At the start of the last decade, big pharma was getting smaller. Blockbuster medicines that had fueled years of growth were losing patent protection, exposing the industry’s largest companies to generic competitors. The resulting impact was so substantial it temporarily stalled the relentless upward march of U.S. drug spending.

Today, big drugmakers are facing an even larger “patent cliff,” with more than $200 billion in annual revenue at risk through 2030. But this time around, many of the brand name drugs losing market exclusivity are biologic products, manufactured from living cells, rather than the chemical pills that previously dominated the ranks of pharma top-sellers.

These biologic drugs, like AbbVie’s anti-inflammatory treatment Humira and Merck & Co.’s top-selling cancer medicine Keytruda, will face competition from so-called biosimilar drugs that, unlike generics, may not be as easily substitutable. Still, it will be a treacherous period for drugmakers to navigate, as they will need to replenish their research pipelines and carefully manage new product launches to replace lost revenue.

“This is of tectonic magnitude,” Arda Ural, health sciences markets leader at the consultancy EY. The looming patent expirations "capture most blockbusters," he added.

Besides Humira and Keytruda, drugs like Bristol Myers Squibb’s immunotherapy Opdivo, Johnson & Johnson’s immune disease medicine Stelara and Regeneron’s eye treatment Eylea will reach the end of their patent protection this decade.

The launch of Amgen’s copycat version of Humira in January represented a start of sorts for this looming industry-wide patent cliff. Nine other Humira biosimilars are set to arrive by mid-2023. As a result, U.S. sales of the drug, which totaled $18.6 billion in 2022, are predicted to steadily shrink.

A different sort of cliff

The pattern of sales decline for Humira and other blockbuster biologics like it is expected to be different for several reasons, though.

Many biosimilars won’t be interchangeable, or directly substitutable, by pharmacists, for example. Physicians, meanwhile, may be reluctant to switch patients who are stable on the branded drug, meaning that initially it will be newly diagnosed patients with chronic diseases who are most likely to receive biosimilars. And because biosimilars are more expensive to develop and make, their manufacturers won’t be able to afford cutting prices by nearly as much as with generic pills.

“If you track the sales of a typical small molecule that goes generic it really goes off the cliff — 80% of the market can be gone in 30 to 90 days and the price goes down even more,” said Richard Kelly, a senior partner with the law firm Oblon, McClelland, Maier & Neustadt who specializes in life sciences intellectual property.

“[Biosimilars] have to be sold,” he added. “[Salespeople] have to go around to the doctors to sell a drug. It’s just another product in the detail-man’s bag.”

Take the statin Lipitor, once the world’s most lucrative drug. Sales fell from nearly $11 billion in 2010, the year before it faced generics in the U.S., to $4 billion in 2012. Pfizer’s overall revenue fell from $68 billion to $59 billion over the same period.

In the case of Humira, the fall is expected to be more gradual, with the company forecast to retain more than one-third of its 2022 U.S. revenues in 2024 and hold onto more than $2 billion through 2030, according to Evaluate Pharma.

The impact will be felt, nonetheless: AbbVie and analysts alike expect company-wide revenue to fall for at least a year because of Humira competition. And AbbVie executives recently indicated sales are likely to be sluggish in 2024, too, walking back earlier predictions that the company would see a return to growth then.

Humira’s sales erosion will be closely watched throughout the industry as executives and investors try to understand the long-term effects of biosimilar entry. Early biosimilars didn’t impact prices the way that payers and lawmakers had hoped, in part because there weren’t many of the copycat drugs. (While 40 biosimilars are now approved in the U.S., only 26 are available on the market.) Branded drugmakers also successfully used contracts and rebates to stave off competition.

However, analysts and industry experts believe the sheer number of Humira copycats and the entry of interchangeable products will allow them to take share from AbbVie.

The chief question facing AbbVie is how quickly it can recover through two replacement products: Skyrizi for psoriasis and Crohn’s disease, and Rinvoq for rheumatoid arthritis and several other inflammatory disorders. The company has upgraded its forecasts for both drugs, which it now says will earn $21 billion combined in 2027, approximately equalling Humira’s peak sales.

One major reason Humira achieved its massive sales was the many different autoimmune disorders for which it gained approval. With follow-on biologic drugs, however, the incentives to do so may be limited by the Inflation Reduction Act, which gives the federal government the power to negotiate lower prices within Medicare, said Mara Goldstein, Mizuho Securites’ senior biopharma analyst.

“We’re living through this real time and it’s a little challenging,” she said. “Does it truly create a disincentive to develop indications? Will companies continue to invest in new clinical trials right up to patent cliffs? How does [the law] change the value of dollars invested over time?”

