Drug pricing

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.

With midterm elections resulting in a divided Congress, the U.S. Department of Health and Human Services will be free to focus on longstanding priorities for the agency, such as implementing drug negotiation policy within Medicare, its top official said.

“In a way, we’re now going to be able to concentrate on the work we have to still execute on,” HHS Secretary Xavier Becerra said at the HLTH conference in Las Vegas on Nov. 15.

Under the Inflation Reduction Act passed in August 2022, Congress granted Medicare the power to negotiate how much it pays for certain prescription drugs starting in 2026, and to receive rebates from pharmaceutical manufacturers that hike drug costs in the program above the rate of inflation starting in 2023.

“We’re going to have to rapidly move forward to make sure that we’re ready next year to begin the process to begin the negotiation, where we start to select the drugs, the first drugs that will be part of that negotiation, sitting down with the different companies and manufacturers so by 2026 the new negotiated prices will start to kick in,” Becerra said.

Initially, the IRA was written to allow the government to negotiate drug prices for all Americans, but Congress later restricted the policy only to the 65 million Americans on Medicare amid fierce opposition from the powerful pharmaceutical industry. The law is still expected to save the government a significant amount of money. The Congressional Budget Office estimates almost $99 billion in Medicare savings over a decade from the IRA’s drug negotiation provisions.

Drugmakers are continuing to work behind the scenes to chip away at Medicare’s ability to negotiate medicine prices as regulators begin to hash out the details of implementing the IRA.

According to The Wall Street Journal, companies are lobbying for additional legislation to counter some measures of the law, and are working to shape upcoming rules around implementation. Ideas include extending the time frame after which pills become eligible for price negotiations, or exempting drugs that treat more than one rare disease, according to the Journal.

“We get a lot of pushback,” Becerra said. “We think we’re being aggressive. But so are those who aren’t necessarily happy with what we’re planning — they get very aggressive.”

Becerra also called out implementing surprise billing policies enacted in the No Surprises Act as an ongoing priority, though it’s “taking a while to implement because we keep being taken to court,” the secretary said.

The No Surprises ACT, which was signed into law in 2020, established new federal protections around surprise bills. Those include requiring private health plans to cover the out-of-network claims and apply in-network cost sharing, and prohibiting providers from billing patients more than the in-network amount.

The Biden administration was hit by a number of lawsuits over the policies, though some parties retracted their suits as the HHS released rules more favorable to their interests. But the HHS still faces litigation, including from the Texas Medical Association.

Becerra said that HHS will also focus on addressing the U.S. mental health crisis and the ongoing COVID-19 pandemic, including research on long COVID, and will continue to work to ensure insurance coverage gains.

The number of uninsured Americans has plummeted, partially due to pandemic-era coverage gains in public programs like the Affordable Care Act exchanges and Medicaid. The uninsured rate dropped to a record low of 8% in the first quarter of 2022, according to HHS data.

“We’re going to continue to make progress,” Becerra said.

Congress returned to work on Nov. 14 to start the lame duck session. In the session that begins in early January 2023, Democrats will retain control of the Senate, while Republicans will take control of the House of Representatives.

In the last year, more than 825,000 healthcare providers across all specialties have used the GoodRx platform for information and tools related to health conditions, generic and branded medications, and affordability and adherence support for their patients. In addition to collecting and analyzing real-world data from our platform and other sources, GoodRx researchers conduct formal studies with providers and patients on a regular basis.

Recent insights from an analysis of patient drug costs across specialties shows interesting disparities in cost of branded versus generic medicines. Average out-of-pocket (OOP) costs for branded prescriptions are higher than for comparable generics in the same category, but the factor by which they are more expensive varies across specialties (see Figure 1).

For example, the OOP cost gap in rheumatology, neurology, and cardiology/pulmonology is much wider than in other specialties. This insight may provide opportunities for pharma manufacturers to look more closely at the specialties aligned with their portfolios and ensure that their patient assistance programs account for different levels of financial need in different therapeutic categories.

Healthcare providers still uncertain about patient OOP costs

Even with access to a patient’s insurance information, estimating the cost of prescription drugs remains a challenge for providers. A 2020 survey of 371 providers found that only 21% could accurately estimate OOP drug costs for a hypothetical patient, even with the information in hand.¹ Of course, if you work in healthcare or the insurance industry, you may not be surprised by that.

