Last Friday the US Food and Drug Administration approved the use of the first biosimilar product in the United States. The approval was granted through the new FDA biosimilars pathway to Sandoz, a Novartis company, for Zarxio, a copy of oncology drug Neupogen. Oliver Wyman’s Health & Life Sciences Managing Partner Terry Stone joins with colleague and pharma expert Jeff Hewitt to explain why this is the start of a new era for the high-priced biologics market:
Specialty pharmaceuticals are projected to be consumed by just 2% of the population but drive 50% of all drug spend by 2020. As a result, the cost of specialty drugs and how best to serve the needs of US consumers is one of the biggest challenges facing US health insurers and providers. We’ve heard repeatedly from healthcare CEOs and America’s Health Insurance Plans representatives that the objectives of providing access to the latest in specialty drug therapies and keeping overall healthcare costs more affordable are increasingly incompatible. This challenge is putting pressure on pharma to demonstrate greater value and impact on total cost of care. Other countries like the UK, with centralized healthcare, have oversight agencies charged with determining the true value of emerging therapies.
In the US, one response has been the passage of the Biologics Price Competition and Innovation Act as part of the Affordable Care Act. The law created an abbreviated licensure pathway for biological products shown to be “biosimilar” to or “interchangeable” with an FDA-licensed biological product, called the “reference product.” This abbreviated licensure pathway permits reliance on existing scientific knowledge about the safety and effectiveness of the reference product, and enables a biosimilar biological product to be licensed based on less than a full complement of product-specific preclinical and clinical data. The FDA’s approval of Zarxio (filgrastim-sndz) is based on review of evidence demonstrating that it is biosimilar to Amgen’s Neupogen, which is used in the treatment of patients at increased risk of neutropenia. The condition results from an abnormally low count of white blood cells that help fight off infections and can be caused by cancer, bone marrow damage, and cancer treatments such as chemotherapy.
While still expensive to produce, biosimilars are expected to be measurably less expensive than their patented counterparts. Noted Dr. Louis Weiner, chairman of the department of oncology and director of the Lombardi Comprehensive Cancer Center at Georgetown University, in a statement: “Filgrastim has proven clinical value in treating patients at increased risk of neutropenia, but it is underused in the US for a variety of reasons, including price. Biosimilars have the potential to increase access and the approval of Zarxio may reduce costs to the healthcare system. The comprehensive data set supports its use in clinical practice.”
With the FDA’s—and Novartis’—move on Zarxio, the question now is, “How will biosimilars add to the seemingly unrelenting price pressure on pharma?” – Oliver Wyman
With the FDA’s—and Novartis’—move on Zarxio, the question now is, “How will biosimilars add to the seemingly unrelenting price pressure on pharma?” Considerations for how the biosimilar market will play out include:
- Will physicians feel comfortable prescribing biosimilars? Industry watchers will recall the Eprex safety problems.
- Will there be price wars similar to what we saw with Sovaldi or will the market look like Europe?
- How will biosimilar companies engage physicians and patients? Will they offer supportive services that make the product easy to use?
- Will biosimilar companies be able to assure stakeholders of their manufacturing quality and reliability?
Most analysts expect the market will look like Europe: slow uptake and 15%-30% discounts. While it’s certainly possible, even likely, that the US will follow Europe, we believe that a scenario of more aggressive competition is reasonable given the following trends:
- What is to say that biosimilars will behave differently than the recent aggressive price contracting in the Hepatitis C market? With increasing pressure on health insurance companies to lower price, why wouldn’t they leverage “winner takes all” formulary access trends?
- With consumers increasingly choosing on price, why wouldn’t formularies be constructed with a “biosimilar first” step-edit?
- As biosimilar companies are positioning their products as high-value offerings, why wouldn’t they leverage wrap-around service offerings to differentiate?
- How will biosimilar manufacturers create advantage in a not-quite-brand but not-quite-generic market? How will biosimilar manufacturers select and monitor the most relevant set of patient-reported outcomes to create advantage? Will they put together innovative pricing agreements to avoid a race to the bottom? Will they take new approaches to commercialization—including who they target and what they offer?
The answers to these questions need to factor in the different economic incentives in the US market as compared to Europe. Players that accept the conventional thinking and don’t plan for the “aggressive competition” scenario will be highly disadvantaged if this indeed comes to pass.