New lessons to learn

AbbVie followed the lessons of the previous patent cliff by merging with Allergan in a 2019 deal that gave it enough new revenue to withstand the expected erosion of Humira's sales. Its approach was similar to large pharmaceutical companies’ strategy ahead of the 2010s patent cliff, which spurred the megamergers of Pfizer with Wyeth and Merck with Schering-Plough.

Megamergers might not be the answer this time, however. For one, current pharma executives have expressed reluctance to do big deals because of the complexity of combining two companies. There is debate, too, over the effects such deals have on market valuation and R&D productivity afterwards.

Another reason is that, after years of industry consolidation, there are not many major large drugmakers left as attractive merger targets. Those that remain have patent cliffs of their own, Goldstein said.

Instead, the hunt for new products will either be in big drugmakers’ own laboratories or in those of smaller biotechnology companies. By having two successor blockbusters already in waiting, AbbVie has shown it can execute on the former approach.

Yet, across the industry, big drugmakers’ “R&D productivity is not necessarily corresponding to the R&D investment,” Ural said. R&D productivity and returns have, with a few exceptions, steadily declined each year over the past decade, according to data from both IQVIA and Deloitte.

Meanwhile, in biotech, “there may not be enough assets out there,” Ural added. “It’s going to be a fight for established assets, of which there aren’t that many.”

That fight will be fueled by large cash holdings. Jefferies analyst Michael Yee estimates big drugmakers have $500 billion in cash to spend on acquisitions and other pipeline-building transactions. Small and mid-sized biotechs have simultaneously seen their valuations drop, limiting their financial options, Yee wrote in a Feb. 5 note to clients.

The experimental drugs large pharma companies chase, through acquisition, licensing or inside research, might need to be different, too. They could find advantages in development platforms that can generate multiple new medicines like messenger RNA, gene editing or next-generation antibody technology, or in drugs that have promise across multiple indications.

Humira-sized blockbusters may become harder to achieve, though, which will change how drugmakers develop and commercialize new products, said Bill Coyle, global head of biopharma at consulting firm ZS. AbbVie, for example, needs two drugs — Sykrizi and Rinvoq — to replace sales of Humira.

“I think we’re potentially entering an era of fewer blockbusters and a lot more smaller products,” he said. “The other shift for many of the big pharmas is that their cadence of launch needs to be more efficient and frequent. They need to become more effective launchers of new assets.”

Patent thicket-ing

For drugs further from patent expiration, extending the date of generic or biosimilar entry through the construction of a “patent thicket” is another tactic drugmakers are pursuing. By surrounding Humira with dozens of patents in the U.S., for example, AbbVie pushed off biosimilar entry by seven years after the drug’s principal patent expired.

Others in the industry are seeking to do the same. Merck is testing a subcutaneous version of the intravenous Keytruda, which could potentially merit a separate patent and extend its market exclusivity by years.

A trial of subcutaneous Keytruda in lung cancer is due to deliver results in spring 2023. While subcutaneous Keytruda would likely still be delivered by physicians, it could be more convenient. “It’s not the same as having to get an IV, where you have to sit in a chair for an hour or two,” Kelly said.

Other drugmakers sought to push out the entry of biosimilars using this strategy, including Johnson & Johnson with its multiple myeloma medicine Darzalex and Bristol Myers with its Keytruda rival Opdivo.

Already, Bristol Myers has benefited from such intellectual property practices with its medicine Revlimid. The blood cancer drug’s exclusivity was protected by patents held by its original developer, Celgene, that were strong enough to keep most generic competition at bay through 2026. That will give Revlimid, a small molecule drug, a pattern of sales decline that looks more similar to biologic drugs, at least for a few years.

Tahir Amin, founder and executive director of the Initiative for Medicines, Access & Knowledge and a critic of pharma companies’ intellectual property practices, said he expects drugmakers with approaching cliffs to use late-earned patents to delay competition.

Striking limited distribution deals with copycat drugmakers, as Celgene did with Revlimid, could also be a tactic to stave off government drug price negotiation, because the Inflation Reduction Act limits that authority to only those products with no competition.

“At the end of the day the patent system is going to define how they shape the market,” he said.

The monopoly protecting the world’s best-selling medicine is at an end. On Jan. 31, Amgen launched a copycat version of AbbVie’s autoimmune disease drug Humira in the U.S., giving physicians and people with conditions like arthritis, psoriasis and Crohn’s disease a lower-cost option to a treatment now priced at nearly $90,000 a year.

Amgen’s drug, a so-called biosimilar named Amjevita, is the first of nine lookalike versions of Humira that are set to launch in 2023, which will help end Humira’s reign as one of the pharmaceutical industry’s most lucrative products. Worldwide sales totaled $20.7 billion in 2021 and another $15.7 billion over the first nine months of 2022. The bulk of those sales are in the U.S., following entry of biosimilar competitors in Europe four years ago.