Another OOP-related survey² conducted by GoodRx in 2022 found that 62% of physicians and 53% of all prescribers (MDs, PAs, and NPs) did not discuss medication costs with patients because they were unsure how much the medication would cost their patients. This survey also found that 64% of physicians said they spoke with their patients about the cost of medications less than 50% of the time. In addition, 54% of physicians said their patients don't ask about the cost of medication, which is why they don't discuss it.

Patients share the responsibility for understanding their OOPs, yet also have a difficult time estimating their prescription drug costs. A 2022 survey³ from GoodRx found that healthcare costs beyond medication are unclear and confusing for consumers. These include primary care doctor visits, emergency room visits, urgent care visits, medical procedures, and hospital bills.

Insurance cost-sharing is notoriously difficult to understand, and often perplexing even for those who deal with it every day. And it’s not part of the core curriculum during a physician’s many years of training. One result of this complexity is that patients without OOP expectations arrive at the pharmacy only to experience sticker shock which often leads to prescription abandonment. That’s a big problem, because abandonment can endanger patients’ health, make providers’ jobs more difficult, cause unnecessary readmissions to healthcare systems, and cost our economy lost productivity and wages.

Improving OOP cost transparency

To help address the issues of prescription abandonment, lack of information, and limited access to savings offers, GoodRx has developed a range of products and partnerships. One GoodRx partnership enables physicians to see the OOP cost of a medication right in their electronic health record (EHR). When a patient doesn’t have commercial insurance, the physician is shown the cash price of the medication at pharmacies through the GoodRx network. This enables a discussion about the cost of medication using real-world prices, enabling a better discussion about affordability and cost limits even before the prescription is generated. Additionally, pharma manufacturers partner with GoodRx to elevate their co-pay, cash, and other financial assistance programs on the GoodRx platform.

So, instead of guessing about a medication’s cost, providers can use the GoodRx platform to inform their conversations with patients. This creates opportunities for biopharma marketers to message providers through a platform their customers already trust and use frequently. Providers share GoodRx information with patients to raise awareness of affordability solutions such as copay cards offered by drug manufacturers.

Patient-provider communication is key

According to a GoodRx survey, one-third of Americans have trouble paying their medical bills even when they have insurance.³ Encouraging frank, fact-based discussions about cost between providers and their patients may improve the ability of prescribers to select appropriate medications for their patients that the patient can better afford. When both provider and patient work as a team to gain access to cost-saving opportunities, such as manufacturers’ patient support programs, everyone wins. This teamwork also has an impact on refills, not just new prescriptions. A GoodRx analysis⁴ from 2020 suggested that 33.2% of GoodRx fills were newly adherent, meaning they would not have been filled without GoodRx.

Especially in our current economic climate, concerns about out-of-pocket drug costs are top of mind for many patients, especially those taking specialty medications. GoodRx is an important resource for both providers and their patients, connecting them for accurate, transparent, and fact-based conversations about medication options, affordability and pharma access programs. Click here to learn more about the analyses in this article and how GoodRx can help brand teams engage providers in specific specialties.

References:

¹ Sloan, Caroline E., et al., Accuracy of Physician Estimates of Out-of-Pocket Costs for Medication Filling, JAMA Network Open 4 (11): e2133188, 2021, https://doi.org/10.1001/jamanetworkopen.2021.33188.

² Survey conducted by Qualtrics for GoodRx, n=1,098 Physicians, Nurse Practitioners, Physician Assistants, Registered Nurses, and front office staff, conducted between March 1- May 13, 2022. Included 218 physicians, 220 NPs and 218 PAs across clinical settings.

³ Pola, Swetha, Survey: Many Americans Have Trouble Estimating the Cost of Their Healthcare, May 18, 2022, at https://www.goodrx.com/healthcare-access/research/many-americans-have-trouble-estimating-cost-healthcare

⁴ GoodRx, The GoodRx Effect, June 2021.

For years, copycat competition failed to significantly lower the costs of some of the best-selling prescription medicines in the U.S.

The launch of the first lookalike biologic drug in 2015 was heralded as a shift in large pharmaceutical companies’ pricing power, holding the promise of deep discounts on expensive, injectable treatments like Humira, Remicade and Herceptin. Yet years of disappointment followed, as the new competitors were either blocked from entering the market or unable to gain traction once they got there.

Now, experts say these so-called biosimilars are beginning to have a bigger impact.

More have poured onto the market after a slow start. The arrival of biosimilars in areas like cancer and autoimmune disease, where the annual cost of brand name drugs can exceed $100,000 annually, has given patients, doctors and insurers added incentive to make the switch. And, perhaps most importantly, the looming loss of patent protection on several lucrative branded biologics could give biosimilar makers a needed market opportunity.

