issue brief the elements of a competitive biologics...

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Issue Brief:The Elements of a Competitive Biologics Market

March 2018

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2 | Issue Brief

Table of Contents /

Overview 3

The European Experience 4

Other Non-US Highly Regulated Markets 6

The US Experience 6Market Pricing, but Little Prescribing Incentive 7Commercial Coverage & Management Creates Incentive Opportunities 7

Conclusion 8

References 9

Funding for this research was provided by Merck & Co. Avalere Health retained full editorial control.

The Elements of a Competitive Biologics Market | 3

Overview /

Most people are familiar with generic drugs as less costly

alternatives to drugs whose patents have expired.1 These

products are composed of relatively simple molecules.

It wasn’t until recently that a similar type of pathway

became available for more complex therapeutics known as

biologics.2 Biosimilars are products that have been shown

to be “highly similar” to their reference biologic, and, just like

generics, have no clinically meaningful differences from their

reference product. However, they have brand names and

will likely need substantial detailing upon their introduction

to get physicians and patients familiar with their use.

Biologics and biosimilars are made in living systems (e.g.,

cell lines) and are much more complex to develop and

manufacture than traditional generics. The higher costs

of development for biosimilars, estimated at around

$250 million per product versus $1-5 million per generic,3

necessitates a new business model. Still, it is anticipated

that biosimilars will compete with their reference product

based primarily on price, leading to potential system-

wide savings.4

Biosimilars have been available in some markets, such as

Europe, for over a decade. In these markets, the extent

to which biosimilars are prescribed, and the savings

generated (or not), is to some extent a function of the

policies put in place to incentivize physicians to prescribe

them. Europe and other highly-regulated markets, such

as Japan, Australia, Canada, and South Korea, show

how incentives and the consequent uptake of biosimilars

vary widely. Here, we explore the policy choices which have

encouraged or discouraged sustainable competition among

biologics. Overall, we identify two consistent themes: (1)

Biosimilars may not be prescribed, and a market for them

may not develop, unless physicians are incentivized by

policymakers, and (2) Policymakers in individual markets

must consider a tailored policy approach – there is no one-

size-fits-all policy model.

4 | Issue Brief

The European Experience /Since the first biosimilar approval in 2006,5 competitive

biologics have generally gained increasing market share

over time in Europe. The rate of this uptake has varied

between countries, likely reflecting differing incentivization

policies. There are currently 37 approved biosimilars in the

EU for 13 reference products.6 Biosimilars make up about

a quarter of all biologics sales for products with expired EU

patents, although some individual biosimilars have even

higher market share; for example, filgrastim biosimilars have

reached market penetration of 60% to 80% across the

EU.7 Both market share and increased patient access are

associated with cost savings, with mean price discounts

of 15% to 40% for biosimilars to somatropin, epoetin, and

filgrastim – the earlier and smaller biologics.8 However, these

price and utilization patterns are largely the result of country-

level policy implementation combined with market forces.

For example, Norway and Denmark have utilized a tender

system to determine drug pricing for hospitals, negotiating

a 70% discount for infliximab biosimilars.9 This allowed a

93% market share for biosimilars representing later and

larger biologics.10 Similar patterns are observed in Italy, with

a tender system on a regional level, and price reductions

up to 60%.11 Germany has seen similar uptake patterns

with biosimilar prescribing quotas and provider education

programs, leading to more than 50% volume uptake of

biosimilars in Germany.12,13

The UK has less-strict price controls than some other EU

nations but, similar to Germany and Sweden, does require

biosimilar prices not be higher than the originator, and the

UK’s National Institute for Health and Care Excellence (NICE)

assesses medicines on both a clinical and cost effectiveness

basis.14 NICE has recommended the use of the biosimilars

Remsima™ (infliximab) and Inflectra™ (infliximab) over the

originator product Remicade® (infliximab).15 The UK has

seen cost decreases of 25% for infliximab, 18% for epoetin

biosimilars and 8% for filgrastim. In some cases, patient

access has doubled, with a 104% increase in the use of

filgrastim since 2008.16 Ultimately, the UK aims to prescribe

90% of new patients with the highest value medication within

3 months of a biosimilar launch, and 80% of existing patients

switched within 12 months.17

Ireland, in contrast, has avoided implementing proactive

biosimilar policies for many years, with little associated

biosimilar uptake. However, the country is now responding

to a perceived rising specialty drug spend, beginning with a

Price discounts for early entry biosimilars

Of Sales for biologics with expired EU patents are biosimilars

1/4 15 to 40%


Figure 1. Sample Biosimilar Incentive Use in Highly Regulated Markets

Pharmacy-level substitution (interchangeables only in US)

Sub-national payer price negotiation and utilization management

CeilingPolicy

Tender System

Reference Pricing

Gain-Sharing Agreements

Lower Price Requirements

Co-Pay Differential

Prescribing Quotas

recently released consultation paper18 intended to guide a

policy “to create a sustainable environment for biological

medicines in Ireland” by encouraging physician-led

switching. It remains to be seen which policy or policies

Ireland puts into place, and how effectively they incentivize

the uptake of biosimilars.

