Drug pricing

The CEOs of three major drugmakers defended the prices they charge U.S. patients in a Feb. 8 Senate committee hearing that provided the latest forum for the nation’s ongoing debate over pharmaceutical costs. 

Senate Health, Education, Labor and Pensions Committee Chairman Bernie Sanders, I-Vt., and his Democratic colleagues pressed Bristol Myers Squibb’s Christopher Boerner, Johnson & Johnson’s Joaquin Duato and Merck & Co.’s Robert Davis to commit to cutting the list prices of top-selling drugs like Eliquis, Stelara and Keytruda to levels in countries like Canada and Japan.

“We are aware of the many important life saving drugs your companies have produced,” Sanders said. “But as all of you know, those drugs are nothing to anybody who cannot afford them.”

The executives — two of whom were threatened with subpoenas before agreeing to appear — declined to commit to price cuts. However, they claimed that Americans gain access to cutting-edge medicines months or years earlier than people in countries that pay a fraction of the U.S. costs.

They also cited differences between the largely privately operated U.S. healthcare system and more centralized, government-led systems in other industrialized countries that allow for tighter price regulation but restrict access.

“We have 39 indications for Keytruda across 17 tumor types in the United States,” Davis said. “If you look across Europe, it's in the 20s, and if you look across Japan, it's that number or a little bit less. So there is a reason why the prices are different and we need to be careful because we are also seeing in those markets that they are unwilling to support innovation.”

The CEOs expressed support for legislation that would require insurance organizations called pharmacy benefit managers use the rebates they negotiate with drugmakers to reduce patients’ out-of-pocket spending. In some cases, though often not in cancer, these rebates can be significant, and result in lower net prices. But the difference between list and net prices isn’t transparent, and it’s not usually clear how directly those rebates benefit patients.

The executives also backed legislative changes that would permit drugmakers to offer discount cards to Medicare enrollees, which is now illegal.

Senators criticized drugmakers for blocking price competition from generic drugs and biosimilars, citing as examples the number of patents filed on biologic drugs like Stelara and Keytruda, as well as deals that use rebates to block the entry of biosimilars.

“There's evidence that pharmaceutical companies will do life cycle management to prolong the exclusivity of a drug,” said Sen. Bill Cassidy, R-La., the committee’s senior Republican. “Some argued that that actually defeats innovation, because as opposed to making you profit from innovation you can make profit from life cycle management.”

Sen. Ben Ray Luján, D-N.M., asked the CEOs to pledge to not block entry of generics or biosimilars to the respective drugs in the spotlight when their primary patents expire, which Merck and Bristol Myers agreed to. That question in the case of Bristol Myers Squibb was focused Opdivo, its cancer immunotherapy rival to Keytruda.

For Merck, Davis committed to open competition with any forthcoming biosimilars of intravenous Keytruda. But he didn’t mention the company is trying to develop and launch a subcutaneous, or under-the-skin, version that would likely extend its market advantage beyond the anticipated 2028 expiration of its main patent. Bristol Myers is also working on subcutaneous Opdivo.

Questioned by Luján on settlements that have pushed the launch of biosimilar Stelara to 2025, J&J’s Duato said the price of the drug will be lower when that happens and added that prices net of rebates have dropped ahead of biosimilar competition.

Medicare is neogtiating the prices of top-selling drugs for blood clots, diabetes, cancer and arthritis, flexing newly granted authority that for the first time allows the insurance program to use its market power to lower the cost of certain medicines.

On Aug. 29, the Biden administration released a list of 10 drugs that included in the first round of negotiations, which began in February with Medicare making the government’s initial offer. The process will run over the next year and produce prices that take effect in 2026.

Among the drugs on the list are the widely used blood thinners Eliquis and Xarelto, which made their respective makers more than $10 billion in U.S. sales last year, as well as the diabetes treatments Januvia and Jardiance.

The list also includes AbbVie and Johnson & Johnson’s leukemia drug Imbruvica, Amgen’s anti-inflammatory therapy Enbrel and Novartis’ heart failure medicine Entresto. Rounding out the initial 10 were AstraZeneca’s Farxiga, J&J’s Stelara and Novo Nordisk’s insulin aspart, which is sold under the brand names Fiasp and Novolog.

More than 8 million people covered by Medicare used the drugs between June 2022 and May 2023, according to a fact sheet provided by the Centers for Medicare and Medicaid Services, or CMS. Gross spending over the period surpassed $50 billion, or about 20% of prescription drug costs under the so-called Part D benefit.