Amjevita will price its biosimilar 55% lower than Humira’s wholesale acquisition cost, which is $6,923 for a four-week supply. Due to discounts and rebates, insurers seldom pay that price, however.

According to Amgen, a second list price 5% below Humira’s will also be available to some payers to account for rebating and discounting practices by pharmacy benefits managers. “For some entities in the system, the financial considerations mean a higher list price may allow for broader access for patients,” a spokesperson wrote in an email to BioPharma Dive.

The arrival of Humira biosimilars in the U.S. could carry consequences beyond AbbVie, Amgen and its other rivals, too. Their impact might be felt by other drugmakers that market products for the diseases Humira treats, while their success or failure will represent the latest test of biosimilars’ promise to reduce healthcare spending.

Unlike small molecule pills or tablets made through a chemical process, biologic drugs like Humira are produced in living systems such as cell lines and are therefore harder to characterize and replicate. Until passage of a federal law in 2010, there was no regulatory pathway for approval of a “generic” biologic in the U.S. It took another five years after that law until the Food and Drug Administration approved the first biosimilar, Novartis’ Zarxio.

However, uptake of many of the first biosimilars approved in the U.S. was slow, as the relatively small numbers of competitors and insurer contracting practices helped makers of brand-name drugs preserve their sales. While that’s begun to change, Humira is seen as the most significant opportunity yet, given its high sales and breadth of approved indications. It faces many more biosimilar rivals than other biologic drugs that have lost patent protection in recent years and, as a result, the market might evolve differently.

Furthermore, among the biosimilars set to launch in 2023 is an “interchangeable” version of Humira that pharmacists could directly substitute for the branded version. Other biosimilars, while still considered equivalent to branded versions, have to be specifically prescribed by a doctor.

David Risinger, an analyst at SVB Securities, wrote in a note to clients that insurers have already agreed to continue purchasing Humira in 2023. While they could add biosimilars to their covered drugs lists, they will likely not make biosimilars the preferred option over Humira this year, which would deny them a cost-sharing advantage. The equal status between biosimilars and branded Humira would also mean that patients wouldn’t need prior authorization to keep using Humira.

“There are limited incentives for physicians to choose biosimilars,” Risinger wrote.

AbbVie also recently raised Humira’s list price by 8%, leading Risinger to increase his forecast for 2023 U.S. sales of Humira to $11.7 billion, from $10.3 billion previously. In 2024, he is predicting only $6.2 billion in branded sales, however.

A healthcare consultant and company creator called Goodroot, meanwhile, said in a report that they expect biosimilars to win 5% of the Humira market share in 2023 and between 20% to 25% in 2026.

For its part, AbbVie is telling investors that 2023 will represent an earnings “floor” for the company, and that sales will return to growth in 2024 as its successor inflammatory disease drugs, Skyrizi and Rinvoq, begin to supplant Humira. The company bumped up its combined revenue guidance for the two autoimmune disease drugs to $17.5 billion in 2025, 17% higher than its forecast of $15 billion about a year ago.

AbbVie could try to use those two newer drugs in its negotiations with insurers to keep Humira in a preferred position, likely via discounting and rebating, according to the Goodroot report.

Since Humira’s 2003 launch by Abbott Laboratories, which later spun out AbbVie into a pure-play drugmaker, the medicine has become a standard treatment option for nine autoimmune conditions, including rheumatoid arthritis, plaque psoriasis and ulcerative colitis. AbbVie’s steady expansion of its use helped drive the blockbuster sales for which it is now known.

But AbbVie’s lawyers have contributed, too, filing hundreds of patent applications on different features and improvements that have staved off competition for six years after Humira’s main patent expired in 2016. In 2017 and 2018, AbbVie inked settlements with Amgen and the other biosimilar manufacturers that set entry for 2023.

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By GoodRx

Countless studies have been conducted and articles written about the problem of medication nonadherence, primarily among those living with chronic conditions. Depending on the investigator or author, these are often biased toward the perspective of a single stakeholder. Yet non-adherence is a problem for patients, payers, providers, and communities.

It’s a problem for patients because it often leads to much larger health issues and comorbidities down the road, like the person with untreated diabetes who develops retinopathy. It’s a problem for providers because it limits how much they can help patients become healthier. It’s a problem for payers, including employers and governments, because it increases healthcare costs that result from unmanaged conditions, some with unfortunately catastrophic outcomes. And it’s a problem for communities because it can significantly constrain the benefits that an FDA-approved treatment may provide.

