Patients and payers have been anxiously awaiting approval of the first “biosimilar” medicines in the United States, hoping the new biologics will lower the cost of these often lifesaving treatments.
But early statements from makers of the first of these drugs likely to reach the market indicate that the company expects to launch its biosimilar at parity with the brand-name drug, a decision which would disappoint patients, policymakers, and payers, including Medicare.
The FDA is expected to soon approve Zarxio, a drug that is biologically similar to Amgen’s Neupogen which is injected as part of the treatment for cancer patients receiving chemotherapy, for patients with abnormally low counts of white blood cells, and other indications.
Zarxio is a product of Sandoz Biopharmaceuticals which already sells its Neupogen biosimilars in more than 40 countries outside the United States.
Mark McCamish, Sandoz’s global head of biopharmaceuticals and oncology injectables development, recently told a Food and Drug Administration panel that sometimes the product might be priced “at parity,” but that overall Zarxio would save the system money through rebates or other mechanisms.
“The cost will be less, to the consumer, to the payer, to the healthcare economy — otherwise it doesn’t make sense,” he told the panel.
Other Neupogen biosimilars are in the pipeline, and the “other mechanisms” that could drive down the price could well be free market competition. Experience with pricing of Gilead Hepatitis C drug, Sovaldi, is instructive.
Gilead introduced its breakthrough drug Sovaldi – a cure for Hepatitis C – in late 2013, launching it at a cost of $1,000 a pill, which led to a great public outcry over the price. At $1,000 a pill, a full course of treatment cost $84,000. Gilead later introduced Harvoni, a pill combining Sovaldi with another treatment.
Another firm, AbbVie Inc., launched its Viekira Pak treatment for Hep-C late last year. Since then, it has battled Gilead for market share by offering discounts to insurers and other group payers. Gilead recently disclosed that its discounts will average 46 percent this year, much deeper than analyst expectations of 25 to 30 percent.
Competition escalated when Merck announced in June it was buying Idenix Pharmaceuticals Inc. and combining the two companies’ most promising Hepatitis C drugs to produce a faster, more effective cure. They are on an expedited path for FDA approval.
The model of lower prices for innovative drugs can also work in the biosimilar space. Manufacturers already negotiate and make concessions with private health insurers to get discounted prices. But administration officials are ever-ready with their price control anvil.
The latest White House budget says the administration is “deeply concerned with the rapidly growing prices of specialty and brand name drugs.”
Biosimilars are clearly on the radar screen. The president’s budget also calls for cuts in intellectual property protection for biologics from 12 years to seven – a huge hit for the industry – as well as slashing Medicare payments for physician-administered drugs.
Zarxio is the first biosimilar to be reviewed and likely approved in the U.S. under new policies created by the Patient Protection and Affordable Care Act (PPACA). The policies allowed the FDA to create an abbreviated pathway for biosimilars, which are similar to already-approved biologics medicines, to expedite approval and eliminate many of the expensive and time-consuming trials the FDA generally requires.
Biosimilars have reduced healthcare costs in some European countries by creating competitive pricing, and payers, patients, and policymakers are expecting a similar impact in the United States. Some models have predicted price reductions at 20-30% in the U.S. A RAND Corporation analysis estimates that introducing competing “biosimilar” drugs used to treat illnesses such as cancer and rheumatoid arthritis could reduce spending on biologics in the United States by $44 billion over the next decade.
Biologics are complex-molecule pharmaceuticals generally administered by physicians. U.S. law defines biosimilars as highly similar to a reference product with no clinically meaningful differences. Biologic drugs are living organisms and therefore cannot be copied in the same way that generic versions of small molecule drugs can. Therefore, PPACA created a new pathway for the FDA to review and approve biologic drugs that are “similar” to the original, allowing the FDA to rely on existing efficacy and safety data.
“We’re not showing safety and efficacy; that’s been shown for the established drug. We’re looking for biosimilarity,” Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research, said during an FDA panel review in January.
The FDA’s Oncologic Drugs Advisory Committee unanimously recommended approval of Sandoz’ biosimilar in its January meeting, approving Zarxio for all of the indications of Neupogen. Final FDA approval is expected in March.
Sandoz was able to use data from patient experience in nearly 40 other countries in its application to the FDA to gain approval without going through the long, laborious, and expensive process of conducting traditional clinical trials.
The FDA doesn't’ consider the cost of a drug, but the issue was raised during the January meeting. Consultant Louis Weiner, chairman of the Georgetown University Medical Center Department of Oncology, suggested during a presentation on the clinical perspective for biosimilar use that the products would lower costs and spur competition.
News reports quoted James Liebmann, a member of the advisory committee and an assistant professor at the University of Massachusetts Department of Medicine, as asking Sandoz officials directly: “Is the consultant correct? Would this really bring down cost?”
Experience with Sandoz’ product in Europe – where it was approved for marketing in 2009 – showed that costs did fall.
“There has been a substantial increase in the use so we are addressing access, and there has been a substantial reduction in cost because of the competition that’s there,” said Mark McCamish, MD, PhD, Sandoz global head of biopharmaceuticals and oncology injectables development.
But Liebmann pushed for a more direct answer, saying European pricing models are different from the U.S. and may not be relevant.
“The point of my question was that I was hoping that the sponsor would address it,” he said. “You could simply say ‘Yes we’re going to price it less than Neupogen.’ And if you’re honest that would be delightful.”
McCamish, clearly surprised that the issue of pricing was raised, said mechanisms in place such as rebates will help save patients and payers.
“Let me say we cannot say that the price [of Zarxio] would be less [than the brand name drug]—in some situations it might be a parity because of other relative terms that will come into existence…but the cost will be less to the consumer, to the payer, to the healthcare economy—otherwise it does not make sense,” McCamish said.
A Sandoz spokesperson told us, “Based on our experience in other markets, we believe the introduction of biosimilars will increase competition into the market and help lower overall costs. We have seen this in other markets in which we operate.”
Medicare is a major purchaser of Neupogen, and officials there also are expecting prices to fall with introduction of the biosimilar. Under Medicare’s payment system, established physician-injected drugs like Neupogen are paid based on a market-based payment mechanism (which includes discounts and rebates).
If Zarxio is priced at parity with Neupogen’s list price at launch, as suggested by Sandoz’s McCamish, the biosimilar would actually cost Medicare and its beneficiaries approximately 12 percent more than the innovator product because of Medicare’s complex payment system. Sandoz will likely argue that savings will accrue to the Medicare program over time, but the launch price is likely to get attention from critics who are ready to seize any opportunity to renew calls for price controls.
Because biosimilars have reduced healthcare costs in other countries by creating competitive pricing, a similar impact is expected in the United States. During this highly scrutinized time of drug pricing, the risk is that disappointed public officials could respond in an irrational way with some new version of price controls if the promise of savings on biosimilars doesn’t materialize.
The Manhattan Institute’s Paul Howard expresses similar concerns in his latest column for the Morning Consult:
Two United States senators, Oregon Democrat Ron Wyden and Iowa Republican Chuck Grassley, even sent a letter to Gilead demanding an unprecedented amount of information on the company’s internal pricing methodology, development budgets, and marketing. The senators write that Sovaldi’s pricing “has raised serious questions about the extent to which the market for this drug is operating efficiently and rationally.”
The letter appears to have been intended as a warning to the entire industry against charging “too much” for its new drugs; it threatens greater government interference in drug-pricing decisions if prices aren’t reduced to a level more to the senators’ liking.
The answer is more competition, not more price controls.
