Pharmacy Economist Describes Fork in the Road for Generics and Biosimilars

It is often said that legislators and patient advocates hope the biosimilars market will evolve as successfully as the generic market has, providing for robust competition and price declines that improve access. But a drug industry expert who spoke at the Association for Accessible Medicines' Access! meeting said generic and specialty drug markets, which include biosimilars, are evolving in very different ways.

The high costs of specialty drugs have caused payers and pharmacy benefit managers (PBMs) to develop distribution systems that afford high levels of control over patient behavior and access to these medications. “The PBMs will say to their plan sponsors—the insurers—‘Hey, if you limit the number of specialty pharmacies, limit the number of entities that can dispense this, we can keep an eye on the patient, make sure they’re doing the right thing,’” said Adam Fein, PhD, CEO of the Drug Channels Institute.

As a result, manufacturers may end up launching their specialty drugs into limited networks of specialty pharmacies, typically mail order pharmacies, as opposed to the tens of thousands of retail pharmacies that might be involved in the distribution of generic brands.

Rebate Reliance

Another issue affecting distribution of biosimilars is the dependence on rebates, which manufacturers offer as incentives for use of their product over 1 or more rivals. Narrow specialty drug networks and rebates are going to present unique challenges for biosimilar competition over the next few years as the number of biosimilars increases, Fein said.

“There’s a battle for control of the specialty patient," he said. "Biosimilar manufacturers are going to be dealing with payers who now control the dispensing and distribution channels for specialty drugs on the pharmacy side, and that’s going to create a challenge."

Biosimilars are certified by the FDA to be as safe and efficacious as their originator biologics. Once biosimilars start being approved as interchangeable to originators, meaning substitutable for originators without physician approval, the issue of access will become more complex, Fein said.

He cited the example of the 6 FDA-approved adalimumab (Humira) biosimilars scheduled to launch in 2023 in the United States. “One, and possibly 2, of these Humira biosimilars may be interchangeable for specific indications. It’s not clear what that’s going to mean and how the payers are going to play that game, how companies will come to market, how they’re going to price their products, and how the PBMs are going to maximize their own profits to save money for their clients,” he said.

“It’s really going to be a very exciting time for the study of biosimilars and probably a very challenging time if you’re living it,” Fein told the Access! audience, which included a contingent of generic and biosimilar company executives.

There will also be what Fein described as “public policy risk,” because the pace and complexity of the specialty drug market is often far ahead of the working understanding that legislators have, based on his experience. “One of the risks is a bad policy coming through, not because there’s some sort of bad intent but because there’s just a lack of understanding of what’s happening. So, I see that as potentially very problematic for this industry and, frankly, most parts of the pharmaceutical industry and pharmaceutical channel.”

Extreme Vertical Consolidation

If the evolution on the biosimilar side is hazy, so is what has happened on the generic side. Fein said that 5 years ago he could not have predicted the extreme “vertical” consolidation in the pharmaceutical industry or how this would have affected the management of generic drug distribution.

Mergers among industry titans have completely reshaped the way business is done, he said. “These companies are not just horizontally consolidating, with one company buying another company like it. We’ve now seen a dramatic trend toward vertical consolidation. The largest PBMs have integrated with the largest health insurers, which have also become merged with the largest specialty pharmacies and, in many cases, are moving into providing health care services.”

This means that at any level in one of these pharmaceutical totem poles, an entity cannot focus, as before, on maximizing its own profits but must consider the needs of the other members in the chain.

“There’s not a lot of consolidation left to go. There’ll be a few more deals, but we’re getting to a point where it’s going to be hard to consolidate this much further,“ Fein predicted.

Another important consideration is that generics now represent 90% of prescriptions filled, up from 40% 20 years ago, Fein said. He called this state of affairs “peak generic penetration. If my math is correct, we’re not going to grow by another 50 percentage points.”

Government has become the largest payer of all. “More than 40% of all prescriptions in 2019 were paid by Medicare or Medicaid or another government program. This will grow with the aging population. Medicaid expanded enrollment during the pandemic by about 10% to 12%,” Fein said.

Many commercial entities are responsible for the management of government payer programs, and the implication is that their influence will shape these programs, he said. “These are the companies that are controlling access to pharmaceuticals, that are controlling benefit designs that are essentially part of the system. So, keep in mind that if the government does extend its role in health care, you can be pretty sure [this activity] is going to be mediated by the companies that are already the significant contractors for the government in managing health care and, particularly, prescription drugs and generics and biosimilars.”

On the generics side, with peak consolidation, there will be a diminishing number of ways to eke out a profit, to achieve efficiencies that improve margins, Fein said. “The pharmacies will have to work harder and harder to make money dispensing prescriptions. That’s not just a reimbursement challenge. That’s simply an issue of there are only so many dollars they can make when the prescription is $20 or $30.”

Rise of Discount Cards

A key development amid these industry changes is a snowballing trend toward the use of discount drug cards, such as GoodRx provides. Owing to the rise of generics and the government’s encouragement of generic competition, there has been steep deflation in the cost of small molecule drugs, such that costs of these drugs for many families may never reach coverage thresholds (beyond out-of-pocket costs), whether government or commercial. The average family deductible is $4500, Fein said.

Some consumers may find that they can obtain drugs for less using discount cards than if they rely on their insurance plans, Fein said. This is what's driving even covered consumers to flock to these discount cards.

Increasingly, health care consumers are using discount cards rather than their health plan coverage for prescriptions, whether it has a prescription benefit or not. That means families and companies are sometimes paying premiums for prescription coverage needlessly. Fein said 36% of people who have commercial insurance use GoodRx instead, and this doesn’t include the many other discount card services available.

In 2016, the retail value of prescriptions GoodRx handled was $700 million in terms of consumer out-of-pocket costs, and that has grown so that this year it will be around $4.5 billion out of pocket, Fein said.