Adherence is influenced by many factors

There are several factors that impact a patient’s adherence to their prescribed treatment. According to the National Institutes of Health (NIH), several of the “factors that may predict nonadherence include forgetfulness, illiteracy, inability to understand the purpose of treatment, not perceiving the treatment as necessary, a lack of trust in the treatment, and a lack of knowledge about the effects of treatment.”¹ Fear of needles and negative medication side effects are other adherence factors, and affordability —  particularly in the management of chronic conditions — is growing in importance.

Especially when other expenses like food, gas, and housing are highly variable, medication affordability is a critical factor affecting whether a patient stays on therapy or drops off.  In other words, affordability is often a key driver of adherence, and that can be especially true during challenging economic times like what we’re experiencing now.

Affordability can be a precursor to improved adherence

Just how much does affordability affect adherence? Data suggest the link may be strong across many health conditions. GoodRx research showed that 1 in 3 patients who took prescription medications for a chronic condition reported skipping at least one prescription fill due to cost.² When you consider the negative consequences of discontinued treatment, the ripple effects of unaffordable medications are significant.

More evidence comes from a meta-analysis that included people with different cancers, which found that “higher out-of-pocket costs were associated with greater odds of nonadherence for most of the types of cancer in the study.”³ And a recent article on the GoodRx Provider platform looked at coverage types and concluded that “affordability is a major cause of medication nonadherence — particularly for the uninsured, the underinsured, and those with Medicare.”⁴

Yet, patients may not be aware of their affordability options

Even when patient affordability solutions are available to lower out-of-pocket costs, many people are not aware of their existence. A study of cancer patients and survivors⁵ published in 2022 by the American Cancer Society Cancer Action Network (ACS CAN) found that "about half have heard of copay assistance programs but just one-quarter have applied to one.” Eighty-three percent “of those who have enrolled agree that the assistance provides access to medication…that they otherwise couldn’t afford." That’s one reason pharma companies partner with GoodRx: to drive increased awareness and utilization of their existing copay and patient support programs.

GoodRx estimates that it has delivered $55 billion of cumulative consumer savings since 2011, prescriptions that may otherwise have been unaffordable.⁶ GoodRx has been improving patient affordability for over a decade, for generics and branded medications, including specialty treatments — some by more than 50%. “Our solutions enable pharma manufacturers to engage with providers and patients so they can make informed and empowered decisions about care,” said Akeel Williams, VP Strategy & Operations and GM GoodRx Provider, Pharma Manufacturer Solutions at GoodRx. “Our goal is to minimize worries about out-of-pocket costs and affordability in the decision-making process, so a provider can prescribe the most appropriate medication for their patient, and the patient is not forced to choose between groceries or medicine.”

Adherence contributes to improved outcomes

A study of chronic metabolic diseases published in Research in Social and Administrative Pharmacy

concluded that, “Targeting good medication adherence could be a valuable policy strategy to effectively manage chronic diseases to improve health outcomes.”⁷ A patient’s decision whether to stay on therapy or forego therapy is not made each month when it’s time to refill. Instead, the cost of medication may be an ongoing factor as a patient makes daily trade offs within their household budget.

The takeaway is that today’s interventions, including improved affordability, can have long-term health impacts. Affordability is an important lever that can increase adherence, which in turn can improve health outcomes. And that starts to solve problems for a range of healthcare stakeholders. Learn more about affordability solutions from GoodRx.

The Centers for Medicare and Medicaid Services on March 15 released initial guidance for how it plans to negotiate prices for drugs under Medicare, a power granted to the agency by last year’s Inflation Reduction Act.

The clinical benefits and costs of therapeutic alternatives would be the “foundational starting point” for the initial offers made in price negotiations for selected top-selling, single-origin drugs in Medicare, CMS officials said. In selecting drugs, the guidance groups together all indications and dosages of treatments with the same active ingredient, including for biologics.

Grouping drugs this way is significant, SVB Securities David Risinger wrote in a client note, because it moves up eligibility for negotiation to the earliest approval across drug versions and prevents manufacturers from using a generic exception.

While Congress laid out the broad principles for Medicare to negotiate “maximum fair” prices for drugs, much of the process and details were left to CMS to develop in 2023 ahead of negotiations starting in 2024 for a first set of 10 medicines.

That initial group of drugs will be announced “no later than” Sept. 1, 2023, the guidance states, indicating the list could be made available earlier than implied in an initial timeline. CMS can negotiate prices for up to 140 drugs by 2033, starting with only self-administered Part D drugs in 2026 and 2027, then adding physician-administered Part B therapies in 2028.

After CMS makes its initial offer, drug manufacturers would be able to make a counteroffer and meet with the CMS up to three times. The guidance lays out the factors CMS would use in valuing a drug. The agency would first look at the clinical benefits and net price of alternatives, then consider factors such as research costs, revenue, patent protections and federal funding, CMS officials said.

