Biosimilars and Healthcare Reform

As the next chapter in our series on the implications of healthcare reform for healthcare manufacturers, we will look at biosimilars and bioequivalent drugs. 

As an approach for reducing the cost of care, healthcare reform defined an approval pathway for biosimilars.  Biotechnology drugs will have market exclusivity for 12 years after the branded biotech drug is approved by the Food and Drug Administration.  The subject product would be biosimilar to the reference product if it “is highly similar to the reference product notwithstanding minor differences in clinically inactive components” and if “there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency of the product.” Such a determination by the FDA would substitute for a demonstration of the subject product’s efficacy, which would have been established by the reference product.

Biosimilar is different from bioequivalent.  The biosimilar drug’s sponsor can submit information that the FDA would evaluate to determine whether the subject product is “interchangeable” with the reference product (i.e., that the subject product “can be expected to produce the same clinical result as the reference product” and that, “for a biological product that is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch”).  Because current analytical technology is insufficient to establish that two biologics are molecularly identical, interchangeability would have to be established through clinical trials; accordingly.

The biosimilar product also will enjoy a period of market exclusivity that ranges from 12 to 42 months depending on the nature of any patent infringement litigation against the first biosimilar.  That is, the FDA would be prohibited from determining that a second product is interchangeable with the same reference product until the earlier of:

(a) one year after the date on which the first interchangeable biologic was commercially marketed;

(b) 18 months after the date on which any patent infringement litigation against the first interchangeable biologic’s sponsor is dismissed or resolved by final court decision;

(c) 42 months after the date on which the first interchangeable biologic’s application was approved, if the applicant was sued for patent infringement; or

(d) 18 months after the date on which the first interchangeable biologic’s application was approved, if the applicant was not sued for patent infringement.

The reimbursement amount for any biosimilar product would equal the weighted Average Sales Price (“ASP”) of all package sizes of the biosimilar within the applicable billing code, plus 6 percent of the weighted ASP of all package sizes of the reference product within the applicable billing code. Assuming that the weighted ASP for the reference product is higher than that of the biosimilar, the 6% of this relatively higher value provides physicians with an incentive to administer biosimilars instead of reference products.

It is not currently clear how interchangeable and non-interchangeable biosimilars would be treated under “generic substitution” requirements imposed by health plans and governed by state pharmacy laws. For example, would health plans utilize their formularies or implement other utilization management techniques to encourage the dispensing of all biosimilars, or only of interchangeable biosimilars (to the extent otherwise permitted by law)? Generally, when the first generic version of a prescription drug enters the market, the innovator drug may be excluded from coverage under a pharmaceutical benefit entirely. This may not be the case, however, for reference biologics or, at least, for reference biologics with no interchangeable alternative.

Implications for Drug Manufacturers

Defining a pathway to approve biosimilar drugs has a number of implications for the manufacturers of reference products.  On the positive side, a 12-year period of marketing protection defines the outer reaches of the reference product’s lifecycle.  It provides time for drug companies to plan for and address the launch of biosimilars.  It also leads to barriers to entry for biosimilars.

Defining the lifecycle of a branded biotechnology drug could exert upward pricing pressure compared to the current market.  The manufacturer of the branded biotech drugs will need to generate a sufficient return on investment in a shorter timeframe than available today during first 12 years.

Once the branded biotechnology drug’s exclusivity has eclipsed, a single biosimilar will be on the market for 12 to 42 months.  This could lead to downward pricing pressure for branded biotech drugs after 12 years due to generic competition.  As with generic small-molecule drugs, the first biosimilar drug will exert limited downward pricing pressure.  The more significant pricing pressure will occur once multiple biosimilars are on the market.

The question arises as to whether physicians will support a biosimilar drug that has not demonstrated bioequivalency via clinical studies.  Also, how much use of the biosimilar out of clinical studies will be required to convince prescribers that the biosimilar delivers the same outcomes as the reference product?  These questions could extended the lifecycle of the reference biotechnology drug and protect it against downward pricing pressure.

On the flip side of the coin, will the manufacturer of the branded biotechnology drug need to demonstrate clinical and economic superiority to biosimilars to support marketing after the 12-year period of marketing protection lapses?  If yes, there will be a need for the manufacturer of the branded biotechnology drug to conduct comparative outcomes research compared to the biosimilar or bioequivalent drug.

Of course, there is one overriding question about biosimilars and bioequivalents, above and beyond the definition of an approval pathway.  Will the difficulty with developing biosimilars limit the impact of these aspects of PPACA?

 If you don’t have a crystal ball, be patient.  Time will yield the answers to these questions.

