MSK's Bach Touts Cap on Originator, Biosimilar Profits

March 22, 2021
Tony Hagen

Tony Hagen is senior managing editor for The Center for Biosimilars®.

Peter Bach, MD, MAPP, and his Drug Pricing Lab at Memorial Sloan Kettering (MSK) argue profit caps will do better than the current biosimilar system.

The US biosimilars market has been slow to develop, and 6 years after the first biosimilar appeared on market, biosimilars are available in just 7 drug categories and average discounts from originators afforded by these agents are 30%. To some, this pace of biosimilar adoption and the savings achieved are not adequate.

In a report, the longtime drug pricing critic Peter Bach, MD, MAPP, director of the Drug Pricing Lab and Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, has proposed that after a 12-year window of product exclusivity, profits on originator biologics should be capped at 10% above costs of production and distribution.

In what Bach and his co-authors have dubbed the “P-quad” system, prices on originator products would likely drop by 35%. P-quad stands for Production Plus Profit Pricing. “We propose that it is time to assess the success of the [Biologics Price Competition and Innovation Act] 11 years after its passage. Both evidence and market realities suggest biosimilar policy is not achieving its intended objective,” they wrote.

The Milliman Report

According to a supporting study prepared by the actuarial and consulting company Milliman for the Drug Pricing Lab, under a scenario of the P-quad system and biosimilar competition combined, federal government health plans would save $140 billion from 2021 through 2025, vs an anticipated $45 billion under the current system, which allows originator and biosimilar companies to set their own prices. Across public and private payer plans, the total savings estimated under the combination scenario would be $360 billion vs $95 billion, respectively, the Milliman report said.

“Policymakers should be asking if biosimilars are challenging every biologic drug that has reached its end of exclusivity (or nearly so), and whether that competitive pressure is meaningfully driving down net prices for both the innovator and its competing biosimilars. Today’s biosimilar market evinces neither of these features,” Bach, Mark R. Trusheim, MSc, and Nancy Yu, MBA, argue in their report titled “Biosimilars: Market Changes Do Not Equal Policy Success.”

The originator products facing biosimilar competition currently in the US market are a small minority compared with the number of biologics that still do not face such competition, the investigators argue. “That amounts to only 15% of all biologic drugs that were past exclusivity facing any competition.” Further, there’s little hope for dramatic improvement, they contend. “The market will not stay like this over the next decade, but it isn’t likely to improve that much either.”

According to the Milliman report, the P-quad proposal for a 10% cap on profits would apply to biosimilars as well, and this has the potential to discourage originator manufacturers and biosimilar developers from entering the market because they would not be allowed to include in their pricing the cost of original product investment or extra padding for future drug development.

Milliman also notes that, historically, in the 24-month window after launch, biosimilars have been much less successful than generics at achieving market share over more costly originator products. “Biosimilar market share varies considerably by product and time from launch, with 30% on average expected after 24 months,” the report said. By contrast, generic products have captured 70% to 90% market share within 2 years of launch.

Further, biosimilars can’t be grabbed off a stock room or pharmacy shelf like generic products. Availability is often limited by geographic areas, health care institutions may have different usage policies, and manufacturer rebates are a significant factor determining which biosimilars are accepted and whether originators are preferred by payers.

Milliman considered 3 scenarios to obtain a comparison of projected savings from the P-quad system: no biosimilar competition, the current environment in which biosimilars and originator products compete, and the P-quad system where allowed profits are capped after 12 years of exclusivity.

The following were the estimated savings (approximate) for the P-quad system vs the current system, according to the Milliman analysis:

  • Private group payer plans would save $155 billion over 5 years vs $30 billion under the current system.
  • Medicare Part B would save $120 billion vs $50 billion.
  • Medicare Part D would save $50 billion vs $5 billion.
  • Medicaid would save $10 billion vs $5 billion.
  • Individual plans would save close to $20 billion vs under $5 billion.

The P-quad concept assumed a net price decrease of 65% on average for originator products and biosimilars combined; and for a scenario that doesn’t include biosimilars for 41 biologic products, P-quad would increase federal savings by $40 billion over the 2021 to 2025 period, the Milliman report estimated.