Biosimilars: why deep discounts may become the dominant paradigm

Fig. 1. The overall picture for biosimilars in Europe. Credit: Precision for Medicine

The introduction of biosimilars

is expected to bring significant savings opportunities throughout Europe and the United States. In Europe, biosimilars for growth hormones, blood cell modifiers and autoimmune products have been introduced with varying discounts and success. In the United States, biologics license applications for nearly 20 biosimilar products have been filed with FDA in the autoimmune category alone. Due to molecule complexity and production costs, analysts predicted that biosimilar discounts off-brand would be modest (less than 20%). However, recent events in Europe have shown significantly greater discounts in certain markets, particularly as competition increased. Payers in the US are also under growing pressure to reduce costs and see biosimilars as an opportunity to drive down prices aggressively.

Precision for Medicine, relying on our payer experience and panel of active payers, has come to the conclusion that discounts in the biosimilar market may be significantly deeper than originally expected. We leveraged our European and US market expertise to review current trends and to determine what payers in the US will expect for biosimilars.

Contrary to initial market expectations, Europe is seeing rapid erosion of net prices in several drug categories that are closer to what is typically seen with small molecule generics, where prices can erode by 70—80% roughly six months after loss of exclusivity. [8] The erosion is due to a combination of factors, including increased competition and growing support of biosimilars.

Celltrion’s Remsima was the only approved biosimilar infliximab when Remicade lost exclusivity. Celltrion understood that there would be initial concerns that might slow adoption, including a lack of clinical data for extrapolated infliximab indications, limited biosimilar experience in autoimmune therapy, and lack of customer familiarity with Celltrion. To counter adoption concerns, Celltrion licensed their product to multiple well-known distributors to increase the promotional effort around biosimilar infliximab. [9] Predictably, increased competition resulted in price decreases that have counterbalanced customer reservations, enabling critical initial adoption. By opening up markets to competition, Celltrion can no longer maintain a price floor, a move that may seem counterintuitive as Celltrion was not facing competition from other infliximab biosimilars. Celltrion’s hope is that rapid biosimilar adoption may serve as validation for future biosimilars, and give assurance to other countries that biosimilars are acceptable substitutes for originator products. Biosimilars are still in an early stage, but Remsima and Inflectra have not stumbled at the starting gate, which can be considered a win for Celltrion and supporters of biosimilars.

These European dynamics are another reminder that physicians are not the only stakeholders that can have a major impact on product utilization, and that manufacturers are willing to make sacrifices in the short term for a benefit in the long term. Elements including competition, indication-extrapolation, net pricing, and utilization management led to early infliximab biosimilar success in Europe, and will be important in the United States.

Fig. 2. US payers are bullish on the prospects of biosimilar success and significant savings

Fig. 3. Many payers will be willing to consider authorizing biosimilars for multiple indications

US biosimilar cost expectations

Precision Advisors conducted a survey with payer thought-leaders on the topic of biosimilar market expectations. The survey was conducted using Precision’s proprietary tool Pivot, a smartphone application that alerts respondents of survey availability and allows the respondent to answer the survey entirely on the smartphone. A total of 25 respondents replied to the survey during the two-week open survey period. Respondents were a mix of medical benefit and pharmacy benefit payers, representing more than 100 million medical lives and 200 million pharmacy lives in the United States.

US payers are bullish on the prospects of biosimilar success and significant savings (Fig. 2).

In order to aggressively support biosimilars, however, payers are expecting significant discounts. A total of 56% of respondents expect biosimilars to be priced at a minimum of 20% less than the equivalent brand.

The key driver for payers on biosimilars was cost. Payers stated “lowest net cost” would be the most significant factor in deciding whether to prefer biosimilars or a brand in a category. An approximately equal number of respondents selected between three options: preferring biosimilars at launch, preferring brand at launch until biosimilars have more market experience, and placing biosimilars and brands at parity. Payers indicated that biosimilars would need to meet high discounts in order to gain preferred status. A total of 84% of payers would need more than a 30% discount off brand WAC (wholesale acquisition cost) in order to prefer biosimilars. The required discount was notably higher than the expected market launch price of biosimilars.

Similar to the experience in Europe, US payers did not require regulatory approval for all brand indications in order to prefer the biosimilar. Respondents generally did not feel that a biosimilar would need all the indications of the brand. Brand manufacturers should not expect protection from biosimilar competition simply because the biosimilar lacks a specific indication. The data also implies payers will not resist mandating biosimilars over a brand regardless of indication (Fig. 3).

