If you think prescription drug costs are high now, imagine what costs would be without generic drugs. Roughly 25% of total prescription drug sales in 2016 were generics. But it's a different story altogether for biologics -- drugs made from living organisms or components of living organisms. Until 2010, biosimilars to biologics weren't even legally allowed in the U.S.
Seven years later, biosimilars still haven't made a huge dent in helping control soaring drug costs in therapeutic categories like autoimmune diseases, where biologics dominate. Could it be that the system is rigged against biosimilars?
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Failure to launch
One prime example of the challenges that biosimilars face is Amgen's (NASDAQ: AMGN) Amjevita. The big biotech won FDA approval last year for Amjevita, the first biosimilar to autoimmune disease drug Humira to obtain U.S. approval. Humira is the top-selling drug in the world, generating $16 billion for AbbVie (NYSE: ABBV) in 2016.
AbbVie is on track to make even more money from Humira this year, despite the approval for Amjevita. Why? Amgen still hasn't launched its biosimilar. AbbVie is fighting Amgen in court, alleging patent infringement. The trial doesn't even start until November 2019.
Humira technically lost patent exclusivity at the end of last year. However, that was only for the composition of matter patent for Humira. AbbVie has another 61 patents for the drug and intends to try to use every one of them to keep biosimilar competition off the market in the U.S. through 2022.
AbbVie's strategy makes sense. It's understandable that companies want to go on milking their cash cows for as long as possible. However, the situation with Humira and Amjevita highlights a key reason why biosimilars haven't had a huge impact so far on reigning in overall prescription drug spending. The U.S. legal system is so slow-moving that money-saving biosimilars don't get to market as quickly as they otherwise could.
It can be tough for biosimilars even after they're launched commercially. Pfizer (NYSE: PFE) introduced its Remicade biosimilar, branded as Inflectra, in October 2016. Like Humira, Remicade treats various autoimmune diseases. In the first half of this year, Pfizer reported sales of Inflectra totaling $172 million, including revenue generated in the U.S. and Europe. Johnson & Johnson (NYSE: JNJ) made $3.2 billion in the same period from Remicade.
Why hasn't Inflectra taken more market share away from Remicade? One reason is that Pfizer priced its biosimilar only 15% below Remicade. Even though that's a significant discount, there's little incentive for physicians to switch patients to the biosimilar.
A more important reason, though, behind Remicade's continued dominance is the strategy used by Johnson & Johnson. The healthcare giant has established exclusive contracts for Remicade with payers representing nearly half of the market. Pfizer can't get Inflectra into those networks at all -- at least not yet.
J&J has also used its other lines of business to its advantage. The company has bundled its drugs and medical devices in deals with hospitals. That makes Remicade just one part of a much larger contract. Ironically, Johnson & Johnson's strategy has even allowed it to increase the price for Remicade, despite having new competition.
Time is on biosimilars' side
Novartis (NYSE: NVS) won FDA approval in 2015 for Zarxio, a biosimilar to Amgen's Neupogen. The Swiss drugmaker priced Zarxio 15% below the price of Neupogen. Over time, sales for Neupogen have declined significantly.
The same scenario is likely to unfold for Remicade. In fact, sales for J&J's top-selling product slipped 10% year over year in the first half of 2017. In the end, payers want to save money. Either J&J will have to match prices for its biosimilar rivals (either through discounts or rebates), or it will lose market share. Either way, prices will come down.
Humira will face a similar future. Even if AbbVie manages to fend off Amgen in court, it's just a matter of time before biosimilars begin chipping away at Humira's market share. When that time comes, AbbVie will have the same options that Johnson & Johnson will have with Remicade.
It's probably an overstatement to say that the system is rigged against biosimilars. However, there are definitely plenty of aspects of the current system that favor incumbents with established products. Still, though, biosimilars will eventually bring down prices of biologics. Time is on their side.
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