Drugmakers have warned the IRA could lead to lower investment in small molecule drugs, which are exempt from negotiation for seven years after approval, compared to 11 years for biologic, or “large molecule” drugs. (The law specifies a negotiation timeline that would make negotiated prices effective two years after a drug is selected, leading to the widely cited nine and 13-year timelines.)

CMS guidance would allow price negotiations based on the first entry of an active drug ingredient into the market, regardless of new dosages or formulations that may be later introduced.

“This approach of negotiating a single price across all dosage forms and strengths aligns with the statutory requirement to negotiate [a maximum fair price] for a selected drug,” the guidance states. “CMS believes this will also allow for a more direct comparison with therapeutic alternatives, which might have different dosage forms, strengths, and frequency of use than the selected drug.”

CMS is soliciting public comment on its proposals and will revise the document based on that feedback in mid-2023. The agency has had an open-door policy for input, holding monthly technical calls with drugmakers and roundtables with associations, healthcare providers and “everyone who has a perspective, experience, data that can be brought to bear,” a CMS official said.

The guidance was released the same day Medicare announced 27 drugs that manufacturers would pay penalties for after raising prices faster than the rate of inflation.

Biotechnology and pharmaceutical companies are still parsing the U.S. drug pricing law enacted in August, but recently have begun to warn investors of looming impacts to their development plans and to future sales.

In third quarter regulatory filings and earnings calls, major drugmakers described significant uncertainty over how the law will be implemented and how it might directly affect their business. But some have been more specific, with Merck & Co. and Amgen noting they expect it to impact future sales. And a few, including Eli Lilly, Alnylam Pharmaceuticals and Alkermes, have cited the law specifically in decisions to cut back or reshape their drug research.

The law “may reduce the attractiveness of investment in small molecule innovation,” Lilly wrote in its quarterly earnings filing, referring to drugs that are made as pills or tablets. The Indianapolis-based company recently discontinued research on an experimental small molecule cancer medicine and confirmed to Endpoints News the changes brought on by the law factored into its decision.

The Inflation Reduction Act, which President Joe Biden signed into law after it narrowly passed Congress, allows Medicare to negotiate prices on certain high-selling drugs that lack competition, starting with 10 in 2026 and increasing thereafter. It also penalizes drugmakers that raise drug prices faster than inflation within Medicare, among several other provisions.

Companies said both arms of the law could weigh on their business. Merck warned that sales and profits will be negatively affected by the inflation-linked Medicare rebates and by government drug price negotiation. The company also noted changes to Part D drug benefits that will increase liability for some manufacturers.

Gilead, in a quarterly filing, said the law “could have the effect of limiting the prices we can charge and increasing the rebates we must provide government programs for our products, thereby reducing our profitability and negatively impacting our financial results.”

It will take some time yet before the first list of drugs subject to price negotiation is known. The Centers for Medicare and Medicaid Services, which will implement that provision of the law, has begun hiring staff in preparation and recently began talking with drugmakers. The agency will collect data before it determines the 10 drugs it will initially negotiate prices for in 2026. The law directs the government to focus on drugs that account for the highest spending in Medicare and only have one supplier.

Yet a few companies have hinted at which they think might be selected for negotiation. On an Oct. 28 earnings call, AbbVie chief commercial officer Jeff Stewart told analysts that Imbruvica, a cancer drug that earned it $2.58 billion in the U.S. over the first nine months of 2022, could be one.

“It's not unreasonable based on the size of Imbruvica to suspect it will be one of the earlier drugs that could potentially be negotiated,” Stewart said.

Lilly also sees a chance it will be targeted. In its filing, the company said “one or more significant Lilly products may be selected” for negotiation, potentially accelerating revenue declines.

Many companies have warned the law will disincentivize the development of small molecule drugs, noting that they’re exempted from negotiation for only nine years post approval, compared to 13 for biologic, or “large molecule” drugs.

Alkermes, which on Nov. 2 said it would spin off its cancer drug research into a separate company, cited that difference as a major reason for its decision. “It’s been reckoned that the difference between 13 and 9 years is about 50% of the total cash on cash from a revenue perspective,” said company CEO Richard Pops on a call with analysts.

“It's not a matter of waiting for price controls that are set to be imposed in a matter of time, capital allocations have changed today in favor of biologic molecules over small molecules,” he added.

Yet the law didn’t start the shift away from small molecule development, venture capitalists noted in a BioPharma Dive panel last week. Biologics have been a big part of the industry for years, and newer drugmaking approaches are attracting significant investment, too.

“The IRA didn't create the distinction between small molecules and biologics for purposes of investment biases,” said Rachel Sachs, an associate professor of law at Washington University in St. Louis. “It has entrenched existing biases.”