The process is the centerpiece of a legislative effort to expand the federal government’s role in determining what drugmakers can charge for their products. Democrats gave Medicare its new negotiation powers via 2022’s Inflation Reduction Act, which passed Congress along party lines.

Known as the IRA for short, the law fulfilled policy goals long-sought policy goals held by Democrats. But its drug pricing provisions, which also cap out-of-pocket costs on insulin for people in Medicare, are popular among voters of both parties.

“For far too long, Americans have paid more for prescription drugs than any major economy,” President Joe Biden said in a statement last year. “And while the pharmaceutical industry makes record profits, millions of Americans are forced to choose between paying for medications they need to live or paying for food, rent, and other basic necessities. Those days are ending.”

For the pharmaceutical industry, the IRA was a significant — and rare — political defeat after years of fiercely contesting any legislative attempt to regulate drug pricing in the U.S.

Six large drugmakers, along with the powerful lobby PhRMA, sued to block the law and its implementation in lawsuits filed last fall. (Astellas later withdraw its suit.) They claim the law is unconstitutional and, rather than setting up a process of negotiation, unfairly compels drugmakers to accept terms set by the government or endure ruinous fines.

“Although drug companies are attempting to block Medicare from being able to negotiate for better drug prices, we will not be deterred,” Xavier Becerra, head of the Department of Health and Human Services, said in an Aug. 29 statement.

To determine the 10 drugs included in Tuesday’s list, Medicare was directed to identify the medicines on which it spent the most under Part D, which covers products taken outside of a doctor’s office. Therapies with generic competitors were not eligible, nor were products approved within a certain number of years.

Drugmakers have one month to make a counteroffer to CMS’ initial price proposal. Further meetings can then take place, with CMS announcing the “maximum fair price” it ultimately determines by Sept. 1, 2024.

Those prices will take effect Jan. 1, 2026, and remain in place until a drug becomes ineligible for the program, such as when a generic competitor enters the market. For some of the initial 10 selected that may be quite soon. Januvia, for instance, is protected from competition until May 2026, per Merck’s most recent annual filing.

Medicare will select more drugs for negotiation each year, eventually including Part B medicines and expanding to 20 per year from 2029 onward.

The minimum discount required under the IRA varies based on a drug’s years on market, but must be at least 25%. However, it’s unclear exactly how the resulting savings will be used. Some people covered by Medicare could benefit from lower coinsurance based off a drug’s price, as well as reduced liability during their deductible phase. Savings might also help reduce premiums.

“There is no specific guarantee within the law that any of the savings the government derives from the so-called negotiations will be passed on to patients,” said Catherine Owen, U.S. commercial general manager for Bristol Myers Squibb, which sells Eliquis along with Pfizer.

Bristol Myers and its pharmaceutical peers have also warned the law will impact their investment in drug research and development, and push them to prioritize biologic medicines over chemical pills.

Some, such as Novartis and Eli Lilly, claim they’ve already made decisions to sideline certain programs because of how the law limits the time in which they can earn money on newly approved products.

According to Owen, Bristol Myers recently decided against running a lengthy study of an experimental small molecule drug called iberdomide in newly diagnosed multiple myeloma because of the IRA’s negotiation timeline.

Sponsored content

By Kalderos

Mandatory federal discount and rebate drug programs are expected to become more complex this year through, for example, a mix of legal challenges and implementation of new Inflation Reduction Act (IRA) programs. For many drug discount system stakeholders these new, and changing, programs exacerbate the as-yet unresolved problem of duplicate discounts.

As the volume of discounts and rebates increases, so, too, will the pressure on drug manufacturers to identify, dispute, and resolve noncompliant discounts, which cost manufacturers in the form of revenue leakage and increasing gross-to-net.

Stakeholder challenges

Kalderos estimates that at least 5% of commercial rebates are duplicate discounts with 340B. The cost of these duplicates in lost revenue for manufacturers is roughly $6 billion.

Several factors contribute to duplicate drug discounts. One is that 340B and the Medicaid Drug Rebate Program (MDRP) and the upcoming Medicare inflation rebate programs, run on parallel tracks; 340B uses a chargeback model, while the Medicaid and new Medicare programs employ a rebate system. The lack of intersection between the two programs, along with lack of a common language, makes transparency, collaboration, and accountability virtually impossible. These systemic flaws spawn confusion, mistrust, and duplicate discounts that impose a financial burden on all stakeholders as stakeholders expend resources to identify, dispute, and correct misapplied discounts.

