On July 24, 2014, Novartis announced that the FDA had accepted for filing the first application seeking marketing approval in the U.S. for a biosimilar version of filgrastim (Neupogen). In my May 19, 2014, post “A Few Thoughts About Biosimilars” I discussed the problem of driving down the price of these somewhat cheaper, but still very expensive, drugs. Biosimilars have been available in Europe for some time but none have been approved yet in the U.S. In this post I will discuss a different but related problem in biosimilars development, which is built into the Biologics Price Competition and Innovation Act (BPCIA).
The BPCIA divides biosimilars into two categories—biosimilars and interchangeables. Biosimilars require extensive testing to demonstrate that they are “highly similar to the reference biologic,” defined in terms of mechanism of action, clinical studies of immunogenicity and toxicity, safety and efficacy, and clinical action at the same doses and route of administration as the reference product. However, biosimilars may not be automatically substituted for the reference drug, but rather must be specifically prescribed by the physician, which of course requires marketing efforts to drive sales.
The second category, interchangeables, was intended to parallel to the existing generic category for small molecules in that interchangeables could be freely substituted for the reference drug. In theory, this means that marketing costs would be greatly reduced, just as they are for generic drugs. However, interchangeable approval requires extensive additional clinical testing beyond that required for biosimilars. In return for this additional expense, the first approved interchangeable version of any reference biologic is rewarded with one year of exclusivity, during which the FDA cannot approve any additional interchangeables for that biologic. Nevertheless the development pathway for interchangeables creates something of a business paradox. After the statutory year of protection against competition from other interchangeables, the drug can only compete on price with subsequently approved interchangeables. Thus it requires more expense to develop an interchangeable biologic that will be sold at a lower price. Moreover, there would almost certainly be a downward price spiral if any additional interchangeables are approved. This would seem to discourage the development of interchangeables from a business strategy perspective. That is why it is unlikely that multiple interchangeable drugs would be developed for any single reference drug, because that would be likely to lead to steep price reductions in the biosimilars marketplace that approach the discounts common in the generics market.
So how is Norway shifting the entire paradigm of the biologics marketplace? Quite simply by undertaking its own, government-funded “interchangeability” study of a biosimilars version of Remicade, one of the biologics that is costing Norway’s health care system the most krone. Although the EU, unlike the U.S., has no interchangeable category and cannot approve a biosimilars as freely substitutable for a reference biologic, Norway can use the power of its national health insurance reimbursement system to cover only the cost of a preferred drug or biologic (which is also true in a number of other European countries). This results in a de facto policy of strongly encouraging, while not formally requiring, substitution of the preferred drug.
The willingness of a payor to take on the financial burden of gathering data to demonstrate that a biosimilar and its reference drug are pharmaceutically equivalent is an exciting development. In the U.S., the Affordable Care Act (ACA) provides funds for comparative effectiveness research on both medical procedures as well as pharmaceuticals. However, it would be difficult to fund many “pharmaceutically equivalent” studies of biosimilars from the ACA budget of $106 million in 2015 for comparative effectiveness research. If U.S. health insurers are willing to fund studies similar to the Norwegian study to support their own formularies, the impact on pharmaceutical budgets could be very significant.
It would make bottom-line sense for the big insurers to do so. For example, in 2013 Humira, Enbrel, and Remicade, drugs that target TNF to treat autoimmune inflammatory diseases such as Rheumatoid Arthritis and Crohn’s disease, had U.S. sales of approximately $5.6, $4.7, and $4.1 billion respectively. A study of the type Norway is doing on Remicade could have a very large financial impact if it leads to significant price reductions through biosimilar substitution for those drugs. In 2012 the two largest health insurers in the U.S., United Healthcare and Wellpoint, each provided health insurance coverage for approximately 34.3 million persons. Also in 2012, all insurers in the U.S. health insurance insurance market spent $50.62 per member per year on specialty drugs in the inflammatory class, the class of expensive drugs in which Humira, Enbrel, and Remicade are the sales leaders. That would mean that United Healthcare and Wellpoint each spent about $1.74 billion on specialty anti-inflammatory drugs.
There is no publicly available breakdown of United Healthcare's or Wellpoint's spending on individual biologics; however, it would not be unreasonable to assume that they are now each spending in the neighborhood of $500 million per year on Humira and slightly lower but still very large amounts in excess of $400 million on Enbrel and Remicade. We can use Remicade merely as an example of a reference biologic. Even with a capital outlay of $20 million to perform a biosimilar substitution study, a savings of approximately 25% of United Healthcare’s Remicade costs would return that amount in a single year, provided United Healthcare’s formulary was successful in inducing the great majority of doctors to switch their patients to a biosimilar which costs 30% less. The Norwegians are showing us the way to a much more efficient market for biosimilars. Skål (Cheers)!