The pharmaceutical industry pushed for the longer exclusivity for biologics as part of the Affordable Care Act in 2010, citing the higher cost and time to develop them. So it “has been striking to see companies blame the IRA as if it's a new development in that area,” she said.

Other consequences of the law could emerge over time, too.

Seagen chief medical officer Roger Dansey said cancer drugmakers might begin to target larger indications first, so as to avoid starting the clock on when price negotiations could begin. Having the “lead indication potentially being very small and limited may not be the best way for us to develop drugs going forward,” he said. Currently, companies often focus on proving their drugs first in rarer tumor types, or in later lines of treatment setting.

The law also exempts drugs that have only one orphan drug indication. Alnylam cited that provision’s implications in putting aside plans to develop one of its rare disease drugs for an additional condition known as Stargardt disease.

“As with many other companies, we are reflecting on the implications that that’s relatively new legislation on how we think about our portfolio, ”Alnylam Pharmaceuticals CEO Yvonne Greenstreet said on a recent call with analysts.

Pharmaceutical companies began 2023 as they often do each year, raising the sticker prices on hundreds of prescription medicines.

On average, drugmakers hiked list prices by 5%, according to analysts who track the industry. That figure is in line with increases taken in the past four years, but below the national consumer inflation rate in 2022. Companies typically make the bulk of their price adjustments at the beginning of each year, although some also bump up prices in July. 

Just over 1,800 drugs saw increases to their list price, or wholesale acquisition cost, since Dec. 1, 2022, about the same number that did during the same period in 2021, Elliot Wilbur, an analyst at Raymond James, wrote in a Jan. 3 note to clients. 

Pfizer alone raised list prices on more than 90 of its drugs, including 8% increases for cancer treatments Ibrance and Xalkori, according to drug pricing watchdog 46Brooklyn.

Annual drug price increases have moderated from where they were in the middle of last decade, when they topped out at an average of around 9%. Growing scrutiny and criticism of the industry led to many proposals to rein in costs, including the Medicare drug price negotiation provisions that were contained in the Inflation Reduction Act enacted in 2022.

Still, list price increases don’t tell the whole story. Analysts can most easily track wholesale acquisition costs, which describe the price pharma companies give to wholesalers or direct purchasers, but doesn’t include the at times significant discounts and rebates insurers negotiate. Those rebates are often closely held information, making net prices for drugs harder to determine. 

Manufacturers’ actual drug sales aren’t always reported accurately to the federal government, either, leading to potential overpayments by the Medicare program, according to a report released Jan. 3 by the U.S. Department of Health and Human Services’ inspector general’s office.

Historically, price increases have been the primary tool drugmakers have used to boost sales, Wilbur noted. But in 2022, volume accounted for more of the growth in branded drug sales than did price adjustments. 

46Brooklyn’s analysis, which is derived from federal data as well as market intelligence company Elsevier, reported price increases from big drugmakers like AbbVie, AstraZeneca, Bristol Myers Squibb, GlaxoSmithKline, Pfizer, Takeda and Teva. 

But none were listed for other large companies, including Eli Lilly, Novo Nordisk, Roche, Novartis or Merck & Co. Yet-to-be-disclosed price increases could result in a “large potential uptick” later in January, Wilbur wrote. 

Among other notable drugs with large list price increases were the CAR-T cancer treatments Abecma and Breyanzi, the prices of which Bristol Myers raised by 9%, and COVID-19 antiviral Veklury, which Gilead hiked the price of by 10%.

One of Bluebird bio’s new gene therapies, approved in the U.S. on Aug. 17, offers patients with an inherited blood disorder a one-time, potentially curative, treatment option.

But it will come at a price of $2.8 million, making the therapy the second most expensive drug on a single-use basis in the U.S. and among the highest globally. The first is Bluebird’s other gene therapy, approved one month later and priced at an even higher cost of $3 million.

Bluebird defends its therapies’ worth, citing their benefits in clinical testing and, in the case of the first, the high lifetime costs of treatment for people with severe forms of the disease, called beta thalassemia, for which it’s is approved. At least one independent assessment of that drug, sold as Zynteglo, supports Bluebird’s case.

Still, the prices set a new bar by which other gene therapies in development might be compared. Bluebird’s success or failure in marketing the therapies is likely to be closely watched by other biotechnology companies nearing regulatory approvals for their own genetic medicines.

“This is a very important test for biotech, the payers and all other key stakeholders,” said Luca Issi, an analyst at RBC Capital Markets.

Zynteglo is the third gene therapy for an inherited disease to be cleared for use in the U.S., following a treatment for a type of genetic blindness and another for spinal muscular atrophy. The other two are also expensive, with list prices of $850,000 and $2.1 million, respectively. While sales of the blindness treatment haven’t amounted to much, the spinal muscular atrophy drug has become a blockbuster product for its maker, Novartis.