Furthermore, an analysis of 340B program outcomes published in JAMA Health Forum said “audits of covered entities found low rates of compliance with 340B program requirements.”

Much of the noncompliance can be attributed to program complexities, the inability of these stakeholders to extract and share data, and little or no collaboration among stakeholders. Compounding these challenges, CEs and state agencies typically are working with technology often inadequate to the task.

Legal and political headwinds

Drug manufacturers are under pressure and face uncertainty on several fronts as the new year unfolds. The maximum fair price (MFP) section of the IRA, which requires price negotiation between manufacturers of certain selected drugs and the Federal Government, raises the risk of duplicate discounts at maximum fair prices.

In addition, last November’s court ruling in the Genesis case struck down HRSA’s ability to enforce its “patient” definition against Genesis Healthcare. HRSA has reiterated that its existing patient definition still applies to covered entities, but the decision has caused confusion among stakeholders with some covered entities claiming that the patient definition no longer applies to any covered entities. In the wake the decision, we understand that some covered entities are expanding their patient definition which could lead to multiple CEs potentially claiming the same patient, resulting in multiple 340B discounts applied to a single claim. As this issue plays out, incidences of noncompliance will increase, causing more revenue leakage for manufacturers.

Factor in the potential impact of election politics on drug prices and discount programs, and it’s clear that drug manufacturers must rely on technology to navigate these shifting winds and scale operations to handle a surge in discount program volume in 2024 and beyond.

Why technology is the solution

In a recent Kalderos study, 99 of 100 drug manufacturers saw technology as the key to drug discount management. These manufacturers recognize that a powerful technology platform is needed to ensure access to drug discount data as well as transparency, and collaboration between all stakeholders – manufacturers, CEs, payers, PBMs, and patients.

Kalderos works with 50 manufacturers and more than 4,900 CEs to help them manage their drug discount programs using its Drug Discount Management platform. The Kalderos platform integrates enhanced data and analytics with the ability to detect 340B noncompliance to provide manufacturers with actionable insights into their drug discounts at scale and a single source of truth for all stakeholders.

To learn more about bringing clarity to the world of duplicate discounts, see this white paper.

Vishali Amin is the vice president of value delivery at Kalderos.

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, 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 copycat versions to Humira last year represented a start of sorts for this looming industry-wide patent cliff. While their market share remains miniscule, their entry has forced AbbVie to negotiate more aggressively to secure insurance contracts. As a result, U.S. sales of the drug, which totaled $18.6 billion in 2022, fell to $12.2 billion last year. 

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’s revenue fell in 2023 because of Humira competition. And AbbVie executives have indicated sales are likely to be sluggish in 2024, too, walking back previous predictions 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 46 biosimilars are now approved in the U.S., some are not 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.

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 White House in December took steps to pressure pharmaceutical companies to lower the price of drugs developed with federal funding, backing a plan that would enable the government to sidestep patent protections for those medicines.

New draft guidelines published by the National Institutes of Standards and Technology permit government agencies to consider “reasonableness of the price” when evaluating whether to invoke so-called march-in rights, which permit the government to suspend patents when federally funded inventions aren’t made available to the public.

The newly published framework gives agencies the power to act “if it appears that the price is extreme, unjustified, and exploitative of a health or safety need.” One example is a “sudden, steep price increase in response to a disaster,” although the initial cost of a drug when it’s launch can also be considered, the guidance said.

The agency is seeking further comment on its guidance — the product of an interagency review that began early this year — before publishing a final version.

“With this draft guidance and request for comment, we are seeking continued stakeholder input to ultimately provide greater clarity on march-in rights and maintain a balance between incentivizing companies to innovate and making sure those innovations serve the American people,” said U.S. Secretary of Commerce Gina Raimondo, in a Dec. 7 statement.

March-in rights were established under a 1980 law that governs the transfer of patented inventions, such as new drugs, from government-funded research institutions to the private sector. Although advocates have petitioned the government a number of times to step in, agencies have always declined.

For instance, the government was previously asked to intervene when manufacturing problems forced rare disease drugmaker Genzyme, now owned by Sanofi, to ration a medicine called Fabrazyme. The prostate cancer drug Xtandi, meanwhile, has twice been the focus of rejected petitions.