“I think when the first ones came out … there was a hope for deeper discounts and more rapid adoption,” said Sonia Oskouei, vice president of biosimilars at drug distributor Cardinal Health. “As we went into the biosimilar experience we found that there was more to it than just price.”

Barriers to entry

Patents held by branded drugmakers have blocked some of the first biosimilars to be approved in the U.S. Erelzi, a biosimilar of Amgen’s anti-inflammatory drug Enbrel, was approved in August 2016. But due to the high patent walls Amgen built to shield Enbrel from competition, it won’t launch until 2029, more than a decade later.

The first wave of biosimilars has also been held back by aggressive rebating and pricing strategies by branded drugmakers, as well as insurer policies that together helped nullify the 15% to 30% discounts typically offered at first by the copycat drugs.

The anemic uptake of the first few biosimilars even spawned a high-profile court battle, pitting large pharmaceutical companies against each other. Pfizer, maker of the Remicade biosimilar Inflectra, sued Johnson & Johnson over alleged anticompetitive business practices, claiming its rival won preferred insurer status by threatening to withhold rebates if Inflectra was used before Remicade. The two parties settled the lawsuit in 2021.

Inflectra, the second biosimilar launched in the U.S., has now grown into a $600 million-a-year product. It has eaten into Remicade sales, which have dropped by nearly half since Inflectra’s first full year on the market in 2017. Two other Remicade biosimilars have launched since, with initial discounts of 34% and 57%. (Remicade is known scientifically as infliximab.)

Yet when compared to generic drugs, which can cost as much as 80% to 90% less then branded pills, the impact of biosimilars remains modest at best. For example, sales of Pfizer’s cholesterol drug Lipitor fell by more than half, from nearly $10 billion, in the first full year after generic entry in 2012.

The example of Lipitor hints at why generics have had a bigger impact on the price of small molecule drugs than biosimilars have had on biologics. The Food and Drug Administration has approved 18 Lipitor generics, while the most biosimilars approved and launched for any biologic drug is five, for Roche’s Herceptin. (There are seven approved biosimilars to Humira, yet none have launched due to patents.)

The estimated $100 million to $300 million cost to develop a biosimilar also acts as a deterrent to entrants, leading to a lower overall number of competitors and making biologic drugs “natural monopolies”, according to some analysts. By comparison, developing a generic small molecule drug can cost as little as several million dollars, and doesn’t require human trials to gain FDA approval as biosimilars do.

(Generic drugs are exact copies of their brand name predecessors, while biosimilars, being derived from cells, are not considered identical, only “highly similar.”)

“It appeared that the investment hurdle was preventing many of the biologics from having a biosimilar competitor,” Mark Trusheim, strategic director of the Massachusetts Institute of Technology’s New Drug Development Paradigms program, said of the early days of biosimilar research and development.

In one notable example, Momenta Pharmaceuticals in 2018 laid off half its workforce and discontinued biosimilar drug development, pivoting toward rare disease treatments in a move that later paid off with a $6.5 billion buyout by J&J. That same year, Merck & Co. and partner Samsung Bioepis stopped developing a biosimilar of Sanofi’s insulin Lantus.

Different markets

A shift may be underway, however, as biosimilar versions of cancer drugs arrive and new payment models reward doctors for prescribing them, experts said.

The models were driven in part by the U.S. Medicare program, which from 2016 through the middle of 2022 paid some cancer clinics via a reimbursement system that incentivized doctors to use lower-price drugs. As of June 30, 126 practices and five commercial payers were involved in the program.

“If you just look at standard Medicare, when you give a drug that’s more expensive and you get paid on the margin, you make more money,” said Lalan Wilfong, vice president of payer solutions and practice transformation for the U.S. Oncology Network at drug distributor McKesson.

Wilfong’s organization adopted biosimilars because it embraced the “value-based” care system that Medicare was trying to promote. “We learned very quickly that these drugs were safe and effective. We’ve also been able to markedly decrease the cost of care by switching to biosimilars,” he said.

Wilfong noted that some doctors initially hesitated to use biosimilars for patients whose cancers could be cured and any reduction in efficacy, however small, might reduce their chance of living. Those concerns eased as doctors gained experience with them.

Sales of cancer drug biosimilars have increased as a result. Last year, Amgen recorded $826 million and $479 million in U.S. sales for its Avastin lookalike Mvasi and Herceptin biosimilar Kanjinti, respectively. Roche’s sales for both have declined by more than half.

While adoption is rising, cancer drug biosimilars have typically entered the market with smaller discounts to their branded rivals, however.