The competitive landscape in the EU is likely to intensify in

the near future as biosimilars to treat cancer, diabetes,19 and

multiple sclerosis are expected to lose their EU patents over

the next 3 to 4 years.20



CeilingPolicy

Tender System

Reference Pricing



Co-Pay Differential

Prescribing Quotas



CeilingPolicy

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Co-Pay Differential

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CeilingPolicy

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Co-Pay Differential

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CeilingPolicy

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CeilingPolicy

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Co-Pay Differential

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CeilingPolicy

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Co-Pay Differential

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6 | Issue Brief

Other Non-US Highly Regulated Markets /Australia, Canada, Japan and South Korea each have a

biosimilars market that is less mature than the EU, but each

have considered incentivization policies to varying effect.

Australia has implemented a system through which its

Pharmaceutical Benefits Advisory Committee (PBAC) can

designate a biosimilar as “a-flagged”, allowing automatic

substitution at the pharmacy level unless otherwise directed

by a provider.21 PBAC has a-flagged at least one biosimilar

while rejecting that categorization for at least one other based

on concerns regarding differences in presentation.22 Both

biologics and biosimilars prices have dropped 16%,23 but

individual product switching has thus far not been particularly

widespread, likely due to fixed patient co-pays which do not

incentivize product switching for patients.24

Biosimilar adoption has been comparatively slow in Canada

as well. Public listing for approved products has lagged

up to two years after approval by the regulatory authority,

Health Canada. While payer policies encourage new patients

to use biosimilars, there is little incentive in place to switch

current patients.25 The Pan-Canadian Pharmaceutical Alliance

negotiates with individual manufacturers on price, and

individual payers (both private and province-level) can put

into place such tactics as step therapy or preferential listing.

Most Canadians believe that patients should have a choice

in their medicines,26 which may lead to less-intensive cost-

cutting policies and lower biosimilar use.

South Korea has also shown only modest uptake of

biosimilars. In 2012, the country implemented a “ceiling

price” policy in which originator and multi-source products

are reimbursed at the same maximum rate, which decreases

when a competitor enters the market.27 This policy was

intended to spur competition and decrease patient co-pays

under the national health system. However, such a system

does not provide any incentive for a provider to use a

biosimilar or to switch patients from one product to another.

For example, it has been estimated that the infliximab

biosimilar achieved ~20% market share in a year.28 This

policy does not encourage increased competition overall, 29

and without market share changes there is no sustainability

to a multi-source market.

The US Experience /In the US, which has a relatively young biosimilars market,

discussions are ongoing as to how to manage the cost of

healthcare, especially prescription drugs.30,31,32 The theme

that competition is good, and that multisource options are

inherently beneficial to the healthcare system, continues to

recur.33 The US experience with biosimilars is limited (the first

biosimilar was approved and launched in 2015), although

brands have competed with other originator biologics and

“hybrid” 505(b)(2)34 products for decades.35 There are now

nine biosimilars approved,36,37 with three launched. Initially,

many stakeholders expected biosimilars to behave like

generics, but this assumption is being revisited as the first

biosimilars appear to be struggling for market share. The US

has a complicated insurance market that mixes a central


government payer with many private, commercial insurers.

How these payers behave separately and collectively will be

essential to the emergence and sustainability of a multisource

biologics market in the US.

Market Pricing, but Little Prescribing Incentive

The price paid for biologics in the US is determined by

market forces. Most biologics are administered by physicians

(i.e., usually within Medicare Part B or the medical benefit).

For these medicines, manufacturers submit their Average

Sales Price (ASP), and all reports are combined to create a

payment limit for a Healthcare Common Procedural Coding

System (HCPCS) code; this limit is used for payment by

the Centers for Medicare & Medicaid Services (CMS) and

used as a reference for payment by commercial payers.