Actual biosimilar experience in the US is rare, but not absent. In 2007, Omnitrope, a growth hormone approved in part based on data from Genotropin, was launched in the US. Omnitrope share in the growth hormone market was low despite a significantly lower WAC until a large PBM with a conglomerate of health plans chose to prefer sole Omnitrope in the 2009—2010 time frame. [10] Payers preferring Omnitrope did so across all indications, even those for which Omnitrope had not been approved. This PBM and their partnering plans were able to move >70% share, demonstrating the viability of this approach in the US market. This success led other payers to quickly follow suit. Provider resistance occurred at first, but waned quickly. Growth hormone products can now be found on the exclusion lists of major PBMs, indicating that payers perceive clinical differences in products to be minimal and cost to be the deciding factor. [11][12]

Interpretation for marketers

The European experience demonstrates that biosimilar manufacturers are willing to offer discounts in excess of 40% from brand WAC for targeted opportunities. The deeper discounts will not go unnoticed in the US, and health plans and PBMs are already communicating that low net cost will be the most important factor in the upcoming biosimilar market. US payers also indicated that biosimilars, with the right discounts, could attain market dominance in a short time frame.

The tender model and centralized control in European countries encourage and enable biosimilar manufacturers to undercut each other in certain markets by offering large discounts. The transformation of the infliximab market in Denmark and Norway was significant, even as the profitability of such a strategy remains questionable. In the United States, the consolidation of payers and health systems, combined with the rise of exclusion lists, may create similar market dynamics to those seen in Europe.

Payer support of clinical extrapolation, payer willingness to prefer biosimilars, pressure to reduce healthcare costs, and elevated competition means manufacturers in biosimilar markets will face increasing pressure to offer more value. Manufacturers will face increased access risk, reduced gross margins, and longer-term return on investment when deciding whether to enter a market with elevated up-front development and production costs. Understanding who the influential players are amongst health systems and payers in each market will be key to success. Providers may be hesitant to adopt biosimilars, and in markets where providers hold influence, brands may thus retain an advantage. For products with interchangeable biosimilars, the channel of distribution (pharmacy, etc.) may be the influential decision-maker.

Remicade alone generated $6.7 billion globally in 2014, more than any single HGH, EPO or GCF product prior to loss of exclusivity. The revenue potential for biosimilars of monoclonal antibodies and other biologics is relatively large compared to that of products that lost exclusivity in the mid-2000s; competition in the biosimilars market is intensifying. Unsurprisingly, companies traditionally focused on brands are building out biosimilar portfolios, including Pfizer, Merck and Amgen. Biosimilars are being developed by multiple manufacturers for high-grossing drugs like adalimumab, infliximab and etanercept. For many originator products, there will be multiple manufacturers and licensees of biosimilars coming to the table to negotiate with key stakeholders as biologics go off-patent in the next few years.

We foresee two distinct biosimilar strategies emerging for manufacturers. On one end stands the branded company that offers biosimilars, either alone or through partnerships, to round out its offerings strategically. This competitor likely derives its profits from select brands in each disease space, and may use the patent-protected brand portfolio as a leverage point against payers and health systems that attempt to prefer biosimilars to a brand that has lost patent protection. On the other end is the biosimilar specialist that offers a large portfolio of biosimilars. This type of player is focused on volume and scale to drive its profitability. Both player types may utilize partnerships to expand the portfolio and market reach. The benefits of partnerships are spread risk and combined efficiencies. The risks of a partnership are sharing revenues and, potentially, reduced profit margins. Portfolio plays in both camps are likely, and strategies may unfold at a country, health plan or even IDN/hospital level.

The success of a biosimilar is primarily impacted by a combination of the business model of the manufacturer, payer behaviors and the level of competition. Customer segmentation and risk assessment will be vital components to any manufacturer’s strategy. Manufacturers will need to prepare market access strategies that account for these elements while still allowing them to capture value, and to provide value to payers.

Early biosimilar predictions had discounts at a modest level due to high manufacturing costs and limited competition. Analysts also predicted payer/provider reservations in supporting biosimilars. European experiences in infliximab and a polling of US payer motivations have shown that biosimilars will be supported, for the right price—a price biosimilar manufacturers appear willing to meet. Manufacturers will need to consider strategic approaches that include deep discount scenarios and differentiators that play a pivotal role in a product’s value proposition, such as patient support programs, prior authorization assistance tools and market reputation.

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