This week, I’m rerunning some popular posts while I put the finishing touches on our new 2023-24 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.Since I published the article below in July 2023, there have been three notable market develpoments:
This month, nine biosimilar versions of adalimumab launched in the U.S. market. As I predicted in 2021, some products launched with list prices that are only slightly lower than Humira’s list price, while others are trying to tempt payers and pharmacy benefit managers (PBMs) with deep list price discounts.
Surprisingly, two PBMs—Express Scripts and OptumRx—will each offer at least one low-list-price biosimilar option on their main national formularies.
Below, I help you understand the current and future market dynamics by posing four questions about drug pricing, rebate walls, patient behavior, the gross-to-net bubble, pharmacy/wholesaler economics, and more.
No biosimilar has the trifecta of being high-concentration, citrate-free, and fully interchangeable. These shortcomings, combined with physician hesitancy, will limit the ability of price to drive adoption. But as I see it, the Humira price war signals that rebate walls will crumble and the gross-to-net bubble will pop. Will payers let Humira go?
THE MID-2023 HUMIRA MARKET
The table below summarizes the wholesale acquisition cost (WAC) list prices for Humira and its currently launched biosimilars. Note that the WAC list price does not represent the price paid by any entity within the drug channel, because it excludes rebates and such other reductions as distribution fees, product returns, discounts to hospitals, price reductions from the 340B Drug Pricing Program, and other purchase discounts.
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As you can see above, three manufacturers launched Humira biosimilars with list prices that are 5% below Humira’s list price, while two have launched products with deep discounts vs. Humira. Three manufacturers—Amgen, Biocon Biologics, and Sandoz—hedged their bets and launched both high-list and low-list versions. The only interchangeable product—Cyltezo—launched with a high-list price strategy, but will reportedly launch a “two price strategy” in 2024.
Two big PBMS—Express Scripts and OptumRx—have selected the same five biosimilars for their primary formularies: Amjevita (high and low WAC versions), Cyltezo, Hyrimoz, and adalimumab-adaz. Two of these products—Amjevita (low WAC) and adalimumab-adaz—have list prices that are far below the list price of Humira, while the other three products have list prices that are only 5% below Humira’s list price. (Clarification: Cigna Healthcare has separately added Hadlima as a preferred option on its value, advantage, and total savings formularies.)
FOUR QUESTIONS
How is the Humira market different from all other markets? Here are four questions to stimulate your thinking.
1. Will high-list/high-rebate products win again?
Despite favorable formulary placement, we still don’t know the degree to which PBMs’ plan sponsor clients—employers, health insurance plan, labor union, governments, and other third-party payers—will adopt low-list-price products.
As I have highlighted on Drug Channels, plan sponsors and their PBMs have preferred high-list/high-rebate over low-list-price products in such categories as hepatitis C and insulin biosimilars. Earlier this year, these warped incentives led Amgen to launch both a high-list/high-rebate and a low-list/low-rebate version of its Humira biosimilar.
The plan sponsor ultimately decides on the prescription drug benefits that it will offer to members or employees. Sadly, too many plan sponsors embrace the warped incentives of the gross-to-net bubble.
Despite their complaints about PBMs, most plan sponsors remain addicted to rebates, which are now mostly (but not exclusively) passed through by PBMs to the plan sponsors. Employers generally use these rebates to offset non-drug healthcare costs and reduce premiums for all beneficiaries, not just the subset of patients whose prescriptions generated the rebate funds. Health plans want the rebate dollars so they can compete for business through lower premiums. Consequently, both employers and health plans rarely use point-of-sale rebates.
PBMs have their own incentives for preferring higher drug list prices over lower ones. For an in-depth explanation behind these realities, see Chapter 9 of The 2023 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
As I have highlighted on Drug Channels, plan sponsors and their PBMs have preferred high-list/high-rebate over low-list-price products in such categories as hepatitis C and insulin biosimilars. Earlier this year, these warped incentives led Amgen to launch both a high-list/high-rebate and a low-list/low-rebate version of its Humira biosimilar.
The plan sponsor ultimately decides on the prescription drug benefits that it will offer to members or employees. Sadly, too many plan sponsors embrace the warped incentives of the gross-to-net bubble.
Despite their complaints about PBMs, most plan sponsors remain addicted to rebates, which are now mostly (but not exclusively) passed through by PBMs to the plan sponsors. Employers generally use these rebates to offset non-drug healthcare costs and reduce premiums for all beneficiaries, not just the subset of patients whose prescriptions generated the rebate funds. Health plans want the rebate dollars so they can compete for business through lower premiums. Consequently, both employers and health plans rarely use point-of-sale rebates.
PBMs have their own incentives for preferring higher drug list prices over lower ones. For an in-depth explanation behind these realities, see Chapter 9 of The 2023 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
2. Can massive list-price discounts overcome a rebate wall?
A crucial outcome of the gross-to-net bubble is that payers have incentives to select higher-priced, heavily rebated drugs instead of lower-cost alternatives. That’s why a drug with a moderately lower list price can have a higher net, post-rebate cost to a payer than a drug with a higher list price.
