticals
‘ (REGN) eye drug Eylea, with $6.3 billion in revenue last year, could face biosimilars in 2024.

If biosimilars fail to take hold, there’s a risk that pharma companies could stop investing in new ones. That will leave the makers of the original biologics to extend their monopolies—and continue to gobble up nearly half of U.S. medicine spending.

Humira might be the biggest, but it isn’t the first biologic to face competition. In the U.S., there are already 12 other treatments contending with at least one biosimilar. And unlike traditional generics—which can cut prices by more than 95% when several enter the market at once, according to a Food and Drug Administration study—the pricing power of biosimilars varies. So far, overall costs per unit for the existing biosimilars and the biologics they target are down 18% to 50% since the biosimilars were launched, according to IQVIA.

Similarly, current biologics have had mixed success in finding a market. Remicade, a doctor-administered drug from
Johnson & Johnson
used to treat a number of autoimmune conditions, faces three biosimilars that together hold 44% of the market, according to IQVIA. A report from Amgen says that Remicade’s price is down 57% since the first biosimilar launched, and Johnson & Johnson says Remicade sales are down to $2.3 billion in 2022 from $7 billion in 2016.

Other treatments have made less of a dent. Biosimilar alternatives to
Sanof
i’s (SNY) insulin product Lantus account for 28% of the market for the drug, while competitors to
Eli Lilly
‘s (LLY) Humalog, a different type of insulin product, have captured just 8% of market share.

For Humira’s competitors, these insulin drugs set a particularly worrying precedent: They’re the only current biosimilars that fall under insurers’ pharmacy benefits—as Humira does—rather than the medical benefits that are applied when a treatment must be administered by a doctor.

When a drug is dispensed through the pharmacy, PBMs play an enormous role in determining its cost and accessibility. In the case of biosimilars, that has so far manifested in keeping prices relatively high. 

Here’s how it’s playing out with
Amgen
‘s Humira competitor: The company says it will offer the drug to PBMs for two different U.S. list prices, $85,000 or so a year, or about $40,500 a year (Humira is currently priced at about $90,000 a year). Counterintuitively, the majority of PBMs are expected to opt for the steeper cost. That’s because the higher price allows them to negotiate larger rebates from the drugmakers. The details of those arrangements are confidential and allow the PBM to keep some share of the rebate.

Company / Ticker Product Expected launch date
Amgen / AMGN Amjevita January 31
Organon / OGN Hadlima July 1
Boehringer Ingelheim Cyltezo July 1
Coherus BioSciences / CHRS Yusimry July 1
Viatris / VTRS Hulio July
Novaris / NVS Hyrimoz July
Pfizer / PFE Abrilada Second half of the year
Fresenius Kabi Idacio July
Teva Pharmaceutical Industries / TEVA AVT02 July 1, pending FDA approval

Sources: Cardinal Health; company reports

The problem for biosimilars is that the established drugs can afford to pay a larger rebate: Yaron Werber, an analyst at Cowen, says AbbVie has been paying about $9 billion in discounts on Humira, a figure that includes rebates to PBMs as well as discounts to other channels, like Medicaid. That means PBMs are incentivized to give priority to the original biologics on their list of drugs that are covered by insurance, positioning them to hold a higher market share than their upstart competitors.  

AbbVie says that for 2023, Humira is a covered drug for 90% of insured Americans. Meanwhile, the major PBMs say they will take some, though probably not all, Humira biosimilars.

Even if PBMs do agree to include Humira biosimilars on their formularies—the lists of drugs that insurance agrees to cover—it isn’t clear that patients will use them.
Cigna
(CI) and
UnitedHealth Group
(UNH) say that their PBMs will put the biosimilars in the same category as Humira, meaning they won’t be any cheaper for patients.
CVS Health
(CVS) told Barron’s that its PBM will cover Amgen’s Amjevita as “a nonpreferred specialty product,” while Humira would remain preferred. (A CVS spokesperson said there would be “little to no difference” in out-of-pocket cost for the two drugs for most consumers.) The company said it would make decisions about the other biosimilars as they launched.

Without any economic incentive, there’s little reason to think that biosimilars will be adopted by doctors and patients. “On the financial level, the only thing that is really motivating us [to prescribe a biosimilar] is the patient’s out-of-pocket cost,” says Dr. Gary Feldman, a practicing rheumatologist in California and the president of the Coalition of State Rheumatology Organizations.

The challenges for biosimilars are multiplied by their development process. Unlike typical generics, which are exact replicas of the drugs they compete with, biosimilars are, as their name suggests, a very close imitation. That makes them more complicated and expensive to produce. It also means the FDA requires their makers to run time-consuming and costly clinical trials before they can be approved and enter the market.

If these hurdles stop the current crop of biosimilars from capturing a profitable slice of the market, experts fear for the future of the category—and ultimately, the ability to challenge biologics and their outsize impact on healthcare spending. 

“I am a bit nervous,” says Marta Wosińska, a healthcare economist and a visiting fellow at the USC-Brookings Schaeffer Initiative on Health Policy. “What I worry about is that…[biosimilar] manufacturers might decide that some markets are just not worth it. And then we might have fewer entrants in many markets, and potentially no entrants in some markets at all.”

Analysts and insiders generally expect the Humira biosimilar market to take some time to shake out. Biosimilar manufacturers, meanwhile, seem to be tempering expectations as the challenges come into focus. “Amgen is definitely not emphasizing that drug as much as they had been, as a driver for them for their top line,” Raymond tells Barron’s.

For some in the biosimilar market, this year is about positioning: getting onto formularies and launching a long, slow fight for market share. “Our view is you’ve got to be in the game in ’23 if you want to play in ’24 and beyond,” said Paul Reider, chief commercial officer of Humira biosimilar maker
Coherus BioSciences
(CHRS) at an investor conference in January.

And biosimilar makers, like the rest of the pharma industry, are looking anxiously ahead to the Inflation Reduction Act, which will allow Medicare to negotiate certain drug prices. (The first negotiated prices will go into effect in 2026.) Some analysts say the law could be a boon to biosimilars. It will exempt biologics that have competition from negotiation, which could encourage biologic makers to cooperate with biosimilar manufacturers to get biosimilars on the market sooner.

For the drugmakers—and the healthcare system at large—hundreds of billions of dollars ride on the success of the Humira challengers and other biosimilars in the near-term pipeline. IQVIA said in a January report that savings attributed to biosimilars over the next five years alone could be more than $180 billion. That outcome, however, rests on the ability of these drugs to find a market. Werber thinks that, ultimately, they will.

“The reference drugs aren’t going to completely go away,” Werber says. “But they will have to cede share and price.”

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

Credit: marketwatch.com

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