Zynteglo isn’t expected to match those commercial heights, even with its price tag. It is approved for people with beta thalassemia severe enough to require regular blood transfusions. Bluebird estimates there are between 1,300 and 1,500 patients in the U.S. who fit that criteria and, of those, about 800 to 850 who would be healthy enough to receive Zynteglo.

Tom Klima, Bluebird’s chief commercial and operating officer, estimates about a third of those eligible for treatment are eager to try gene therapy and might consider Zynteglo. Another third will likely wait and see, while the rest may be stable on their current treatment or uninterested in gene therapy, he said.

Given the small numbers of eligible and interested patients, U.S. insurers might not immediately balk at covering Zynteglo, even at its high cost.

“It’s not going to break the system,” Issi said. “I think this is going to be relatively well received by payers in the context of such a small, rare indication.”

Analyst predictions for peak annual sales vary widely, from SVB Securities' forecast of $64 million to Raymond James' estimate of about $200 million.

About three-quarters of eligible patients are on commercial health insurance, according to Bluebird, and most of the rest are covered under Medicaid. Bluebird will refund up to 80% of the treatment’s cost for two years afterwards if patients still need blood transfusions. In clinical testing, about 90% of study participants no longer needed them.

Over time, those blood transfusions can become costly. Patients with severe beta thalassemia often need transfusions every two to five weeks, as well as other medications to manage the iron overload the procedure can cause.  

Bluebird estimates that, over a patient’s lifetime, the cost of treatment and associated care will exceed $6 million, a factor Klima said it considered in setting Zynteglo’s price.

The potential for Zynteglo to offset some of those costs is real, according to David Rind, chief medical officer at the Institute for Clinical and Economic Review, or ICER, a nonprofit that’s become influential in the drug pricing debate.

But, “some of those costs are far in the future,” Rind said. “We don’t view costs 30 years in the future the same way we view $2.8 million today.”

In assessing Zynteglo’s value, ICER did find that the therapy could be considered cost effective at a price of $2.77 million, as long as certain benchmarks were used. But the group also modeled a scenario in which half of the lifetime savings provided by the drug were returned to society and came up with a price range of $1.3 to $1.8 million.

“If you think of the cost offsets for this expensive disease,” said Rind, “[Zynteglo’s price] is giving all of that to the manufacturer and none back to society.”

“I have trouble saying, ‘Gee, this is a terrible price,’” he added. “But this is 0% of the savings going back to society and I’m sad about that.”

Bluebird says it is in advanced negotiations with insurers as well as national pharmacy benefit managers about covering Zynteglo. “We’ve actually gotten positive feedback from payers on our pricing thinking,” said Klima.

The company has been here before. Three years ago, Bluebird won approval of Zynteglo in Europe and priced treatment there at $1.8 million, spread over five years.

But the company struggled to secure reimbursement, facing resistance from national payers. Drugs are often priced lower in Europe as countries there can more effectively negotiate with pharmaceutical companies.

After failing to reach agreements in Germany and elsewhere, Bluebird decided to withdraw Zynteglo from the market and later wound down its European business operations.

“In the U.S., value is received a little bit differently than in Europe,” said Klima. “What we’re seeing so far is payers and the treating community [here] recognize the value of a one-time treatment much differently than the Europeans do.”

Klima said Bluebird is focused only on the U.S., although he said the company would “keep its options open” for the future in other markets like Europe, where there are many more patients with transfusion-dependent beta thalassemia.

One of Bluebird’s chief challenges is its rapidly dwindling funds. The company warned investors that it’s at risk of insolvency through the end of 2022 and, in April, laid off 30% of its workforce. To stay afloat, it is counting on selling special vouchers granted by the FDA for Zynteglo as well as its second gene therapy, called Skysona and approved for young boys with a fatal brain disease. 

Bluebird’s financial jeopardy is a dramatic reversal in fortune from five years ago, when shares in the company were worth, at one point, 30 times as much as their current price of about $5.70 each.

“This is biotech in 2022, not biotech in 2017 or 2018,” said RBC’s Issi. “They’re cash constrained and they’ve got to make some calls.”

People with the blood disorder sickle cell are anticipating the arrival of two gene therapies that could dramatically reshape their disease, potentially offering something approaching a cure.

Insurers, too, are preparing for the treatments, which are expected to carry price tags in the seven figures. While five other expensive gene therapies are already available in the U.S., sickle cell is far more prevalent than the inherited diseases they treat, affecting an estimated 100,000 people in the country. Many are covered through Medicaid, the federal insurance plan for people with limited income.