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Impact of Healthcare Reform on Lifecycle Management of Healthcare Products – Paying for Reform

 Between now and 2019, healthcare reform will cost taxpayers approximately $938 billion.  This is based on the latest estimates from the Congressional Budget Office.  The major funding sources for healthcare reform are displayed below.

 Some of these funding sources, although not the largest sources, will have an impact on healthcare manufacturers.  The funding sources of most concern to healthcare manufacturers include:

•  Raising Medicaid basic rebates for branded pharmaceuticals from 15.1% to 23.1%.  As an aside, the 8% increase in rebates will be completely transferred to the Centers for Medicare and Medicaid Services (CMS).  This exacerbates the budget impact of healthcare reform at the state level.
• Medicaid rebates on managed Medicaid volumes – The rebates available to Medicaid fee-for-service plans will be extended to managed Medicaid plans.  This will reduce the cost under the pharmacy benefit.
  
• Reduction in Medicare reimbursement – Restructure payments to Medicare Advantage plans by setting payments to different percentages of Medicare fee-for-service (FFS) rates, with higher payments for areas with low FFS rates and lower payments (95% of FFS) for areas with high FFS rates.

  The healthcare reform act establishes an independent Payment Advisory Board comprised of 15 members.  The Board will submit legislative proposals containing recommendations to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate.  

  Beginning April 2013, require the Chief Actuary of CMS to project whether Medicare per capita spending exceeds the average of CPI-U and CPI-M, based on a five year period ending that year. If so, beginning January 15, 2014, the Board will submit recommendations to achieve reductions in Medicare spending. Beginning January 2018, the target is modified such that the board submits recommendations if Medicare per capita spending exceeds GDP per capita plus one percent.

  PPACCA will reduce Medicare payments that would otherwise be made to hospitals by specified percentages to account for excess (preventable) hospital readmissions.

• Eliminate CPI reset for new formulations – Under current law, price increases of existing formulations cannot exceed the consumer price index without a penalty.  However, launching new formulations allowed drug companies to reset the base price for comparison.  However, PPACCA eliminates that loophole.  Launching a new formulation does not reset base for comparing price increases to CPI.
  
• 50% discount in Part D gap for branded drugs – Beginning on January 1, 2011, drug manufacturers will cover 50% of the negotiated rate for brand pharmaceuticals when a Medicare Part D beneficiary is within the donut hole.  Medicare beneficiaries will pay the discounted price at the pharmacy and manufacturers will reimburse the retail pharmacies for the difference.
• Excise tax on “Cadillac” plans – Insurers would pay an excise tax of 40% of annual premium cost when annual premiums are greater than $10,200 for individuals or $27,500 for families.  It is likely that some or all of the cost of the excise tax would trickle down to consumers.

Funding healthcare reform will affect healthcare manufacturers and how they market their products.  For example, the increase in rebates, elimination of the CPI pricing reset, 50% discount in Part D gap for branded drugs, reduction in Medicare reimbursement and the excise tax on “Cadillac” plans will increase downward pricing pressures.  Increasing rebates, eliminating the CPI price reset and the 50% discount in Part D gap for branded drugs will directly reduce the net revenue that drug manufacturers realize. 

The excise tax on “Cadillac” plans will increase the cost of coverage for beneficiaries.  This could lead to a reduction in consumers’ availability of resources available for co-pays and deductibles.  This, in turn, could lead to a reduction in utilization of drugs and medical devices and diagnostic imaging procedure and, therefore, lead to downward pricing pressure.

The reduction in Medicare reimbursement will reduce the incentive for physicians to prescribe or order products and provide services.  Physicians also might reduce their volume of Medicare patients.  This could lead to downward pricing pressure for healthcare products and services as well as a potential reduction in utilization.

The reduction in financial resources could encourage Medicare plans to increase the use of specialty pharmacies rather than allowing buy-and-bill for high-cost therapies.

Expansion towards Universal Coverage and Lifecycle Management

Healthcare reform is a 2000+-page legislation that could have a significant impact on the lifecycle management of pharmaceuticals, medical devices, and diagnostic imaging procedures.  Reading the legislation indicates that the following aspects of healthcare reform are of particular interest to healthcare manufacturers.

• Expansion towards universal coverage
• Funding expanded coverage
• Biosimilars
• Enhancing the quality of care
• Comparative effectiveness research
• Episodic and bundled payments
• Funding preventive care

Over the next few days, we’ll examine the various aspects of healthcare reform that fall into each category.  We’ll evaluate their impact on lifecycle management of pharmaceuticals, medical devices and diagnostic imaging procedures.  Our analysis will show that healthcare reform offers healthcare manufacturers many new levers to pull in their quest to maximize their return on investment.