Medicare’s oncology care model has since ended, but will be replaced in July 2023 with another five-year program. Wilfong said his organization will continue to use biosimilars as it has signed value-based care contracts with non-Medicare insurers.

Medicare now has a further mandate to save money because of the recently enacted Inflation Reduction Act, which will allow it to negotiate with drugmakers over the price of some high-cost medicines, including biologic drugs. The Alliance for Accessible Medicines, which represents biosimilar manufacturers, opposes the law, arguing that market competition is the best way to lower prices.

A competitive test case

Outside of oncology, industry experts are watching the entry of biosimilars to AbbVie’s $20-billion-a-year inflammatory disease drug Humira for signs the balance of power might be shifting.

Unlike many of the biologic drugs that lost market exclusivity over the past seven years, Humira will within six months of its patent expiration have as many as seven biosimilar competitors, including Amgen’s Amjevita and, if approved by the FDA, an “interchangeable” biosimilar, Alvotech’s Hukyndra.

“We do anticipate the U.S system is going to shift significantly as [Humira] biosimilars enter the market,” said Chad Pettit, executive director of marketing and the global biosimilars commercial lead for Amgen.

The interchangeability designation sought by Alvotech would permit pharmacists to substitute the biosimilar for the biologic without a specific prescription for it from physicians. So far only one interchangeable biosimilar, Mylan and Biocon’s Semglee, has been launched in the U.S.

While important, the designation might not immediately translate into more prescriptions, said Ming Li, chief strategy officer at Alvotech. A small number of wholesalers and distributors typically buy most generic pills, while health insurers are the main customers for biosimilars.

“The go-to-market strategy is very much a branded strategy,” Li said.

In launching Humira copycats, biosimilar manufacturers will have to overcome physicians’ reluctance to switch stable patients. They will also compete with the most recent and popular formulation of Humira, which features a higher concentration of the drug, a thinner needle and removes a stabilizing chemical that is linked with injection pain.

Alvotech’s biosimilar duplicates this formulation of Humira, while a version from Boehringer Ingelheim that is approved as interchangeable uses the lower concentration formulation.

(Pfizer is seeking an interchangeable designation for its Humira copy and expects a decision by the end of 2022. Alvotech is due an FDA verdict on interchangeability in December, although an initial application was rejected in September.)

A survey conducted earlier in 2022 by the investment firm Bernstein found that 62% of rheumatologists are concerned about switching to biosimilars if insurers mandate it through contracts with drugmakers. Of those, nearly a quarter wanted to see clinical trial results and professional guidelines before accepting switching as a practice.

Bernstein’s survey also found rheumatologists were most concerned about the interchangeability of a biosimilar, followed by its formulation.

Competition will intensify further in 2024 as companies sign annual contracts, pressuring Humira sales more significantly.

Bernstein analysts believe the high number of available biosimilars will cause Humira price declines to resemble what typically occurs with generics, modeling a 60% decline by the end of 2025. At 10% of Humira’s current list price of nearly $80,000 a year, Bernstein analysts wrote, a biosimilar manufacturer could still earn a 35% gross profit margin.

Exception that proves the rule

Still, some remain more skeptical about the potential for biosimilars to significantly reduce healthcare costs on their own. “My suspicion is that Humira will be the exception that proves the rule,” Trusheim said.

He argued most biologics won’t draw as many competitors as Humira because there is less revenue at stake. Drugs that now make less than $1 billion a year may not face any competition at all, as biosimilar manufacturers focus their efforts on top-sellers.

One that might is J&J’s rheumatoid arthritis drug Stelara, which is being targeted by nine biosimilars in development. Others, however, have fewer. AstraZeneca’s rare disease drug Soliris, once the most expensive drug in the world, has just two, while Biogen’s multiple sclerosis drug Tysabri has only one.

If only one or two competitors emerge, steep price declines may not materialize. While modest discounts could save insurers money, it may not translate to patients, who would still face deductibles and coinsurance.

“If there is no financial benefit to the patient because copays are still going to be high, then what does a physician tell a patient?” said Trusheim.

The most lucrative pharmaceutical monopoly in industry history is almost at an end.

In January 2023, the first copycat version of Humira, an injectable drug approved for an array of inflammatory diseases, is set to launch in the U.S. Its arrival will mark the end of a two-decade run of market exclusivity during which Humira's maker, AbbVie, has earned nearly $200 billion from sales of the drug.

Eight more biosimilars — as copies of biologic drugs are called — are expected to become available over the course of 2023, putting AbbVie under pressure. Anticipating the competition, the company has spent the past several years attempting to lessen its reliance on Humira, which as recently as 2019 accounted for more than half its revenue.

