Biosimilars — the equivalent of generic drugs for complicated and expensive medicines made by living cells — are supposed to reduce prices and save the health care system billions of dollars by finally bringing competition to blockbuster drugs. But as Bloomberg News has chronicled, they’ve been slow to gain traction.
Groundwork for an acceleration may come as soon as September.
That’s when the two biggest pharmacy benefit managers, CVS Health Corp. and Express Scripts Holding Co. — middlemen that negotiate with drugmakers to lower prices for health plans — will provide an update about which drugs that treat inflammatory conditions they’ll cover and which they’ll exclude in favor of competitors. Among those drugs is Remicade, Johnson & Johnson’s best-selling medicine, which faces two biosimilar competitors.
While these companies make hundreds of decisions about which drugs to cover, their decisions about Remicade carry extra weight. They could shift both billions of dollars in sales — Remicade generated nearly $7 billion in revenue for J&J last year — and perceptions about PBMs.
According to Express Scripts, drugs for inflammatory conditions had the highest spending per member per use of any drug class in 2016 for its clients and the largest growth in that spending. The increase was due to both increased use and higher prices.
The arrival of two Remicade copycats — Pfizer Inc.’s Inflectra was introduced last November and Merck & Co. and Samsung’s Renflexis in July — should be an opportunity to reduce spending on the category. So far, PBMs and the market have been slow to embrace biosimilars. Few have been introduced; those that have offer relatively minor discounts to the original; and the FDA has been slow to set up a regulatory regime that would make them easier to prescribe. But with two competing options for a multibillion-dollar drug, PBMs have an opportunity to leverage prices down and provide consumers with a cheaper option.
But it isn’t always that simple. The drug-pricing world is so convoluted that it’s hard to identify the cheapest option. PBMs take a cut of the difference between a drug’s sticker price and the discounted price they negotiate on behalf of their clients, and those discounts are a heavily guarded secret. There may be cases where nudging patients to a deeply discounted brand-name drug may be more profitable than pushing a generic or biosimilar alternative. In addition, J&J is the world’s largest health care company. It may use its formidable leverage or offer better pricing on other drugs to secure better positioning for Remicade. Pfizer’s sales of Inflectra in the U.S. have been extremely sluggish, and the company told Bloomberg News that they have been hampered by “J&J’s pursuit of exclusionary contracting.”
The impact of this coming decision will go beyond its effect on CVS’s and Express Scripts’ drug spending and profitability in 2018.
PBMs have come under criticism for lack of transparency and what critics perceive as their contribution to escalating drug prices. The companies are the subject of multiple lawsuits focused on their business model and relationships with drugmakers. Lawmakers have considered or passed legislation that seeks to rein in certain practices. Prime Therapeutics — a private PBM owned by Blue Cross health plans — is an increasingly threatening lower cost alternative. A deal with Walgreens gives it more scale than ever before. Some employers are even choosing to manage their own drug benefits rather than rely on PBMs. All of this has weighed on shares.
Whether they like it or not, these companies are under a microscope. They have the opportunity to either accelerate the biosimilar revolution and pave the way for even bigger price battles to come or face the scrutiny of failing to do so.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.