For products administered by patients or caregivers (i.e.,

usually within Medicare Part D or the pharmacy benefit),

payment considerations are different. Payment is negotiated

through wholesalers and benefits managers, and products

are identified by National Drug Code (NDC), with significant

patient co-pay considerations.38 Despite this market influence

on price point, however, prescriber decision-making is largely

insulated from these forces. For example, legislation in the

US requires that CMS reimburse providers under its Part B

program based on the ASP of the product prescribed, plus

six percent of the reference product ASP; this is intended to

remove some of the incentive to choose one product over

the other based on price.

Commercial Coverage & Management Creates Incentive Opportunities

Commercial payers generally make coverage decisions

based on safety and efficacy, which for many clinical uses

is the same for biologics and biosimilars, in addition to price.

To operationalize their coverage decisions, commercial

payers employ a variety of product utilization management

tactics. Medical benefit product use can be managed

through non-coverage, prior authorization, and step therapy

requirements. Payers can manage pharmacy products much

more stringently and granularly; for example, by placing them

on tiers within formularies (affecting co-pays) or establishing

quantity limits, in addition to the tactics available on both

benefit sides (prior authorization, step therapy, and non-

coverage). We will explore these management tactics and

their effectiveness in a follow-on issue brief.

Payers are concerned about beneficiary health and outcomes,

but they also have a fiduciary responsibility for the overall

cost of care and they consider safety, efficacy, and cost in

coverage decisions. Our background research, developed

through interviews with payer medical directors, shows that

payers expect a cost discount to cover a new, competing

biologic product such as a biosimilar. To date, the expected

discount ranges from 15% to 40% net-net as compared to

an originator. This discount is usually justified as necessary to

switch patients given the administrative cost of implementing

education and utilization management strategies.

This cost perspective, and the priorities it puts into place for

commercial payers, is based on short actuarial timelines for

insurance, often only one year. This provides little incentive

Cost

Therapeutic Equivalence

Utilization Management

Manufacturer-Payer Contracting

Commercial payers in the US must consider therapeutically equivalent products on primarily a net-net cost basis. This consideration is affected by manufacturer-payer contracting by both originator and competing products, and payers can heavily incentivize product prescribing through utilization management.

8 | Issue Brief

for them to purchase a biosimilar if it is around the same price

as an originator biologic, especially if the cost of educating

prescribers is significant or if its reduction in price is one

that the originator will match. This is not a problem on its

face—in a price-sensitive competitive market, the cheapest

equivalent product should “win”. However, due to complex

contracting (which may encompass entire manufacturer

portfolios) and lack of physician education to date (FDA’s

relatively nascent efforts39,40 to date notwithstanding), such

price competition may not allow new competitors to gain

market share even as they precipitate the reduction in price. If

first and second entrants fail to gain market share, additional

follow-ons are even less incentivized to enter the market,41

and there is thus only a short window in which the originator

need outcompete the biosimilar to retain market share

indefinitely. Hence, a short term policy perspective across

the system may incentivize an originator sponsor to keep

market share at almost any cost for a limited amount of time,

and biosimilars may not be available to compete in the longer

term. This possibility has been acknowledged in the US, with

FDA Commissioner Gottlieb noting that “the payers have

an opportunity to perhaps think about guaranteeing some

market share, and then putting the obligation on themselves

for having to drive adoption.”42 On a basic level, this involves

a guarantee of at least the opportunity to gather return on

investment for entering an already-developed market, to the

presumed benefit of the consumer.


Conclusion /The healthcare market seeks to promote competition for

specialty products based on value and price. However,

a multitude of factors may stymie that competition,

including regulatory and policy barriers that disadvantage

biosimilars, market dynamics that can limit prescription

volume to new entrants, and patient and provider

reluctance to switch medications.

In this paper we have explored policy aspects of ex-US

markets that have variously encouraged or discouraged

competition among biologics from different sponsors.

We additionally examined the US market, where policy

decisions are still being made. We conclude that

ultimately, in a freely competitive market, biologics (both

originator and biosimilar) must be able to gain market

share commensurate with the value they offer to the

health care system if a stable multi-source market is

to emerge. We find that a range of policy options are

available to create the conditions for this competition to

flourish, and many have been shown to work in practice.

However, they must be actively pursued to lower costs

and increase patient access, especially over the midterm

(three to five years). Competition in this unique market

cannot be presumed to succeed without policy changes.

These policy options must be considered in each

geographic market individually to determine which

options are most suited to fostering long-term

competition. This may additionally vary by therapeutic

area and between settings of care. Similar products

can compete in a manner fair to all stakeholders, but

availability with surety of supply is most important to

patients needing timely access, because their very lives

depend on it. International experience suggests that,

absent the specific incentives to help biosimilars achieve

market share in exchange for competitive prices, a stable

multisource specialty market in the US and other markets

may not flourish. Biosimilars can precipitate savings,

but those savings will be temporary without biosimilar

adoption by healthcare providers and patients, as driven

by policymakers and payers.

