Benjamin reviews the growing trend of PBMs vertically integrating into the production of biosimilars. He shares data from an MMIT survey of 20 large national payers, independent plans, Blues affiliates and PBMs (excluding participants). The findings shed light on payers' view of biosimilar conpetition, contracting challenges, and other issues.
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Read on for Benjamin’s insights.
When Payers Become Producers: Inside the PBM Private-Labeling Trend
By Benjamin Hinton II, Senior Market Access Solutions Analyst, MMIT
Adding a manufacturing arm brings undeniable advantages for PBMs, from better cost control to smoother supply chain dynamics. Payer-production entities can align an entire product distribution chain in their favor, excluding competitors and preferring their designated agents.
But how will these integrated powerhouses impact the industry?
To learn what payers think of this trend, the MMIT Index team conducted primary research with 20 large national payers, independent plans, Blues affiliates and PBMs (excluding participants).
THE BIG 3 BEGIN BIOSIMILAR PRODUCTION AND PROCUREMENT
In August 2023, CVS Health launched Cordavis, a subsidiary that co-produces biosimilars with manufacturers, beginning with Sandoz’s Humira biosimilar (Hyrimoz). The company’s PBM, CVS Caremark, removed Humira from commercial formularies in April 2024, replacing it with a private-label Cordavis Hyrimoz, Sandoz’s Hyrimoz, and Sandoz’s unbranded adalimumab-adaz. As a result, Sandoz now controls 13% of the anti-inflammatory market, while the eight other Humira biosimilar manufacturers share less than 5%.
The Cigna Group’s Evernorth Health Services followed suit in April 2024, announcing the production of a $0 copay Humira biosimilar via its subsidiary Quallent Pharmaceuticals, a private-label distributor. Alvotech and Teva Pharmaceuticals will manufacture a Humira biosimilar (Simlandi) for Quallent distribution, as will Boehringer Ingelheim (Cyltezo). Express Scripts by Evernorth, Cigna’s PBM, will doubtless take the same approach as CVS Caremark, excluding Humira and preferring Simlandi and Cyltezo.
A third payer/PBM is evidently joining the game, as UnitedHealth Group’s PBM OptumRx is preparing to launch NUVAILA, a biosimilar procurer and private-label manufacturer. While none of these entities have yet announced their plans for expansion beyond adalimumab, biosimilars for Johnson & Johnson’s psoriasis drug, Stelara, are a likely target, as are biosimilars for Regeneron Pharmaceuticals’ eye treatment, Eylea.
PAYERS EXPECT ACCELERATED BIOSIMILAR ADOPTION
Most MMIT Index survey respondents (60%) believe these new entities will have a positive impact on biosimilar competition, increasing access, improving innovation, and reducing out-of-pocket costs. According to one pharmacy director, “More players in the market can lead to increased production capacity and distribution channels, making biosimilars more accessible to a wider patient population. Collaboration between different entities can contribute to more harmonized regulatory standards…reducing time-to-market for new biosimilars.”
A minority (10%) disagreed, with some lamenting the unnecessary layer of complexity, and others saying drug prices are unlikely to drop due to PBM profit-sharing. Overall, respondents think the creation of additional payer-distributor/manufacturer partnerships is likely (see Figure 1).
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Notably, 65% of respondents reported they were likely to pursue a relationship with a PBM that offers benefits like a $0 copay. As one pharmacy director explained, “Their services are less expensive than others, and their purchasing economics cannot be matched.”
PAYERS WORRY ABOUT ADDITIONAL CONTRACTING COMPLEXITY
Nonetheless, many respondents expressed unease about market saturation. As one pharmacy director said, “This is a new level of the rebate/exclusivity game. There are other drugs going biosimilar soon, and this might limit the number of players in the market because they won't get traction without white labeling.”
Greater contracting complexities are also a concern, with one pharmacy director noting that this trend creates “challenges for medical benefit related to ASP erosion and perverse provider incentives, as their reimbursement is tied to ASP.” Some believe that manufacturers bypassed by the biosimilar market might reduce rebating for their other medications.
Payers also shared fears about pricing and access, with one pharmacy director stating that “gaining access may be a challenge with different PBM relationships,” and another writing that there will be an “additional layer of competition if PBMs only cover their house brand products.”
FDA PROMOTES AN EASIER PATH TO INTERCHANGEABILITY
To complicate matters, interchangeability will no longer be an immediate differentiator for biosimilars, as the FDA recently updated its guidance. While manufacturers were previously required to complete a switching study, the agency will now rely on analytics tools to determine interchangeability.
This should simplify the process for manufacturers, as they now need only to formulate the molecule and submit a BLA application to prove that a drug is molecularly the same as the reference product. (Adalimumab biosimilars without interchangeability status can apply for a label expansion.)
If the payer-producer trend continues, smaller manufacturers will need to seek payer/PBM alliances to secure market penetration before a drug is in development. Manufacturers will need to be strategic about which areas to pursue depending on the viability of a partnership.
GOVERNMENTAL PUSHBACK ON EXCESSIVE VERTICAL INTEGRATION
Payers are not alone in being worried about PBMs’ stranglehold on the market. In the 1990s, the first manufacturer/PBM integrations (Merck-Medco and Eli Lilly-PCS) were challenged by the FTC for violating antitrust laws. To ensure drug parity, the government required these conglomerates to have open formularies—a move which ultimately led to divestitures.
Since then, PBMs have continued to amass power, largely unchecked. But in early 2023, the House began investigating PBMs’ anticompetitive behavior, and a July hearing questioned the business practices of Optum Rx, Express Scripts and CVS Caremark. With the focus on curbing drug prices, it seems only a matter of time before the government weighs in on the legality of payers private labeling their own drugs and excluding competitors’ products.
Regardless of what the future holds, biosimilar manufacturers will need to prioritize early market access planning to ensure utilization. As interchangeability becomes more of a given, differentiating a biosimilar from its competitors will require a smart marketing strategy to demonstrate its value to patients, providers, and payers—as well as their production arms. As one pharmacy director put it, “Adalimumab provides an excellent case study: partner or languish. The market share data tells a compelling story.”
Need help with early market access planning for your biosimilar? Develop a strategic approach with MMIT’s Custom Market Research.
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