While pharmaceutical companies periodically confront these "patent cliffs," none have been steeper than what AbbVie faces with Humira. Until now, the most lucrative product to go generic was Pfizer's cholesterol drug Lipitor, which at its height sold about $13 billion a year. In 2021, sales of Humira totaled $20.7 billion.

The launch of Humira biosimilars also is likely to be a major moment for the broader industry, as their arrival is the biggest test yet of whether biosimilars can save the healthcare system significant amounts of money. So far, the biosimilars currently available have not lived up to previously high expectations of their impact.

The question will matter to more companies than just AbbVie, as several drugs like Humira, such as Enbrel and Stelara, also will lose their patent protection this decade.

"The sheer number of biologics facing competition is quite significant through the next decade," said Joe Azzinaro, commercial lead for biosimilars at drugmaker Organon, which expects to launch a Humira biosimilar in 2023.

Replacing a blockbuster

AbbVie sells Humira today because its former parent company, Abbott Laboratories, in 2000 acquired Knoll Pharmaceuticals, the drugmaking business of German chemicals company BASF. At the time, Humira was called D2E7 and analysts believed it might someday make between $500 million to $1 billion annually.

Yet Abbott and then, after a 2013 spinout, AbbVie proved Humira could work for many more diseases than rheumatoid arthritis, the condition it was first approved to treat, and steadily expanded its use. At the same time, AbbVie meticulously built a wall of intellectual property — sometimes called a "patent thicket" — around Humira and each new indication.

All told, AbbVie filed about 250 patent applications for Humira in the U.S., 90% of them following the drug's 2002 approval, according to the advocacy group Initiative for Medicines, Access & Knowledge. One hundred and thirty have been granted.

The strengthened patent shield has stretched AbbVie's legal monopoly in the U.S. for six years beyond the expiration of Humira's main patent in 2016. Since then, AbbVie has earned nearly $75 billion in U.S. Humira sales, bolstering the company's share price and allowing it to pay billions of dollars to investors in dividends. (The story is different in Europe, where biosimilars arrived in 2018 and quickly ate into Humira's market share.)

Moreover, the added revenue — padded by price hikes that increased Humira's price to Medicare by 41% between 2016 and 2020 — enabled AbbVie to spend money on deals, research and development to replace Humira.

Most notably, AbbVie paid $63 billion to acquire Allergan and its blockbuster product Botox, which in 2021 earned almost $5 billion. Other deals have been less successful, such as the $5.8 billion takeout of Stemcentrx for an experimental lung cancer drug that ultimately failed.

Humira's extended patent protection also gave AbbVie time to launch two new immune disease drugs, Skyrizi and Rinvoq, which it believes will make up for lost Humira revenue.

Company executives now claim the hit to AbbVie's balance sheet will be short-lived.

"Following the U.S. Humira [biosimilar entry] in 2023, we expect to quickly return to growth in 2024 and deliver a high single-digit growth from 2025 to the end of the decade," CEO Richard Gonzalez said on a company earnings call in February.

Negotiating tactics

Others aren't so sure. The entry of Humira biosimilars will be gradual in 2023, with just one from Amgen on the market until mid-year, when five more will launch. This raises questions about whether enough drugmakers will have signed big enough contracts with insurers to influence the market by 2023. 

While AbbVie will primarily be negotiating against Amgen for 2023, the situation will shift for 2024 contracting when more biosimilar makers will have their drugs on the market.

Ronny Gal, a Bernstein analyst who covers AbbVie and has closely followed the biosimilar market, said the drugmaker therefore might be guessing wrong on the impact of biosimilars.

"I think the odds are that the erosion will be slower in 2023 and faster in 2024," he said.

AbbVie may have some say in the matter, depending on the negotiating tactics it chooses to use in its efforts to keep Humira the preferred treatment choice on insurer formularies in 2023.

Drugmaker tactics in these negotiations can be aggressive and, in at least one case, allegedly anticompetitive. In a 2017 lawsuit, Pfizer accused Johnson & Johnson of using exclusionary contracts and threats to withhold rebates if insurers made Pfizer's biosimilar of J&J's drug Remicade a "preferred" option. The two companies later agreed to have the suit dismissed.

As Remicade is administered at hospitals and other healthcare facilities, J&J had more leverage in retaining market share. For example, Pfizer claimed those facilities had no incentive to purchase its biosimilar if insurers wouldn't reimburse them.