Rebate walls, a.k.a., rebate traps, complicate this math by linking rebates to a market share or formulary placement requirement. For example, the manufacturer of a product with significant market share could negotiate to make its rebates contingent on preferred or exclusive formulary position—but only if the product’s market share and/or volume exceeds a designated threshold.
A new, lower-priced product has few prescriptions, so even a larger per-prescription rebate won’t overcome the sheer volume of rebate dollars at risk from the market-leading product. The market leader’s per-prescription rebate provides much more revenue than a bigger rebate per prescription from a drug with few prescriptions. Below, I provide a mathematical example to illustrate these warped incentives.
Are rebate walls anti-competitive? It depends. In 2021, the Federal Trade Commission (FTC) issued a Report on Rebate Walls. The FTC highlighted potential legal theories that might apply in an antitrust challenge to a rebate wall, including exclusive dealing, bundling, and tying. However, it argued that application of these theories would be “highly fact-specific.” So: ¯\_(ツ)_/¯
Rebate walls, a.k.a., rebate traps, complicate this math by linking rebates to a market share or formulary placement requirement. For example, the manufacturer of a product with significant market share could negotiate to make its rebates contingent on preferred or exclusive formulary position—but only if the product’s market share and/or volume exceeds a designated threshold.
A new, lower-priced product has few prescriptions, so even a larger per-prescription rebate won’t overcome the sheer volume of rebate dollars at risk from the market-leading product. The market leader’s per-prescription rebate provides much more revenue than a bigger rebate per prescription from a drug with few prescriptions. Below, I provide a mathematical example to illustrate these warped incentives.
Are rebate walls anti-competitive? It depends. In 2021, the Federal Trade Commission (FTC) issued a Report on Rebate Walls. The FTC highlighted potential legal theories that might apply in an antitrust challenge to a rebate wall, including exclusive dealing, bundling, and tying. However, it argued that application of these theories would be “highly fact-specific.” So: ¯\_(ツ)_/¯
3. Will other gross-to-net bubble products alter the market?
Unfortunately, patients often bear the brunt of the warped incentives behind rebate walls and formularies filled with high-list-price products.
That’s because many people now pay a coinsurance percentage of the price negotiated between the pharmacy and the plan or PBM—or even the entire list price when they are within a deductible. Consequently, patients can end up paying a lot for a highly-rebated prescription, even when the net price to the payer is low. See my follow-the-dollar prescription math in How Health Plans Profit—and Patients Lose—From Highly-Rebated Brand-Name Drugs.
In my March 2023 video webinar, I discussed how cost-plus pharmacy pricing could encourage manufacturers to sell highly-rebated brand-name drugs at cash prices that are closer to post-rebate net prices. (I refer high-list/high-rebate drugs as gross-to-net bubble products.)
For example, the biggest insulin manufacturers—Eli Lilly, Novo Nordisk, and Sanofi—all reduced the WAC list prices of certain insulin products. I highlighted Amgen’s experience lowering the list price of its PCSK9i product in my February article on Amjevita.
Something similar seems to be stirring in the Humira biosimilar market. SSR Health estimates that Humira’s net price is at least 40% below its list price. But four of the biosimilars have list prices that are 80% or more below Humira’s list price.
It’s therefore not shocking that Mark Cuban Cost Plus Drug Company plans to sell Yusimry for $569.27 plus as-yet-unannounced dispensing and shipping fees. That’s not low enough to create a true cash-pay market—but it’s getting close. It may also tempt at least some plan sponsors to reconsider their addiction to rebates in favor of more straightforward low prices.
On the other hand, a low list price leaves little room for patient copay support and other services. This will benefit AbbVie and other companies selling products at a higher list price. But lower list prices also prevent non-patients—plans, PBMs, and vendors—from absorbing any of that support via copay accumulators, maximizers, and alternative funding programs.
That’s because many people now pay a coinsurance percentage of the price negotiated between the pharmacy and the plan or PBM—or even the entire list price when they are within a deductible. Consequently, patients can end up paying a lot for a highly-rebated prescription, even when the net price to the payer is low. See my follow-the-dollar prescription math in How Health Plans Profit—and Patients Lose—From Highly-Rebated Brand-Name Drugs.
In my March 2023 video webinar, I discussed how cost-plus pharmacy pricing could encourage manufacturers to sell highly-rebated brand-name drugs at cash prices that are closer to post-rebate net prices. (I refer high-list/high-rebate drugs as gross-to-net bubble products.)
For example, the biggest insulin manufacturers—Eli Lilly, Novo Nordisk, and Sanofi—all reduced the WAC list prices of certain insulin products. I highlighted Amgen’s experience lowering the list price of its PCSK9i product in my February article on Amjevita.
Something similar seems to be stirring in the Humira biosimilar market. SSR Health estimates that Humira’s net price is at least 40% below its list price. But four of the biosimilars have list prices that are 80% or more below Humira’s list price.
