From The Editor | November 27, 2018

Express Scripts New Flex Formulary: Biosimilar Friend Or Foe?

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By Anna Rose Welch, Editor, Biosimilar Development
Follow Me On Twitter @AnnaRoseWelch

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For all you biosimilar nerds like me who have read Harry Potter, perhaps you’ll agree when I say that, in the biosimilar world today, the word “rebate” seemingly is imbued with the same negative juju as the name “Lord Voldemort.” (For those who haven’t read the books, this name is never spoken aloud out of fear he — the evilest sorcerer known in the wizarding world — will materialize and wreak major havoc.)

I’m aware this analogy is a bit dramatic; after all, rebates are a traditional part of the payer contracting game for any drug maker. (Rebate ≠ Most Evil Wizard of All Time.) And though biosimilar makers are fighting against some innovators’ questionable rebate strategies, these discounts are just as important in biosimilar contracting negotiations with commercial payers as they are for innovator drugs. 

However, in the past year or so, employers and some manufacturers increasingly have been pushing for the elimination of rebates altogether — or at least for alternative methods of distributing or passing rebates on to consumers. Last year, for example, I wrote an article about a new proposal from CMS requiring a portion of a drug’s rebates to be passed on to patients at the point-of-sale. Specifically, the article highlighted how this potential move could be beneficial not only to patients, but also for biosimilars. We also know the U.S. Department of Health and Human Services (HHS) is currently penning a yet-to-be-revealed rule that could remove the safe harbor provision. (This provision legally permits manufacturers to provide rebates.) As Biosimilar Development’s editorial board member, Molly Burich, shared with me in a recent Q&A, the potential elimination of rebates on the federal level could be a game changer for biosimilars.

But just as interesting is what we’re starting to see in the commercial space. Recent news from Express Scripts reveals that we’re beginning to enter a hybrid world as far as rebates are concerned. The pharmacy benefits manager (PBM) recently announced it is launching a new formulary called the National Preferred Flex Formulary, which will offer employers a chance to experience the rebate-less world for which they’ve been advocating.

As the payer’s press release shared, manufacturers have two options: they can provide their branded product with a rebate on the traditional formulary or they can provide an authorized alternative product boasting a lower list price via the new Flex formulary. (The list price is the starting value of a drug prior to the addition of a rebate.) In turn, employers can decide whether they’d like to stick with the original formulary and collect rebates from the brand products, or if they’d like to select the cheaper alternative and save money right off the bat.

To start, this new formulary will feature authorized alternatives to Epclusa and Harvoni in the hepatitis C treatment space. But we likely will continue to see additional authorized alternatives added in the future.

I’m sure there are a number of opinions on how this development could impact the healthcare space and employers as a whole. For a good discussion on this, I’d suggest you read Adam Fein’s article in Drug Channels. However, when I first read this news, my mind immediately jumped to the question: how will this impact the biosimilar industry? Though it’s much too early to say for sure, we will need to watch how this formulary impacts the brand vs. biosimilar landscape, and, in turn, the performance of biosimilars in the pharmacy reimbursement space. Though this Flex formulary could be a positive development for patients’ wallets, from the biosimilar competition standpoint, it raises a few critical questions and potential concerns.  

The “Authorized Alternative” Playbook: What Does This Look Like?

There has been quite a bit written in the past few years about authorized generics (AGs). AGs are the same product as the brand drug, however, they are marketed using different names, labels, packages, and product codes (national drug codes). These products are either launched and sold by the originator, or they’re marketed by another company which received permission from the originator. (It’s important to note the regulatory distinction between an AG and a traditional generic, the latter of which is made by a different company following the brand’s patent expiration and approved via an FDA abbreviated new drug application (aNDA). An AG is approved much more quickly under the brand drug’s new drug application [NDA] because it’s the same exact drug.)