By contrast, pharmacists can provide Humira to patients directly, potentially giving biosimilar makers more opportunities to make inroads. Gal says that rather than threaten to cut rebates if Humira isn't preferred, AbbVie "will use Humira discounts to protect Skyrizi and Rinvoq," its two newer drugs that are approved to treat some of the same conditions.

Nonetheless, biosimilar makers are anticipating that AbbVie won't give up easily. "Our expectation is that AbbVie will be very aggressive in protecting its product," Organon's Azzinaro said.

Price won't be the only factor. AbbVie's experience in navigating the immune drug market will give it advantages as well.

One tool AbbVie has on its side is its patient support program known as Humira Complete, which includes assistance such as nurse advocates, help with insurance and injection training. This assistance has been controversial at times and was cited in a 2018 lawsuit by the California insurance commissioner.

"Humira to my mind has never been just a drug," said A. Mark Fendrick, director of the University of Michigan's Center for Value-Based Insurance Design, who has consulted for AbbVie. "With Humira and Humira Complete, you have high utilization of a high-priced drug. With biosimilars, you might have low utilization of a lower-priced drug."

"I want to see the biosimilars have the exact same thing: not just a Humira biosimilar but a Humira biosimilar plus," he added.

But it's unclear how helpful such programs are and how much insurers might value them in weighing coverage.

"If there is actually evidence that these efforts improve real-world adherence that would lead to better clinical outcomes, there would be data," said Steve Pearson, president of the Institute for Clinical and Economic Research, a nonprofit organization that evaluates the cost-effectiveness of drugs and other medical interventions. "We have yet to be presented with actual data on it."

Pharmacy swap

Complicating forecasting of Humira's diminution are the different labels biosimilars can carry as well as the differences in device and formulation for the most popular form of Humira.

For example, some of the later biosimilar entrants will have an "interchangeable label" from the Food and Drug Administration, allowing pharmacists to choose the biosimilar over Humira when filling prescriptions, rather than requiring the prescribing doctor to specify one.

Amgen's biosimilar isn't approved as an interchangeable — at least not yet — nor does it come in the most-used Humira formulation. The first interchangeable biosimilars, from Boehringer Ingelheim and Alvotech, will premier July 1, 2023, with more expected in 2024. Of those first two, only Alvotech, which is still awaiting FDA approval for its biosimilar, would come in that more popular formulation.

How interchangeable Humira biosimilars perform versus other biosimilars should reveal how important that designation is to insurers. The designation was created by the legislation that authorized the FDA's biosimilar regulations, and doesn't exist in the European market.

"It's really important to know what interchangeability is and is not," said Steven Selde, director of the Biosimilars Council at the Association for Accessible Medicines. "It's not an indication of superior quality. It's just a regulatory designation. It's expensive to pursue the interchangeable designation, and it's unclear how many will incorporate it into their business model."

So far, the looming loss of Humira doesn't seem to be bothering AbbVie executives much. They talk confidently of Skyrizi and Rinvoq earning a combined $15 billion in sales by 2025, up from $4.6 billion in 2020, and forecast that top sales of the two products combined will exceed Humira's $20 billion peak.

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.”

List prices of branded drugs in the U.S. rose by an average of nearly 5% in 2021, according to a report released in April by Iqvia, a consultancy and research services provider. After accounting for the rebates and discounts pharmaceutical companies often pay insurers, however, the average increase was 1%, the fifth year in a row that net price growth has tracked below general inflation.

Rebates and discounts on drugs don't necessarily translate to lower out-of-pocket costs for patients, and some, such as people covered by Medicare Part D or on high-deductible insurance plans, are more vulnerable to rising list prices, often referred to as a drug's wholesale acquisition cost.

Overall, Iqvia tracked a significant increase in U.S. medicine spending last year due to the market entry of COVID-19 vaccines and drugs, without which the rise in spending would have been more modest. Total out-of-pocket costs also rose, although the average amount paid per prescription fell slightly to $9.41.

Iqvia's report shows the difference in drug spending in the U.S. as measured by list prices versus net prices is large and growing, reaching $190 billion in 2021. That's up from $118 billion in 2016, an increase driven by higher rebating in competitive markets like diabetes and immune disease drugs as well as by statutory discounts on medicines dispensed under the federal 340B program.

Pharmaceutical companies, which for years have been heavily criticized for hiking the cost of their products, frequently argue that list prices don't reflect what patients pay or account for the money sent back to insurers.

The impact of rebates and discounts on drug prices isn't uniform, however, and varies widely depending on who is paying and when. List prices can still impact patients indirectly or, if they're uninsured, directly.