The law’s authors, the late Sens. Birch Bayh and Robert Dole, stated publicly they didn’t intend for a drug’s price to justify use of the march-in authority baked into the law now known as Bayh-Dole for short.

Advocates for stronger march-in powers, however, point out Bayh-Dole preceded another federal law that has set data exclusivity and patent term extensions. That means Bayh-Dole’s authors couldn’t have anticipated the growth of the pricing power drugmakers can obtain through intellectual property monopolies.

The main pharma industry trade group, the Pharmaceutical Research and Manufacturers of America, criticized the newly released guidance.

“If government bureaucrats are allowed to take away patent protections at any time, there is no incentive for biopharmaceutical manufacturers to collaborate with the government or universities, returning us to the pre-Bayh-Dole era where promising new technologies sat on the shelf, benefiting no one,” PhRMA said in a press release.

On the other side, James Love, head of advocacy group Knowledge Economy International, which has challenged Xtandi’s patents in the past, praised it as “better than I had expected in some ways.”

“If the bar for dealing with high prices is ‘extreme, unjustified, and exploitative of a health or safety need,’ that is going to lead to some unnecessary arguments about what is ‘extreme’ or ‘exploitative,’” Love added.

Taking on one of the world’s most lucrative drugs isn’t easy. The problem is so thorny that, among the companies challenging AbbVie’s arthritis treatment Humira with low-cost copies in the U.S., several strategies emerged in the first months of direct competition.

The manufacturers of these generic biologics, or biosimilars, are battling to gain a place on insurers’ coverage lists. Success could mean a bigger slice of the more than $10 billion in U.S. sales that Humira earns AbbVie.

Most chose to price their biosimilar Humiras at only a small public discount, banking instead on offering insurers rebates in private negotiations. A few tried something more radical with steep upfront price cuts. Yet several months in to their launch, the market share held by Humira biosimilars remains tiny. 

The contrasting tactics highlight the intricacy of U.S. drug pricing, as well as reasons for why biosimilars have so far disappointed in making expensive biologic medicines more affordable and accessible to patients. That promise has, with a few exceptions, not materialized as quickly or as broadly as had been hoped.

Price split

While generic copies of pharmaceutical pills typically enter the market at prices well below their branded competitor, the same hasn’t been true of biosimilars.

Four of AbbVie’s new challengers set a discount of just 5%, betting that behind-closed-door negotiations with insurer middlemen known as pharmacy benefit managers will result in rebate deals sufficient to gain coverage.

Two launched their copies at deep discounts to Humira, as low as 15% of the drug’s nearly $7,000 list price for a four-week supply.

Others, though, hedged their bets. Amgen, Biocon and Sandoz went with high- and low-price products to suit different types of healthcare buyers. (Amgen, which was the first to launch a biosimilar Humira in January, chose a narrower split than Biocon and Sandoz did.)

“There are definitely some dynamics here that are creating an obvious divide,” Fran Gregory, vice president of emerging therapies at pharmaceutical distributor Cardinal Health. “It’s highly influenced by the payers and PBMs.”

Boehringer Ingelheim, which launched its biosimilar at a 5% discount to Humira, claims it is “competitively priced.” Called Cyltezo, Boehringer’s drug isapproved as an “interchangeable,” or able to be substituted directly by pharmacists without a specific prescription.

“We recognize the potential benefits of a two-price strategy and are pursuing this approach for implementation in 2024,” said Stephen Pagnotta, Boehringer’s biosimilar commercial lead, in an email. “This approach will allow us to provide different pricing options to meet the diverse needs of patients and improve accessibility.”

Competitive lessons

Pharma companies will be watching the post-monopoly market for Humira closely, in part because no biologic drug has faced so much competition in such short order.

How pricing for Humira biosimilars shifts over time may carry wider lessons as more biologic copycats pour onto the market in the coming years. For AbbVie, the competitive balance could determine whether the sales decline it expects results from lower prices it can match, or whether it loses volume it can’t replace.

Christopher Raymond, an analyst at Piper Sandler, recently surveyed around 400 physicians, and concluded Humira is retaining market share in rheumatoid arthritis, its main indication. According to the findings, declining use of the drug in digestive and skin conditions has been offset by a new product, Skyrizi, that AbbVie introduced as a Humira successor.

“Based on this feedback, while price is clearly a drag on this franchise, we think Humira as a brand is likely to be stickier than investors may anticipate,” Raymond wrote in a July 2023 note to clients.