An experimental model proposed by the Centers for Medicare and Medicaid Services on Feb. 14 could help state agencies better afford those medicines, as well as offer a testing ground for payment schemes that could apply to other pricey gene therapies. Yet the timeline for its implementation might mean it comes after the first sickle cell gene therapies reach market.

“Sickle cell is a call to action,” said Michael Sherman, chief medical officer of Point32 Health, the parent company of Harvard Pilgrim Health Care and Tufts Health Plan.

“Without these kinds of models, we’re going to see access issues,” he added. “The Medicaid state agencies, like other parts of the financing system, were never designed with this sort of upfront shock.”

The gene therapy model is one of three pilot programs CMS will test in the coming years in response to an executive order from President Joe Biden directing the agency to find further ways to lower prescription drug costs. Administration officials described these programs as building on 2022’s Inflation Reduction Act, which gave Medicare the authority to negotiate prices for a limited number of drugs.

Under the gene therapy model, state Medicaid agencies could delegate authority to CMS to coordinate multistate frameworks to pay for gene therapies based on how much patients benefit from treatment. In sickle cell, for example, payment could be contingent on whether patients remain free of the pain crises they regularly experience.

These types of payment schemes, typically known as outcomes-based arrangements, are already used in some cases for the currently available gene therapies. But budget limitations and federal price reporting requirements have limited their use within Medicaid, indirectly shaping how they’re designed for private insurers, too.

“There’s a lot of benefit, I think, to having both more of a centralized purchaser or negotiator across Medicaid programs … and having more centralized data collection,” said Stacie Dusetzina, a professor of health policy at Vanderbilt University Medical Center. “I think it also gives CMS a little bit of an upper hand at the negotiating table.”

Jeff Marrazzo, the former CEO of gene therapy developer Spark Therapeutics, agrees that a centralized approach in Medicaid could help.

“What I’ve observed is that state Medicaid agencies … generally have experienced more challenges with providing access to cell and gene therapies,” he wrote in an email. “This is due in part to the cost density of cell and gene therapies, but also because these organizations lack the infrastructure required to implement alternative pricing, reimbursement, and access models.”

Marrazzo cited data collection as one example, noting that some state agencies might lack the ability to appropriately track clinical outcomes for patients treated with a gene therapy.

CMS envisions testing several different types of outcomes-based arrangements, including an annuity model where continued payment is based on continued benefit. (To date, gene therapy developers have favored a rebate-based approach, where a certain percentage of their treatment’s cost is returned to the insurer if a specific outcome is not achieved.)

Five years ago, Spark proposed a similar annuity-based idea to help insurers pay for its then newly approved gene therapy Luxturna, for a type of childhood blindness. Spark priced the treatment at $425,000 per eye and sought to offer an installment payment plan, proposing the CMS run a demonstration project around Luxturna.

Its ability to do so was limited by Medicaid rules requiring drugmakers give the program the “best price” they offer on their products. In the event a patient didn’t benefit from treatment, and an insurer therefore didn’t owe the remaining installment payments, Spark would have had to report that fractional cost as its best price.

CMS recently tweaked its policy, allowing drugmakers to report multiple “best prices” in the context of outcomes-based arrangements. “This was an important first step,” Marrazzo wrote. “Along with the [recent] policy change, I do believe CMS providing a more centralized approach could lead to more annuity models being taken up, particularly by Medicaid plans.”

The agency plans to focus the model on a specific disease, and indicated sickle cell as a likely candidate. Behind the advancing sickle cell treatments is a growing pipeline of other gene therapies in development.

“Our concern has been that, for some of these more rare diseases, we haven't seen the access that we would like to see. Sickle cell is one of them,” said CMS Administrator Chiquita Brooks-LaSure on a call with reporters. “One of the reasons we're so excited about this model is because we think states need some assistance from us to really be effective in the space.”

But CMS doesn’t envision launching the gene therapy model until 2026 at the earliest, years after the two gene therapies now nearing market are expected to be approved. Their developers — Bluebird bio and partners Vertex Pharmaceuticals and CRISPR Therapeutics — are currently preparing approval applications that they expect to finish filing with the FDA by March 2023.

Under current timelines, CMS would begin developing the model in 2023 and announce model specifications in 2024 and 2025, with implementation following the year after. The agency would then track metrics like gene therapy spending, use and change in access over time to evaluate its success.

To some, earlier would be better. “Being in a business, I don’t understand why it takes two years to announce model specifications,” Sherman said.

The planned model is also voluntary, so CMS would need to rely on participation from both state Medicaid agencies and from drugmakers. The latter group, CMS argued in its report, would be enticed by the prospect of simpler market access.

That access could come with some tradeoffs, however. “It may be a little bit less attractive because of the inability to command the highest possible price, especially if there is a large population that's going to be treated and many Medicaid programs are interested in joining together into this kind of one model,” Dusetzina said.