"These complexities mean that the price for each medicine can be unique, reflecting the drug, the insurance type, the other medicines a patient takes during the year, the time of year, the pharmacy, the coupons offered by manufacturers, and whether a patient chooses to use them," Iqvia wrote in its report.

In some markets, rebating can be extensive. Diabetes drugmakers, for instance, pay substantial rebates to insurers, with the weighted average net price calculated by Iqvia 78% below the wholesale acquisition cost last year. In immunology, an area in which pharmaceutical companies have launched many new medicines recently, the average difference between list and net prices has doubled over the past decade, to 49% in 2021.

Extensive rebating is less common for cancer drugs, however. The average net prices of those treatments were just 7% below their list prices, which can often reach six figures on an annual basis.

Patients don't always see the impact of rebates paid to insurers on a drug-by-drug basis, however, and their exposure to rising list prices varies by their insurance. For example, commercially insured patients with diabetes pay more than $35 for their insulin prescription about a fifth of the time, which Iqvia said was the result of high-deductible coverage.

Overall, about 8% of patients have annual out-of-pocket costs higher than $500, according to Iqvia. Among those on Medicare, though, 16% do, and 4% spend more than $1,500 per year out of pocket.

"For the millions of seniors who become Medicare eligible each year, the cost exposure difference as their insurance changes can be a significant shock as seniors have higher cost exposure than the commercially-insured," Iqvia wrote.

When faced with high costs, many people are also forced to "abandon" their prescription. One-third of prescriptions written that have a final cost above $75 are not picked up, Iqvia found, rising to two-thirds when final costs exceed $250.

Iqvia forecasts that list prices will continue to rise between 2% and 5% each year through 2026, while predicting that net prices will either remain flat or decline by as much as 3%. However, its estimates don't account for major macroeconomic changes, such as if inflation rises further or remains high for a prolonged period.

Iqvia's report is based on prescription and medical claims data it collects, as well as revenue figures from companies across the industry. The report defines branded, or "protected," drugs as those products that launched at least two years ago and remain patent protected.

Price hikes taken last year by AbbVie on its anti-inflammatory drug Humira increased U.S. healthcare spending by $1.4 billion, an amount unsupported by evidence showing any new health benefits, the Institute for Clinical and Economic Review said in a November 2021 report.

Humira, which treats rheumatoid arthritis and other diseases, was one of eight high-cost drugs singled out by ICER for large price increases without corresponding data proving greater effectiveness or new clinical uses.

Humira's net price rose 9.6% in 2020, the watchdog group said in its report. The increase in net price, which reflects what insurers pay after rebates, actually exceeded AbbVie's hike to the drug's list price, a reversal of what usually happens during negotiations with drugmakers.

Congress has now passed legislation that will force drugmakers to pay rebates to Medicare for patent-protected drugs that have price increases exceeding inflation, as well as subject a limited number of high-cost drugs to price negotiation.

ICER's report suggests a list of drugs and companies that might face price restraints in the future. 

The group uses a methodology the federal government could follow in its hunt to restrain costs, looking for drugs with significant healthcare spending and large increases. ICER started with 250 of the top-selling drugs in the U.S. in 2020, and excluded 228 that had list-price increases 2% or less above the medical consumer price index.

The group also excluded drugs for which increased prescription volume had a bigger impact on spending and, from there, identified the top 10 drugs for which net price increases were the biggest factor. Another, PTC Therapeutics' Emflaza, was added based on public input, as the research protocol for the report allowed. (ICER issued a correction removing one drug from its report after publication.) 

Besides the two aforementioned drugs, Novartis' Promacta; Biogen's Tysabri; Bausch Health's Xifaxan; Supernus Pharmaceuticals' Trokendi; AbbVie's Lupron Depot; and Horizon's Krystexxa were identified as having unsupported price increases.Together, the "unsupported" price increases for the eight drugs added $1.7 billion in spending last year, with Humira accounting for most, ICER said.

The price increases could help explain why Humira's 2020 revenue nearly matched its 2018 record of $19.9 billion despite increasing biosimilar competition outside the U.S. In 2021, Humira is on track to exceed $20 billion in sales.

ICER also noted three drugs with new clinical data that could support price increases taken by their makers. Those were AbbVie's Venclexta, Novartis' Entresto and UCB's Cimzia. The report pointed out, however, that the new clinical evidence doesn't necessarily justify a price increase.

Drugmaker acquisitions of all sizes could receive closer scrutiny in the future if the Federal Trade Commission follows the advice of experts who spoke at a June agency meeting on market concentration and anticompetitive conduct.