Such scenarios have been commonplace with biosimilar launches. Inflectra, an alternative to Johnson & Johnson’s Remicade and one of the first biosimilars launched in the U.S., struggled to make headway when it first arrived. Its maker, Pfizer, eventually sued J&J alleging anticompetitive practices. They settled the case in 2021.

Over time, competition has had more of an impact. Nearly seven years after the launch of Inflectra, the average sales price of Remicade and its biosimilars has dropped by 73%, according to a report from biosimilar manufacturer Samsung Bioepis. Biosimilars now account for about half of the market.

Other factors may play a role, too. According to Samsung, biosimilars of cancer treatments have made greater inroads more quickly than those for immune-related disorders, like Humira and Remicade. Lookalikes to Roche cancer drugs Avastin and Herceptin have taken, respectively, 87% and 84% market share, for instance.

That’s due in part to “value-based” payment models, which reward doctors for reducing overall costs. Autoimmune drugs like Humira and Remicade are also taken for many years, making it harder to switch patients stable on branded drugs to a biosimilar.

“Providers are ready, able and willing to prescribe biosimilars to patients who are naive to treatment,” said Gregory. But branded products may be harder to replace among patients already taking them. Many of those drugs remain on PBM formularies, she said.

PBM choices

Two of the three largest PBMs in the U.S., Cigna Healthcare’s Express Scripts and United Healthcare’s Optum, quickly updated their coverage lists in the wake of Humira biosimilars launching.

Both Express Scripts and Optum chose Cyltezo and Novartis’ Hyrimoz, along with an unbranded Novartis product, to add to their earlier selection of Amgen’s biosimilar.

The choices PBMs make can significantly impact consumers’ out-of-pocket costs. For example, they can end up paying more for deeply rebated products because cost-sharing is sometimes based on drugs’ list price. In response, policymakers have called for greater transparency into PBM practices and how they pass on rebates.

“The PBMs have a financial model that they’ve been living with for years,” Gregory said. “That financial model will not change overnight. But I think it will change over time.”

The U.S. government will test whether centrally coordinating insurance coverage can help people with sickle cell disease access expensive new gene therapies for the inherited blood condition.

Two such treatments were recently approved by the Food and Drug Administration after testing showed they can eliminate the crises of pain people with severe sickle cell often experience. However, they respectively cost $2.2 million and $3.1 million, raising alarm about their affordability and impact on the budgets of state Medicaid agencies, which cover an estimated 50% to 60% of people living with sickle cell in the U.S.

The Centers for Medicare and Medicaid Services, which oversees the Medicaid program, last year proposed a pilot “access model” for pricey cell and gene therapies. On Jan. 31, they confirmed sickle cell will be the pilot’s initial focus and released new details about how such a program will work.

Through the model, CMS will negotiate what’s known as an “outcomes-based agreement” that links payment for a drug to the health benefit it delivers. In sickle cell, for example, the targeted outcomes could be continued elimination of pain crises over time. These crises can require hospitalization and cause a constellation of other damaging symptoms.

If the targeted health benefit isn’t achieved, outcomes-based agreements typically require drugmakers to rebate or reimburse the insurer for some of the therapy’s cost.

These types of agreements are not new, nor is their application to gene therapies, which are often priced in the millions of dollars. But CMS’ model aims to coordinate the negotiation of a sickle cell-specific framework across many states, rather than each state agency negotiating their own.

This might help solve some of the resource constraints state agencies face implementing outcomes-based agreements, which require extensive collection of financial and clinical outcomes data.

“If each Medicaid program were to negotiate [coverage] independently, there would have been discrepancies in what different Medicaid programs would have paid for the same product, in turn resulting in differences in access,” said Akshay Sharma, a pediatric hematologist at St. Jude Children’s Research Hospital who helped run a trial of one of the new therapies, Vertex Pharmaceuticals’ Casgevy.

The model, Sharma added in an email, could also help establish “parity” in access across the country.

The framework established by CMS would include the target clinical outcome measure, pricing rebates and a standard coverage policy. States interested in participating could then opt into the negotiated terms, although they’d be responsible for their share of the therapies cost.

"By negotiating with manufacturers on behalf of states, CMS can ease the administrative burden on state Medicaid programs so they can focus on improving access and health outcomes for people with sickle cell disease,” said Liz Fowler, head of the CMS Innovation Center, in a statement.

CMS envisions the pilot program beginning in 2025, one year earlier than initially floated when the agency first announced its intention to create the model. It’s requesting interested states to submit a letter of intent by April, and for drugmakers to apply by May.

