Biosimilars Ready, At Last, To Make Their Entrance: Stars Are Born or Do They Fizzle?

So far the discounts are meh. Physician and patient acceptance, not the usual bag of tricks, may determine market share and ultimate effect on prices.


All things considered, last year was a pretty good one for biosimilars in the United States and those who hope that the copycat products could help tame American drug expenditures. The FDA has approved biosimilars of three of the top 10 selling brand-name biologics: Humira, Remicade, and Enbrel. Those approvals helped alleviate concerns about the twists and turns that might be lurking in the FDA approval process, and biosimilar developers heaved a sigh of relief that the agency seems to be living up to its assurances about taking a consultative approach and working with developers across all stages of development. Only time will tell what the Trump administration will do in this area, but a strong biosimilar market would seem to be consistent with the president’s statements that drug prices are “astronomical” and “we have to do better.”

FDA-approved biosimilars
Biosimilar Sponsor Approved Original biologic
Zarxio (filgrastim-sndz) Sandoz 03/06/2015 Neupogen
Inflectra (infliximab-dyyb) Celltrion/Pfizer 04/05/2016 Remicade
Erelzi (etancerpt-szzs) Sandoz 08/30/2016 Enbrel
Amjevita (adalimumab-atto) Amgen 09/23/2016 Humira

But let’s not get carried away. The future of biosimilars in this country is nothing if not uncertain. Most immediately, the U.S. Supreme Court is hearing a case that will determine the timing of the 180-day waiting period before a biosimilar can go on the market (see “Biosimilar Makers Hope Court Starts 6-Month Wait Sooner,”). But there are larger and longer-term issues at play that will determine whether biosimilars live up to their billing as worthy successors to generics and the disruptive effect they had on the market for—and pricing of—conventional, small-molecule drugs or fade back into the pack as undistinguished additions to the world’s medicine cabinet.

How much cheaper?

There are some important differences between generics and biosimilars—differences that should tether the runaway optimism about biosimilars. For one thing, the development time and costs differ greatly. Typically, it has taken three to five years and costs between $1 and $5 million to develop the generic version of a small-molecule drug. For biosimilars, it may take eight to 10 years and cost hundreds of millions of dollars, according to Gillian Woollett, senior vice president with Avalere. Because the development costs are low, small-molecule generics, with multiple entrants, have been launched at a fraction of the price of their brand-name competition.

So, for a long time, competing on price wasn’t really an option for the branded drugs; they’d lose every time. Automatic substitution, which, subject to state law, allows the pharmacist to substitute a generic for branded drug without consulting the physician, was another boon that helped generics capture 80% or more of the market in a hurry. The generics market has changed in recent years because large makers like Teva have acquired rivals and the diminishing number of drug-distribution channels. As a result, prices have risen and payers have winced; generics aren’t the surefire bargains that they once were.

It’s still not clear whether doctors and patients will accept biosimilars as bona fide replacements for brand-name biologics, says Steven Avey of MedImpact.

Whether the biosimilar narrative follows the example of generics in their salad days is an open question. Payers should be able to wield considerable influence and have leverage in negotiating prices with biosimilar sponsors trying to gain a foothold and the companies with the original biologics maneuvering to retain market share, says Steven Avey, a vice president at MedImpact, a PBM in San Diego. But Avey also notes that biosimilars are so new in this country that it’s still unclear whether doctors and patients will accept them as bona fide replacements for brand-name biologics. So far, with only single entrants, it seems like they will be priced between 15% and 20% lower than their brand-name rivals. That is not nothing, especially given the high price of many biologics, but it’s short of the big bending of the cost curve that many were hoping for. Two years ago, Sandoz launched filgrastim-sndz, sold as Zarxio, at 15% below the price of Amgen’s Neupogen, which stimulates the production of white blood cells. Late last year, Pfizer said it would be pricing Inflectra so it’s 15% cheaper than the brand-name drug it’s copying, Johnson & Johnson’s Remicade, an anti-inflammatory drug with U.S. sales in the billions.

Global sales of biologics ($ millions)

Sources: Deloittte, Generic & Biologics Institute, IMS Health
Top Line Data

These discounts don’t tell the whole pricing story, however, which includes rebates that the biosimilar makers may be offering that will further lower the cost to payers. But Avey says biosimilar rebates and their discounted prices may not have as much impact on sales as they have with other medications. Especially early on, payers are unlikely to exclude brand-name biologics from their formularies, he explains. They won’t want to risk forcing doctors to switch stable patients to the biosimilar. Because their products are likely to stay on the formulary, the brand-name makers will have time to respond to the competition from biosimilars and hang on to market share by going toe-to-toe on price, and match the biosimilar discounts and rebates. Of course, if heated competition breaks out, that could mean better deals for payers.