Expansion towards Universal Coverage

In many ways, healthcare reform will move us towards universal coverage of all US citizens. 

• Medicaid expansion – Healthcare reform requires all states to expand coverage to everyone below 133% federal poverty limit (FPL).  This includes providing coverage for childless adults who meet the income limit.
• National insurance exchange – Healthcare reform will establish non-profit co-operatives where the uninsured and those who prefer to not use their employer-provided plans can purchase coverage.  Premiums will be set by the market.  The federal government will subsidize the cost of premiums for citizens who qualify based on income considerations.  Citizens with income up to four times the FPL will qualify.
• Elimination of preexisting condition exclusions – After 2013, health plans will not be able to deny coverage to applicants based on preexisting conditions.
• Coverage of all dependent children until 26 – All children, regardless of income or place of residency or marital status will qualify for coverage under their parent’s policy.
• Prohibit lifetime limits and annual limits on the dollar value of benefits for all beneficiaries – In today’s market, most health plans place an annual and lifetime limit on the benefits they will provide for medical and pharmacy coverage.  Healthcare reform will terminate those limits. 

These aspects of healthcare reform will have a significant impact on the lifecycle management of pharmaceuticals, medical devices, diagnostic imaging procedures and more.

• Increase in number of covered US citizens – The most obvious impact of healthcare reform is that almost all US citizens will have coverage for their healthcare costs.  Moving towards universal coverage leads to increased utilization of healthcare resources and a greater revenue opportunity for manufacturers. 

  However, on the flip side of the coin, the increase in the number of covered lives and healthcare resource utilization will drive health plans and the Centers for Medicare and Medicaid Services (CMS) to more closely manage costs.  For example, health plans will feel an increase in pressure to reduce the number of hospital admissions and emergency room visits, utilization of diagnostic imaging procedures and access to select drug therapies.

  The movement towards universal coverage, in conjunction with the wave of mergers and acquisitions among health plans, will increase the number of covered lives per health plan.  The increase in the number of covered lives per health plan increases each organization’s negotiation leverage with healthcare manufacturers.  That leads to downward pricing pressure for healthcare manufacturers.

  Moving towards universal coverage will increase the workload for physicians, hospitals and other providers.  Any pharmaceutical, medical device, diagnostic imaging procedure that saves time for the manufacturer will enable the provider to manage their workload.  This is a benefit that healthcare manufacturers can market to the extent that labor savings are documented by compelling data.

• Change in commercial plan demographics – Healthcare reform will lead to a change in the demographics of the lives that commercial plans cover.  For example, there will be an increase in the number of young adults who become covered by their parent’s policies.  Patients who previously were denied coverage due to a chronic disease will now have coverage.  Patients who suffer from diseases that are costly to treat, such as cancer, and exceed their annual or lifetime limits will now have continuous coverage.  These changes in demographics could affect the priorities that health plans assign to select disease states and how they manage the products and procedures used to diagnose and treat them. 

  This could enhance access to some healthcare procedures and products and, therefore, increase their utilization.  Conversely, changes in the demographics could reduce access to procedures and products and, therefore, increase their utilization.

• Change in Medicaid demographics – Raising the income limit to qualify for Medicaid coverage and allowing coverage of childless adults will change the demographics of Medicaid plans.  A significant number of new beneficiaries who previously were uninsured will be older and sicker than those currently covered by Medicaid.  Today’s Medicaid beneficiaries are primarily younger women and children. 

  For the same reason and with the same implications, some people currently covered by commercial plans will qualify for Medicaid coverage and convert.  Converting to Medicaid coverage will reduce the cost of coverage.

  Changing the demographics of Medicaid beneficiaries could lead to a change in priorities of for managing diseases and the emphasis on negotiating rebate contracts and managing access to products and procedures.  For example, after 2013, Medicaid plans could place a higher priority on managing cardiovascular and chronic diseases and a lower priority on managing schizophrenia.  Changing priorities for negotiating contracts could exert downward pricing pressure on some healthcare products and lessen pricing pressure for others.

  Covering older and sicker patients could improve the overall, historically-low Medicaid compliance rates.  This could enhance the utilization of products among Medicaid populations.

• Uninterrupted coverage – Upon implementation of healthcare reform in 2014, there will be uninterrupted coverage for patients receiving high-cost therapies due to elimination of lifetime and annual limits.  This is likely to increase the utilization of products and procedures associated with diseases that are very costly to treat.
• Elimination of the Medicare Part D coverage gap – Healthcare reform will gradually eliminate the Medicare Part D coverage gap by 2019.  This will enhance access to therapies for Medicare Advantage beneficiaries, which will drive their increased utilization.