10 | Issue Brief

References /1Drug Price Competition and Patent Term Restoration Act (Public Law 98-417). 1984.

2FDA. Implementation of the Biologics Price Competition and Innovation Act of 2009. 2/12/2016. Available at:

https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/ucm215089.htm

3Blackstone EW et al. The Economics of Biosimilars. Am Health Drug Benefits. Sep-Oct 2013; 6(8): 469-478.

4Mulcahy AW. The Cost Savings Potential of Biosimilar Drugs in the United States. RAND Corporation. 2014.

Available at: https://www.rand.org/content/dam/rand/pubs/perspectives/PE100/PE127/RAND_PE127.pdf

5EMA. Biosimilars in the EU. Accessed August 2017. Available at: http://www.ema.europa.eu/docs/en_GB/

document_library/Leaflet/2017/05/WC500226648.pdf

6Quintiles IMS. Biosimilars by Region: Patient access to costly biologics and the regulatory status of biosimilars

differs globally. August 2017. Accessed August 2017. Available at: http://www.quintiles.com/microsites/biosimilars-

knowledge-connect/biosimilars-by-region

7Quintiles IMS. Biosimilars by Region: Europe. 2016. Accessed October 2016. Available at: http://www.quintiles.

com/microsites/biosimilars-knowledge-connect/biosimilars-by-region/europe#1

8Ibid

9Welch AR. The Norwegian Biosimilar Phenomenon: From Biosimilar To “Biogeneric”. Biosimilar Development.

July 26, 2016. Accessed on: 10/25/2016. Available at: http://www.biosimilardevelopment.com/doc/the-norwegian-

biosimilar-phenomenon-from-biosimilar-to-biogeneric-0001

10Ibid

11Curto et al., Regional Tenders on Biosimilars in Italy: An empirical analysis of awarded prices. 2013. Available at:

https://www.ncbi.nlm.nih.gov/pubmed/24602376

12Germany wants to increase biosimilars penetration. GaBi Online. December 13, 2013. Accessed on: 10/25/2016.

Available at: http://gabionline.net/Biosimilars/General/Germany-wants-to-increase-biosimilars-penetration

13Aitken M. Delivering on the Potential of Biosimilar Medicines: The Role of Functioning Competitive Markets. IMS

Institute for Healthcare Informatics. March 2016. Available at: https://www.imshealth.com/files/web/IMSH%20

Institute/Healthcare%20Briefs/Documents/IMS_Institute_Biosimilar_Brief_March_2016.pdf

14Foxon G et al. Are EU Payers Adapting Biosimilar Pricing and Reimbursement Approval Processes to Optimize

Healthcare Savings? Poster, ISPOR 20th Annual International Meeting (May 2015). Available at: http://www.ispor.

org/research_pdfs/49/pdffiles/PHP106.pdf




16Aitken M. Delivering on the Potential of Biosimilar Medicines: The Role of Functioning Competitive Markets. IMS

Institute for Healthcare Informatics. March 2016. Available at: https://www.imshealth.com/files/web/IMSH%20

Institute/Healthcare%20Briefs/Documents/IMS_Institute_Biosimilar_Brief_March_2016.pdf

17NHS. Commissioning framework for biological medicines (including biosimilar medicines). September 12, 2017.

Accessed October 2, 2017. Available at: https://www.england.nhs.uk/wp-content/uploads/2017/09/biosimilar-

medicines-commissioning-framework.pdf

18Irish Department of Health. Public Consultation Paper: National Biosimilar Medicines Policy. August 2017.

Accessed August 2017. Available at: http://health.gov.ie/consultations/

19A biosimilar in EU, but currently all the insulins are regulated s drugs in the US. This changes 23Mar20 when they

are deemed to be biologics. Add link to statute and draft guidance



21Pink Sheet. Samsung Bioepis’s Biosimilar Enbrel ‘Substitutable’ In Australia As Pfizer Patent Case Is Rebuffed.

April 11 2017. Accessed August 2017. Available at: https://pink.pharmamedtechbi.com/PS120411/Samsung-

Bioepiss-Biosimilar-Enbrel-Substitutable-In-Australia-As-Pfizer-Patent-Case-Is-Rebuffed

22Ibid.

23Biosimilar Development. What Systems Are Needed To Create A Viable Biosimilar Market? April 10, 2017.

Accessed August 2017. Available at: https://www.biosimilardevelopment.com/doc/what-systems-are-needed-to-

create-a-viable-biosimilar-market-0001

24Ibid.