Other contracting strategies commonly used by drug companies may also not work as well for biosimilars. For example, manufacturers often negotiate discounts and rebates for several drugs together. That way they can trade off discounts and rebates for one drug to maybe gain a competitive edge for another one that may be more profitable. It may not work because drug manufacturers have placed biosimilars in separate divisions that are expected to stand on their own financially. Pfizer has its separate Hospira division, Novartis has Sandoz, and Amgen has Amgen Biosimilars. Drug companies may think it is too risky to pay a high rebate and reduce profits for a successful product in exchange for a lower rebate on an unproven biosimilar.

The Norway way

Will the biosimilar discount get stuck in the 15%–20% range? That will depend, in part, on the relationship of price to market share. In Europe, the “rule of 30” has emerged where a 30% discount is associated with achieving 30% market share, but Rob Jacoby, a principal at Deloitte, says there is great variation in that rule of thumb across countries and medicines.

In Europe, a 30% market share for biosimilars goes hand-in-hand with a 30% discount, but that’s a just a rule of thumb, says Rob Jacoby of Deloitte. In reality, there is a lot of variation.

If you are hoping that biosimilars will have a big impact on drug expenditures, you might look longingly at Norway. The Norwegian drug-procurement agency is responsible for organizing purchasing for medications used in state-run hospitals. As part of that process, physician panels evaluate medications from both a clinical and cost perspective and make treatment recommendations to practicing physicians. The drugs that the agency picks are assured a dominant market share, so the agency is in a strong position to bargain for steep discounts. As a result, a biosimilar version of filgrastim used in hospitals is discounted by 89% relative to the brand-name product and up to 50% when it is used in clinics and doctors’ offices outside the hospitals. Similarly, the Norwegian drug procurement agency got a 30% discount on the Humira biosimilar in 2014 and, a year later, it increased to 69%.

But Europe-to-U.S. health care comparisons are almost always apples to oranges, and Norway to the United States is not even in the same food group. As Jacoby notes, the experience in Europe almost certainly will not translate to the United States because European governments have far greater control over price negotiation, purchasing, and the utilization of medicines.

Yet biosimilar developers will be out in the market aggressively pursuing contracts with payers, says Richard DiCicco, CEO of Harvest Moon Pharmaceuticals, a generics and biosimilar company in Falls Church, Va. DiCicco, a recognized leader in the small, insular world of biosimilar development, says that Sandoz offered to let Kaiser Permanente name its rebate for Zarxio in exchange for trying to convert its entire filgrastim volume to the biosimilar. That gutsy approach may have worked: The website Biosimilar Development recently quoted a Kaiser executive as saying that Zarxio has captured up to 95% of Kaiser’s filgrastim volume.

Not just some knockoff

For many medications, market share and discounts often go hand-in-hand and this may be especially true for biosimilars. Norway and Kaiser, with their centralized systems for managing the use and purchase of medications, may be misleading when it comes to market share. The American health care system is a crazy quilt of interests and agendas, and the market share for biosimilars will depend heavily on the acceptance of biosimilars by patients and physicians—perhaps especially physicians. Most biologics are administered by physicians rather than sold through retail pharmacies, and injection and infusion gives the physician direct control over which medication is used. Buy-and-bill incentives also factor in. So even if a biosimilar is deemed interchangeable by the FDA and can be substituted for a brand-name product without a physician’s OK, that designation may have less impact than when medications are pills dispensed by retail pharmacists or ordered by mail. Similarly, the benefit-design bag of tricks—tiering, copayments, deductibles—may not have as much influence as it does for small-molecule generics. The same goes for the formularies and utilization management that payers use to nudge—and sometimes push—medication choices in a certain direction.

So many industry observers believe that physician and patient comfort level is going to be crucial to the market share for biosimilars—and that comfort level is going to hinge, to a large extent, on whether biosimilars live up to the similar in their name. They are not called bioidenticals for a reason (in fact, no biologic is precisely identical to itself over time, either). These medications come from cell lines, and the cell lines of the brand-name products are not the same as those used by biosimilar makers. The FDA approval process takes the variability into account with “goalposts” that set the range of acceptable difference. But practicing physicians know well that there is some inconsistency even in the brand-name biologics, depending on which batch a particular dose is from. And, occasionally, that variation has clinically meaningful consequences—the medication is less effective than expected or causes unanticipated side effects.