It’s therefore not shocking that Mark Cuban Cost Plus Drug Company plans to sell Yusimry for $569.27 plus as-yet-unannounced dispensing and shipping fees. That’s not low enough to create a true cash-pay market—but it’s getting close. It may also tempt at least some plan sponsors to reconsider their addiction to rebates in favor of more straightforward low prices.
On the other hand, a low list price leaves little room for patient copay support and other services. This will benefit AbbVie and other companies selling products at a higher list price. But lower list prices also prevent non-patients—plans, PBMs, and vendors—from absorbing any of that support via copay accumulators, maximizers, and alternative funding programs.
4. Will wholesalers and pharmacies accept lower list prices?
The warped incentives of the U.S. drug channel also make lower list prices unattractive to distribution channel participants.
For example, drugs with lower list prices yield lower revenues and lower gross profits for pharmacies, unless reimbursement metrics are altered to maintain a pharmacy’s profitability.
Consider so-called specialty lite products. These drugs have list prices that are higher than a traditional brand-name drug dispensed by a retail pharmacy, but below the prices typically charged for specialty drugs dispensed primarily by specialty pharmacies. These products have small patient populations that require specialty pharmacy services, so they are not suitable for open distribution via retail pharmacies. However, their list prices do not yield sufficient gross profit dollars to make them attractive to specialty pharmacies.
Changes to wholesalers’ buy-side and sell-side distribution pricing models also disadvantage lower list prices for brand-name drugs. Wholesalers earn much higher distribution service fees from smaller manufacturers than from larger ones. In recent years, wholesalers have increased the fees charged to smaller manufacturers relative to larger manufacturers. (See Section 4.2. of our Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.) Wholesalers have simultaneously reduced smaller pharmacies’ sell-side discounts, which has increased cost of goods for specialty drugs purchased by smaller pharmacies.
Consequently, some smaller manufacturers have begun to bypass the traditional wholesale channel and sell directly to the pharmacies in their specialty networks. Smaller pharmacies often welcome these direct relationships. Consider Coherus BioSciences’ recently-announced direct relationship with specialty pharmacy Superior Biologics for the purchase of Yusimry.
For example, drugs with lower list prices yield lower revenues and lower gross profits for pharmacies, unless reimbursement metrics are altered to maintain a pharmacy’s profitability.
Consider so-called specialty lite products. These drugs have list prices that are higher than a traditional brand-name drug dispensed by a retail pharmacy, but below the prices typically charged for specialty drugs dispensed primarily by specialty pharmacies. These products have small patient populations that require specialty pharmacy services, so they are not suitable for open distribution via retail pharmacies. However, their list prices do not yield sufficient gross profit dollars to make them attractive to specialty pharmacies.
Changes to wholesalers’ buy-side and sell-side distribution pricing models also disadvantage lower list prices for brand-name drugs. Wholesalers earn much higher distribution service fees from smaller manufacturers than from larger ones. In recent years, wholesalers have increased the fees charged to smaller manufacturers relative to larger manufacturers. (See Section 4.2. of our Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.) Wholesalers have simultaneously reduced smaller pharmacies’ sell-side discounts, which has increased cost of goods for specialty drugs purchased by smaller pharmacies.
Consequently, some smaller manufacturers have begun to bypass the traditional wholesale channel and sell directly to the pharmacies in their specialty networks. Smaller pharmacies often welcome these direct relationships. Consider Coherus BioSciences’ recently-announced direct relationship with specialty pharmacy Superior Biologics for the purchase of Yusimry.
We’ve been waiting a long time for the Humira biosimilar market to rise. Now that it’s finally here, let’s see if PBMs and payers can refrain from the rebates that are leavening the gross-to-net bubble.
BONUS: A PRIMER ON REBATE WALL MATH
Here’s a simple mathematical example of how a rebate wall can make a lower-priced product unattractive to a PBM and a payer.
Consider a drug with a $7,000 list price for which the manufacturer and a PBM negotiate a 40% rebate. The net cost to the PBM (ignoring any intermediary fees) would be $4,200 [= $7,000 * (1-40%)].
If a rival product gains formulary access and generates sufficient prescription volume, the manufacturer of the dominant-share product could have negotiated to reduce or eliminate rebates—and perhaps even claw back previously-paid rebates. For this example, let’s assume that the manufacturer has negotiated a lower rebate of 35% once a rival product gets placed on a comparable formulary tier.
A rival product subsequently launches with $6,800 list price and a 50% rebate, i.e., a net price of $3,400 [= $6,800 * (1-50%)]. Since the new product’s net price is cheaper, the PBM should select it, right?
Not so fast. In this example, the original product’s net price rises to $4,550 [= $7,000 * (1-35%)] once the rival product gets formulary placement. Until the rival product gains at least 30% of the prescription volume, the weighted average net price for this two-product category would be higher than it would be if all prescriptions remained with the dominant product.
What if the rival product decided to give its product away, i.e., provide a 100% rebate? In this example, the payer’s average net cost for the category would still be higher—until the free product had a whopping 8% of the market share!
CORRECTION: An earlier version of this article misstated the Amjevita (low WAC) list price discount vs. Humira. In addition, the WAC list price of adalimumab-fkjp is $995, not $1,038.
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