In our next blog post, we’ll look at how healthcare reform will be funded and how that could affect lifecycle management of healthcare products and procedures.

Pharmaceutical Lifecycle Management Prior to Healthcare Reform

Each part of the lifecycle presents marketers with unique challenges.  The chart below illustrates the most important lifecycle management (LCM) challenges and how they vary by stage of the lifecycle.

hen selecting LCM strategies to pursue, pharmaceutical marketers will examine the strategies impact on return on investment (ROI).  An LCM strategy’s impact on the following aspects of a drug’s position will determine its ROI.  For example, the greater an LCM strategy’s impact on market share, the greater the ROI.

• Most important factors – An LCM strategy’s impact on a drug’s:
  • Market size
  • Differentiation from competing drugs
  • Duration of patent life
  • Size of the target patient population
  • Physician, patient and payer preferences between competing drugs
  • Drug portfolio revenue (in contrast to the individual drug’s revenue)
• Somewhat less important factors –  An LCM strategy’s impact on a drug’s:
  • Rate of therapy compliance
  • Level of formulary access or medical policy restrictions
  • Product awareness among physicians, patients and payers
  • Manufacturing costs

Even before healthcare reform, there are many strategies that fall under the rubric of lifecycle management.  The strategy that offers the greatest potential impact on ROI, by far, is a new indication.  A new indication will increase the size of the target market by expanding into a new target patient population.  It also could increase the size of the target market within the current patient population if a sub-segment suffers from both the current indication and the new indication.  A new indication could potentially differentiate the drug from its competitors, affect patient, physician and payer preferences and create synergies with other drugs in the manufacturer’s drug portfolio.

However, a new indication is also the riskiest strategy.  Conducting the clinical trials required to earn a new indication is a costly endeavor.  However, only a small percentage of new indications receive marketing approval from the Food and Drug Administration.

Examples of other LCM strategies include new formulations, new delivery devices for injectable drugs, publication strategies, new pricing and contracting strategies or line extensions.  These strategies are less costly and risky than seeking to earn FDA approval of a new indication.  However, the potential ROI also is much less.

As we will demonstrate in future blog posts, healthcare reform offers drug companies many new levers to pull to increase ROI.  These new opportunities will bear fruit for those who manage them appropriately.

Pharmaceutical Lifecycle Management and Healthcare Reform

Healthcare reform will have a significant impact on lifecycle management of pharmaceuticals.  As we will demonstrate over the next few days, healthcare reform will offer drug companies many new levers to pull to support the appropriate use of their drugs.  Healthcare reform is much, much more than expanding towards universal coverage.

First, let’s start with a definition of lifecycle management (LCM).    Based on conversations with many drug company marketers, lifecycle management is defined as maximizing a drug’s profits during its commercial life.  Almost all marketers suggest that a drug’s commercial life begins at launch and ends due to one or more of the following factors…

• Patent expiration of the branded drug and the launch of multiple generic competitors that cost significantly less than the branded drug.
• The launch of branded alternatives that offer a significant clinical and/or economic advantage.
• A change in treatment algorithm that shifts preference away from a branded drug.

LCM planning begins during Phase II or, more likely, early Phase III trials.  However, implementation of LCM strategies and tactics begins after the drug’s launch.   Implementation begins at that time as, after launch, a drug demonstrates its commercial viability, the potential return on investment (ROI) from additional investments and the needs of clinicians and patients outside of a controlled environment (ie, clinical trials). 

Most LCM strategies and tactics are implemented within a few years after a drug’s launch as that provides time to generate a sufficient ROI.  Many LCM strategies (eg, clinical trials) take many years to plan, implement and yield an acceptable ROI. 

Many attributes of LCM differ significantly from those of day-to-day marketing

Lifecycle Management	Day-to-Day Marketing
Starts years prior to drug launch	Starts one year prior to drug launch
LCM focuses on long-term strategic positioning	Day-to-day marketing focuses on such short-term issues as… n  Increasing quarter-to-quarter sales. n  Driving increased awareness of a drug. n  Sales training. n  Supporting sales as it addresses day-to-day customer issues. n  Developing educational programs that facilitate utilization of the drug. n  Positioning a drug compared to therapeutic alternatives.
Multi-disciplinary	Mostly self-contained within the marketing department
Global focus to maximize ROI	Regional focus (eg, U.S., Europe) to meet local healthcare needs

 

Lifecycle management is a complex initiative and some drug companies dedicate staff to planning and implementing LCM initiatives.  Other drug companies assign LCM responsibilities as part of a marketer’s overall responsibilities.  With either approach, the long-term success of a product requires spending sufficient time and creativity to develop winning LCM strategies.