A while back I wrote about how an avalanche of blockbuster drugs face patent expiration within the next few years. Many of these are biologic drugs, an expensive type of drug derived from living substances. The cost is high. By some accounts, the top 1% of specialty drugs account for about half of all drug spending. Many of these are biologics. Biologic drugs are not as easy to copy as typical small molecule drugs made from simple organic compounds. For this reason, there are no biogeneric drugs. Rather, there are what are called biosimilars, since competitors must develop a similar drug and assess it to ensure it is, well, similar.
A new report by the Association for Accessible Medicines (AAM; a generic drug trade association) found there are no biosimilars in development for 90% of biologic drugs facing patent expiration in the next eight years. Over the next decade, an estimated 118 biologics will lose patient protection and can potentially face competition from biosimilars. Analysts estimate the potential savings from using copies of these 118 drugs could save the U.S. health care system approximately $200 billion over the next decade.
Why are there no companies jumping in to make copycat versions of expensive drugs? When it comes to small molecule drugs, pharmacists can – and often do – substitute generic drugs for more costly name brand drugs when physicians prescribe a drug. Biosimilars are not dispensed the same way. A doctor must prescribe a biosimilar by name. Even worse, most drugs are reimbursed by public and private health plans, which are administered by pharmacy benefit managers (PBMs). In recent years the PBM industry has consolidated such that the three biggest PBMs control 80% of the drug business. Thus, they no longer must compete for business. Instead, they can pursue policies that benefit them at the expense of consumers. PBMs have made it difficult for biosimilar drugmakers to earn a profit in recent years because they make deals with name brand drugmakers to receive significant rebates from more costly biologic drugs. The following is from the Wall Street Journal:
That is partly because pharmacy-benefit managers, the middlemen that decide which drugs people are steered to through their insurance plans, often place brand-name drugs over cheaper biosimilars, AAM said.
PBMs receive rebates calculated as a percentage of a drug’s list price, meaning higher-priced brand drugs yield larger payments.
AAM said brand-name drugmakers exploit this system by offering PBMs massive rebates on high-price original drugs. Drugmakers can use that leverage to discourage coverage of cheaper biosimilar competitors.
This is precisely what happened with Humera, a blockbuster biologic drug. When Humera lost patent protection and faced generic competition in 2023, most experts assumed the generic would take a huge share of the market. It did not happen because the maker of Humera offered PBMs huge rebates and threatened to withhold rebates on its other drugs if cost-sharing was not equal for both the expensive name brand and cheaper copycat biosimilar. Rather than steer their clients’ members to the cheaper generic, PBMs took the big rebates instead.
PBMs generally earn revenue either through management fees or retaining some of the drug rebates. Historically most rebates passed through to their health plan clients or were retained with permission in lieu of management fees. With significant PBM consolidation, PBM’s market power allows them to retain rebates and conduct business in ways that benefit them at the expense of their clients. This is the type of anticompetitive behavior that should be banned.
There are anti-kickback regulations that apply to federal health programs that should be extended to apply to the private sector. Patent thickets should be routinely denied on drugs already covered by primary patents, or at least subsequent patents should be dated to the original patent. Finally, rebates that raise consumer’s drug prices rather than lower them should be restricted. The current system of middlemen paying for health care and being reimbursed by insurers and health plans encourages higher prices. Regulations need to penalize PBMs that steer patients to higher cost drugs, not reward them.
Read more at:
Cheap Biologic Drug Alternatives Stall, Threatening U.S. Healthcare Savings
See also the Goodman Health Blog:
Are Drug Middlemen to Blame for High Drug Prices?
An Avalanche of Blockbuster Drugs Face Patent Expiration
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