25Lepage, S. What to do about biosimilars? BenefitsCanada. January 2017. Accessed August 2017.

26Ibid.

27Impact of South Korea’s new drug–pricing policy on market competition. GaBi. January 4, 2017. Accessed August

2017. Available at: http://www.gabionline.net/Generics/Research/Impact-of-South-Korea-s-new-drug-pricing-

policy-on-market-competition

28Kim SC et al. Uptake of the First Biosimilar Infliximab since its Approval in South Korea. Arthritis Rheumatol. 2016

May; 68(5): 1076–1079. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4848142/

29Kwon HY, Kim H, Godman B, Reich MR. The impact of South Korea’s new drug-pricing policy on market

competition among off-patent drugs. Expert Rev Pharmacoecon Outcomes Res. 2015;15(6):1007-14.

30Commercial Uncertainty Remains as U.S. Biosimilar Pipeline Matures 10Jun16 http://avalere.com/expertise/life-

sciences/insights/commercial-uncertainty-remains-as-us-biosimilar-pipeline-matures

31Avalere Five Obstacles to Competition 31May17 http://avalere.com/expertise/life-sciences/insights/five-

obstacles-to-competition-in-the-united-states-biologics-market

12 | Issue Brief

32PLACEHOLDER: Pink Sheet Payers Could Guarantee Biosimilar Market Share, FDA’s Gottlieb Suggests. Available

https://pink.pharmamedtechbi.com/PS121612/Payers-Could-Guarantee-Biosimilar-Market-Share-FDAs-Gottlieb-

Suggests (accessed 25Sep17)

33Federal Trade Commission. Emerging Health Care Issues: Follow-on Biologic Drug Competition: A Federal Trade

Commission Report (June 2009). June 10, 2009. Available at: www.ftc.gov/os/2009/06/P083901biologicreport.pdf.

34Quintiles IMS. Biosimilars by Region: Patient access to costly biologics and the regulatory status of biosimilars

differs globally. August 2017. Accessed August 2017. Available at: http://www.quintiles.com/microsites/biosimilars-

knowledge-connect/biosimilars-by-region

35There are at least five 505(b)(2) products approved in the US which could be considered biosimilar-like biologics,

including branded versions of calcitonin, glucagon, hyaluronidase, insulin glargine, and somatropin.

36FDA. Purple Book: Lists of Licensed Biological Products with Reference Product Exclusivity and

Biosimilarity or Interchangeability Evaluations. Accessed December 2017. Available at: https://www.fda.

gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandapproved/approvalapplications/

therapeuticbiologicapplications/biosimilars/ucm411418.htm

37FDA Biosimilar Product Information. Accessed December 2017. Available at: https://www.fda.gov/

Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/

TherapeuticBiologicApplications/Biosimilars/ucm580432.htm

38Medicare patients receiving a Low-Income Subsidy (LIS) are subject to the higher maximum copayments (either

$3.60 or $6.60 in 2015, compared to $1.20 or $2.65 for generics, depending on LIS category) that typically apply

to brand-name drugs. Non-LIS beneficiaries will not receive the 50-percent discounts from manufacturers when

patient financial responsibility is computed in the coverage gap. As a result, previous analysis has shown that

Medicare beneficiaries in the coverage gap are likely to pay more for biosimilars than for their reference product in

the Part D benefit through 2020. Beneficiaries exit the coverage gap at the true out-of-pocket (TrOOP) threshold

($4,850 in 2016).

39Gottlieb, Scott. FDA Taking New Steps to Better Inform Physicians about Biosimilars Through Education about

these Potentially Cost-Saving Options. October 23, 2017. Available at: https://blogs.fda.gov/fdavoice/index.

php/2017/10/fda-taking-new-steps-to-better-inform-physicians-about-biosimilars-through-education-about-these-

potentially-cost-saving-options/

40FDA Patient and Prescriber Outreach Materials. December 2017. Available at: https://www.fda.

gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandapproved/approvalapplications/

therapeuticbiologicapplications/biosimilars/ucm580435.htm

41FDA Commissioner Scott Gottlieb stated that manufacturers may not stay in a market “If they don’t think that

they can capture 20- or 30% market share within the first five years of being on the market” or similar timeframe/

economic model. Washington Post. Transcript: Chasing Cancer Summit. September 19 2017. Accessed October

2 2017. Available at: https://www.washingtonpost.com/blogs/post-live/wp/2017/09/19/transcript-chasing-cancer-

summit/?utm_term=.a739fbfc775e

42Ibid.

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