The implementation timeline could still create hurdles, as both Casgevy and Lyfgenia, the other sickle cell gene therapy approved by the FDA, are currently available in the U.S. CMS noted that, prior to the model’s launch, current Medicaid access policies will apply.

In a statement, a Vertex spokesperson said the company is “actively engaged” with CMS on the pilot, describing it as an “important tool to help address longstanding inequities in care by facilitating access and funding for potentially curative therapies for the sickle cell community.”

A spokesperson for Bluebird Bio, which sells Lyfgenia, said the company looks forward to working with the agency on the program. Bluebird is currently offering an outcomes-based agreement it created specifically for state Medicaid agencies. 

“Given the flexibility that exists for states today and the urgent need for those living with sickle cell disease, it’s imperative that states uphold their obligation to provide timely, equitable access to gene therapy for Medicaid patients beginning at FDA approval and not delay access to 2025 or beyond,” the spokesperson added in an email.

Notably, CMS also anticipates addressing other barriers to treatment with sickle cell gene therapies. Both Casgevy and Lyfgenia require a “preconditioning” chemotherapy before they are infused that comes with substantial risk of infertility. In testing, Vertex and Bluebird paid for fertility preservation services, like egg freezing, but are not currently able to do the same for patients covered by Medicaid.

Under the model, CMS would require manufacturers to include a “defined scope” of fertility preservation services for people receiving sickle cell gene therapy.

The agency also plans to offer optional funding to states that promote comprehensive sickle cell treatment, such as with behavioral health or care management services. Participation in the model is voluntary, CMS said.

Casgevy and Lyfgenia are both personalized cellular treatments, built from hematopoietic stem cells extracted from each patient. The cells are genetically engineered to effectively detour around the mutation that causes the disease’s characteristic red blood cell sickling. Casgevy does this via CRISPR gene editing, while Lyfgenia uses a benign virus to insert functional gene copies into the cells.

Once infused, the modified stem cells mature into red blood cells that are resistant to sickling, preventing the blockages that result when misshapen cells pile up in blood vessels.

Vertex, which partnered with CRISPR Therapeutics to develop Casgevy, set the cost of its treatment at $2.2 million, while Bluebird’s Lyfgenia costs $3.1 million. On a single-use basis, they are among the most expensive drugs available in the U.S. However, their developers argue the benefit they offer more than offsets the years of expensive medical care people with severe sickle cell would otherwise need.

Outside of Medicaid, commercial insurers are beginning to roll out their own policies. Some Blue Cross Blue Shield plans, for example, will cover both Lyfgenia and Casgevy.

EQRx, a biotechnology company that sought to disrupt U.S. drug pricing practices, sold itself to cancer drugmaker Revolution Medicines in an all-stock deal completed last November. 

The acquisition was a quiet end for EQRx, which launched three years ago by biotech venture capitalist Alexis Borisy and quickly became one of the sector’s most closely watched startups.

EQRx formed with an unusual mission to develop lower-cost branded alternatives to existing top-selling medicines. The company raised more than $2 billion for this “fast follower” approach of licensing or acquiring would-be competitors to marketed drugs and undercutting them on price. It went public two years ago by merging with a special-purpose acquisition company, and began testing would-be rivals to a variety of top-selling cancer medicines.

But a key part of EQRx’s plan involved acquiring drugs that were discovered by Chinese companies and primarily tested there. That strategy was undone when top cancer drug evaluators within the Food and Drug Administration began scrutinizing such medicines more closely, demanding they be evaluated in trials run in multiple countries.

The heightened standards left EQRx with a longer, more expensive road to the U.S. market. EQRx responded in 2022 by adopting “market-based pricing” plans for two drugs and cutting staff. Then, in May 2023, the company abandoned its mission alongside a deeper restructuring.

At the time, EQRx claimed it would rely on its sizable bankroll and “team of experienced drug hunters” to develop “differentiated” medicines. Three months later, it was acquired for its cash holdings, the result of a “rigorous process” that “thoroughly explored and considered strategic alternatives,” president and CEO Melanie Nallicheri said in a statement at the time.

EQRx’s cash will now support Revolution, a company developing drugs targeting “RAS,” a family of genes that are frequently mutated in cancer. Alongside the merger, Revolution narrowed its focus to three of its most advanced programs and some other pipeline prospects. Two of them, known as RMC-6236 and RMC-6291, are in early human testing.