The US Prescription Drug Market Lacks Certain Competitive Features: Case of Biosimilars

In a legal decision announced yesterday, August 2, 7th Circuit Federal Judge Frank Easterbrook, affirmed the rejection of the claims challenging AbbVie’s “Humira patent” (adalimumab). Conversely, the judge specifically questioned whether there was anything “wrong [a product having] According to Easterbrook’s reasoning, building a patent fortress to fend off competition in perpetuity is fine as long as the patents are legal.

This argument ignores, however, the antitrust implications of drug makers using the patent system to prevent competition. It was clearly not the intent of the Hatch-Waxman Act or the Biologics Price Competition and Innovation Act.

Furthermore, the problem of anti-competitive practices is not limited to the behavior of pharmaceutical companies. A regularly heard talking point is that follow-on drugs, such as biosimilars and generics, will lower prices through competition.* But, they don’t always do that. Payers and pharmacy benefit managers (PBMs) may prefer more expensive products over similar or even bioequivalent versions that are cheaper. Perverted financial incentives they are often “roasted in the US drug channel”. namely the pharmaceutical supply chain.

In a statement on June 17^u, the recently appointed commissioner of the Federal Trade Commission, Alvaro Bedoya, said that in a “competitive market, companies compete for lower prices. However, PBMs can completely exclude low-cost generics and biosimilars from patient formularies to maximize rebates and charges. Such practices violate the fundamental agreement at the center of the American prescription drug system, which is that brand-name drugs are given a period of patent exclusivity followed by free and fair competition from generic or biosimilar alternatives at dramatically lower prices.”

In general, competitive markets have numerous sellers and buyers, all of whom have relevant information to make rational decisions about the products that are bought and sold to businesses. There is market (information) transparency and companies can freely enter or exit the market. Of course, very few markets are perfectly competitive. But in a properly functioning capitalist economy, most markets for most goods exhibit a high degree of competitiveness.

However, the prescription drug market exhibits multiple suboptimal features, such as anticompetitive practices by drug manufacturers and payers, information asymmetry, barriers to entry, and opacity.

Here, we’ll look at one area where the US market is sub-optimizing: Biosimilars. A later article will look at cancer drugs.

Next year, Humira (adalimumab) will permanently relinquish its monopoly in the U.S. Originally, the biologic was set to lose its patent in 2018. But a court battle in 2017 led to a settlement in which biosimilars could not start by 2023. And so, despite being approved by the Food and Drug Administration (FDA) in recent years, six adalimumab biosimilars cannot be released due to a “compromise” agreement reached between AbbVie and the biosimilar manufacturers. By 2023 there could be one additional four biosimilars that compete with Humira.

Meanwhile, in Europe, Humira-listed biosimilars have already been on the market for four years. Within a year, adalimumab biosimilars had over 50% of the market share in Germany. And now, in many European markets, biosimilars have more than 85% market share. In Denmark, adalimumab biosimilars captured 95% of the market share almost immediately after Humira’s patent expired in October 2018. Even in the large, less regulated German market, within months biosimilars had captured 50% of market share. This is due to the dominance of bidding in Europe, where there is usually a competitive bidding process where the product with the lowest cost wins.

In the US, adalimumab biosimilars are not expected to capture nearly the same market share as in Europe. Accordingly, the US is also unlikely to see some of the major landscape changes in Europe when Humira biosimilars first appeared there.

Part of the reason is that unlike in Europe, biosimilars are not necessarily favored by payers in the US, despite their lower costs.

For example, consider the three largest U.S. pharmacy benefit managers (PBMs) compounding of Remicade (infliximab) and its biosimilars: Renflexis, Inflectra, and Avsola. The CVS Caremark pharmacy benefits manager includes the original Remicade product in the formulation but excludes all three biosimilars. Meanwhile, Express Scripts recommends Inflectra but excludes the maker Remicade as well as Renflexis and Avsola. OptumRx prefers Avsola and Inflectra, but excludes Remicade and Renflexis.

And so while biosimilar manufacturers Biocon and Viatris have made significant progress in the European market, traction in the US market is proving very challenging. Indeed, in a strange twist, even after getting the coveted interchange status for the biosimilar Lantus (insulin glargine), Viatris had to release two versions of the interchange product, Semglee: One at a 65% discount and one at a very higher price in order to gain market share. High discounts are the culprit, as instead PBMs often prefer the highest priced product.

In Europe, Amgen was one of the first companies to launch a biosimilar product called Humira. An Amgen management representative told an investor conference in December 2021 that the company is confident in its ability to repeat the book from the Humira biosimilar experience in Europe when it launches a biosimilar in the U.S. At the same time, Amgen recognizes AbbVie’s “incredible discounting momentum as a significant barrier to adoption by many customers.” This is a general way of saying that it recognizes that AbbVie may engage in anti-competitive practices as it works with PBMs and payers to block the adoption of biosimilars.

What is not clear is how therapeutic interchangeability will affect biosimilar uptake. It stands to reason that adalimumab biosimilars that have FDA therapeutic interchangeability designation will get a boost. But, as usual, the caveat is pricing and discounting. To maintain market share, the originator may heavily discount its product to maintain a preferred position in the formula or even shut out competitors altogether.

This leads us to question the hypothesis behind a study by a team of researchers at the American Enterprise Institute. They used the example of biosimilars as a lesson to offer evidence that organic producers “charge market prices”. Specifically, they collected data to test whether Medicare drug price “regulation” would lead manufacturers to compensate by increasing revenue from the unregulated commercial market. Obviously, setting prices involves forcing negotiations with Medicare for certain drugs.

They looked at how originator manufacturers responded when they lost revenue due to biosimilars entering Europe but retained monopoly rights in the unregulated US market. They showed that, despite sharp declines in net income in Europe, there was not offsetting increase in US net income. The drug makers could have recouped the losses, but they didn’t.

According to the lead researcher Ben Ippolito, this suggests that drugmakers are already charging market prices in the less regulated US market. This is certainly an interesting finding. And, the prices quoted in the study are market prices, sure. But they are not prices that reflect a competitive market, at least not in some therapeutic categories.

In Europe, biologics producers lost revenue due to real market competition almost as soon as biosimilars were approved. Meanwhile, in the US these same companies can often maintain (artificially) high prices due to a seemingly endless perpetuation of monopoly rights in some cases, and contract foreclosures and discount walls in others.

A persistently dysfunctional market, whether due to abuse and expansion of monopoly rights by drug companies, or anticompetitive practices by payers and PBMs, may prevent biosimilars from ever reaching their potential in the US.