Even those who want to see a big market for biosimilars expect American physicians to be wary. Just how wary will depend on the medication, the disease, and the physician’s experience with biologics. The bar may be set especially high for the oncology drugs because of the seriousness of the disease, the cost of the medications, and the wide variation in the efficacy and safety of the medication across patients. It’s in this context that a designation of interchangeability by the FDA may really matter and not, so much, actual substitution. The FDA interchangeability designation, which will be applied to products already approved as biosimilars, will send a signal that the biosimilar is as safe and effective as the brand-name drug and not just some cheap knockoff.

Patent expiration US EU
Humira (adalimumab) 2016 2018
Lantus (insulin glargine) 2014 2014
Enbrel (etanercept) 2028 2015
Remicade (infliximab) 2018 2015
Rituxan (rituximab) 2016 2013
Avastin (bevacizumab) 2019 2022
Herceptin (trastuzumab) 2019 2014
Copaxone (glatiramer acetate) 2014 2015
Neulasta (pegfilgrastim) 2015 2017

Peaked already?

The FDA is requiring biosimilar developers to conduct at least one study of people who switch from the referenced branded product to a biosimilar as part of the initial approval of the biosimilar. Even so, initially, biosimilars are likely to be used mainly for patients starting treatment on a biologic, say industry observers. Physicians will be reluctant, they believe, to switch patients from a brand-name drug to a biosimilar if the brand-name drug has been working.

To overcome that reluctance, biosimilar developers and payers are starting to sponsor studies designed to show that switching is safe. Mundipharma, a British pharmaceutical company, announced the results of one such study late last year. The NOR-SWITCH trial was designed to assess switching from brand-name Remicade to Remsima, the Remicade biosimilar sold in Europe that is made by Celltrion, a South Korean company. After a year, Remsima was shown to be not inferior to Remicade for adults who had been stable on Remicade for at least six months. The study included people with rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis, psoriasis, adult and pediatric Crohn’s disease, and adult and pediatric ulcerative colitis.

The excitement about the dammed-up biosimilar market finally opening up in the United States is dampened somewhat by the possibility that current market conditions are at a high point and may diminish in future years. The patents for a number of the first-generation blockbuster biologics have expired or are about to. The absence of new blockbuster biologics coming down the line may mean fewer and shorter coattails on which to ride.

Tortuous path to market makes development costs uncertain

It is difficult to gauge how low biosimilars might be priced relative to their brand-name rivals—and the savings that could result—partly because the figures given for development costs range so widely. Some experts put them at between $200 and $600 million. Others say that is an exaggeration.

“The cost of developing a biosimilar has never been $100—$200 million—never!” says Richard DiCicco, CEO of Harvest Moon Pharmaceuticals in Falls Church, Va., and a well-known figure in the small world of biosimilar developers. Some industry analysts advise caution about DiCicco’s estimates, noting that his company has yet to put a biosimilar across the finish line and on the market. But DiCicco insists that biosimilar costs usually range from $50 to $60 million, which includes about $20 million for the analytic and phase 1 trials and another $40 million for other trials. Moreover, says DiCicco, manufacturing costs are low. The active pharmaceutical ingredient for a biologic commonly costs about $10. The costliest part of manufacturing is the last stage of fill and finish, which can average $30 to $35, putting the total manufacturing cost of a biologic vial or syringe pack below $50. Typically, they are priced in the $300–$400 range, so there is ample room for profit.

There’s no easy way to resolve the difference in DiCicco’s estimation of development costs and those that are much higher. The lower range is possible in countries with fewer regulations and if minimal animal or phase 3 studies are necessary. But the path of biosimilar development can be tortuous.

The biosimilar for Rituxan is a prime example. In 2009, Teva Pharmaceuticals formed a joint venture with Lonza to develop a biosimilar to Rituxan. Development progressed through the early stages, but in 2012 the company announced that it was halting phase 3 testing of its candidate. In the same month, Merck also halted its Rituxan biosimilar effort. Celltrion, the South Korean biosimilars company, was also a competitor in the Rituxan biosimilar race, and its copycat also ran into problems. The company pulled the plug on a planned phase 3 study in 2013. Behind the scenes, though, Celltrion kept at it. In November 2015, Celltrion submitted its application for a Rituxan biosimilar, dubbed Truxima, to the European Medicines Agency. And late last year, a partnership between Celltrion and Teva was announced to pursue FDA approval for a Rituxan biosimilar using Celltrion’s Truxima rather than trying to resurrect Teva’s former product. Teva is reportedly paying $160 million up front to Celltrion to get back into the Rituxan biosimilar game and for work on a biosimilar for Herceptin.