The experts, mostly economists and other antitrust regulators, warned that some drugmakers have gained unfair market power due to the breadth of their product portfolios, allowing them to negotiate for preferred or even exclusive status on insurers’ coverage lists and thereby squeeze out competitors.

Taken together with the FTC’s plans to investigate the practices of pharmacy benefit managers, the meeting signals the Biden administration may take a tougher line on monopolistic practices in an effort to spark competition and target drug pricing.

“Pharmaceutical mergers matter because pharmaceuticals matter,” FTC Commissioner Rebecca Kelly Slaughter, who initiated the agency’s broad review more than a year ago, said in a speech to begin the meeting in mid-June. “Access to medicine is already imperiled by untenable costs. When mergers diminish competition in pharmaceutical markets, the result is higher prices.”

Pharma company leaders did not speak at the meeting. But in public comments submitted to the FTC, the Pharmaceutical Research and Manufacturers of America argued the drug industry hasn’t become more concentrated, continues to innovate and is increasing research and development spending.

Any “additional processes and theories of harm will significantly and profoundly impact not just the ability of experienced pharmaceutical companies to partner up with promising science, but it could also fundamentally alter the ecosystem in which science is discovered and developed in the United States,” the group said in its letter.

The meeting covered a wide range of topics, from assessing the pharmaceutical industry’s market power to the effects of mergers and acquisitions on innovation. But its most immediate impact could come from the experts’ examination of how the FTC and other global authorities analyze and address market concentration in major M&A deals.

Regulators have tended to look only at product-level overlaps between buyers and their targets, and resolved them by forcing the merging companies to sell off some products.

For example, Celgene had to sell the psoriasis drug Otezla to Amgen to get the FTC to clear its $74 billion acquisition by Bristol Myers Squibb because of a competing treatment Bristol Myers was developing. Allergan, meanwhile, sold off a digestive drug called brazikumab so regulators would approve its $63 billion takeout by AbbVie.

Even Roche’s buyout of the gene therapy biotech Spark Therapeutics was slowed by FTC concerns the Swiss drugmaker’s hemophilia drug Hemlibra overlapped with an experimental gene therapy Spark was testing.

Experts argued that, to protect innovation, merging companies should be required to divest the product already being marketed. Robin Feldman, a law professor at the University of California San Francisco and director of its Center for Innovation, noted that of 56 pipeline products sold as part of merger settlements with the FTC, only 36 were approved and fewer had any significant sales.

Divesting an experimental drug to a biotech or spinning it out into a separate entity raises the risk of failure, as those companies could be less experienced in R&D manufacturing or marketing, experts noted. “It’s easier for a merged company to continue to develop a pipeline product,” said Arti Rai, a Duke University law professor and director of its Center for Innovation Policy.

Single-product divestitures also fail to take into account drugmakers’ broader business and the market power that can be gained by having a large number of drugs when negotiating with pharmacy benefit managers, or PBMs.

“It really becomes more important to assess the potential increase in market power from the size and the scope of the overall portfolio,” said Patricia Danzon, a professor of healthcare management at the University of Pennsylvania Wharton School. “These are already large firms with large portfolios, and they already have the potential for tying the rebates on their must-have products and access to some drugs in their portfolio to the ‘preferred’ position” in PBMs’ formularies.

Even serial acquisitions of small one-product biotechs, which typically result in less scrutiny from regulators, can result in a drugmaker amassing market power. “If a monopolist buys 100 startups, the chances are that competition has been restrained,” Feldman said.

How to forecasts whether consolidation will impede competition in the future is a harder question, the experts said. Still, Barak Richman, a Duke law and business administration professor, said regulators have been able to make similar predictions with hospital mergers based on economic models that have been accepted by the courts.

Experts and regulators at the meeting also expressed concern about protecting innovation as drugmakers acquire small biotechs. While the value of these drugmakers is boosted by the potential for a buyout or licensing deal, such transactions can become “killer acquisitions” if acquiring companies decide to shelve a biotech’s product because it would jeopardize another medicine they’re developing, too.

Deals can also have knock-on effects for other companies working on the same disease or drug types.

“Protecting innovation will require us to look at both the incentives of the merging firms, as well as the non-merging firms,” said Caroline Holland, an attorney adviser with the FTC. “For example, the incentives of non-merging firms may be relevant if a merger reduces the number of large firms that are the target sales audience for new innovation developed by a pharmaceutical startup.”

“This may affect the availability of capital to those startups,” she added.