On the industry level, these AGs can be a useful market competition strategy for an originator company and can also be used to reduce the increasing gap between list price and post-rebate/discount net price (which Fein refers to as the “gross-to-net bubble.”) For instance, an originator company can use an AG to maintain a strong foothold on the market, especially in the face of generic competition. As RAPS reported a few years ago, following its censured price spike of the epi-pen, Mylan announced it would be launching an authorized generic version of the drug at a much lower price point of $300 dollars for a two-pack. In addition, Fein highlighted how Gilead Sciences turned to alternative generics and Amgen slashed list prices for Repatha and launched a new NDC to help close the “gross-to-net bubble.”

The authorized alternative method is also particularly beneficial for patients. Consider the following situations demonstrating (in simple terms) how the traditional vs. the Flex formulary could impact patient costs — especially those with coinsurance in the specialty pharma space.

In the traditional formulary arrangement, say a drug has a $1,000 price tag. This price comprises the drug’s list price of $700 and the manufacturer’s $300 rebate. This rebate is divvied up between the PBM and the employer, which uses said rebate to decrease the cost of healthcare premiums for all employees. A patient responsible for covering a 20 percent coinsurance on the drug will pay $200 at the pharmacy. However, they will also be realizing lower overall healthcare costs, thanks to the rebate passed on to the employer to decrease premiums.

Under the Flex formulary, a manufacturer would offer the authorized alternative drug at the $700 list price (no rebate). The patient would still be responsible for paying 20 percent coinsurance for the drug at the pharmacy, but since the overall price of the drug is lower, the patient would only pay $140 (as opposed to the $200 they’d pay under the traditional formulary). However, it’s important to note that without the rebates going back to the employer, all employees would likely see an overall increase in their healthcare premiums.

From what I’ve heard in my inquiries about this news so far, it’s unlikely we’ll see employers rapidly adopting this Flex formulary. This partially has to do with what Fein acknowledged in his own article: despite concerns about the rebate system as a whole, employers are accustomed to receiving these rebates. But by offering a new type of formulary sans rebate, PBMs may also be cleverly positioning themselves slowly but surely to be less reliant on a rebate-laden system which they have regularly been accused of prolonging. In turn, it will be up to other stakeholders — in particular, employers — to play their part and embrace lower-cost products and the rebate-less world for which they’ve fiercely advocated.

A Hybrid Rebate Model: Another Biosimilar Market Blockade?

Biosimilar companies should also keep watch on how this type of formulary could challenge biosimilar competition in the future. Whether Express Scripts is extending this formulary outside of the hepatitis C/small molecule space was not specified in the press release. But there exists a real possibility that this formulary (or type of formulary) could pose several specific challenges for biosimilar makers in the short-term — especially those looking to launch Humira in 2023.

A few weeks ago, one analyst stunned the biosimilar industry with word of an 80 percent discount, which (supposedly) enabled AbbVie to secure the national tender of an unnamed EU country. As I discussed in an article following this news, there are questions about which players really offered this 80 percent discount and what the long-term implications of this pricing strategy on biosimilars will be. But those of us watching the U.S. market take shape thus far are painfully aware that innovators have not let go of their market shares easily. We should be prepared to face additional shenanigans in the future — especially as we see the arrival of biosimilars for heavy-hitter innovators like Enbrel and Humira.

Just as we’ve seen companies rely on authorized generics to brace for competition, it would not surprise me in the slightest if the biosimilar industry should find itself facing a similar situation in the future, thanks to formularies like Express Scripts’ Flex formulary. (I’m not the only to argue as such — in fact, one expert questioned whether we already had begun moving towards “authorized biosimilars” in his October 2017 article.)

Come 2023 as the different biosimilars begin entering the U.S. market, AbbVie, for example, could choose to launch an authorized “biosimilar” of Humira at an 80 percent discount via the Flex formulary. It goes without saying that this type of pricing behavior could cut biosimilars off from the market. So, even if a biosimilar should come to market and strike a deal with Express Scripts to be available for, say, $600 on the Flex formulary, there’s nothing keeping an originator from creating an authorized biosimilar and offering it for a lower, less sustainable price for a biosimilar maker to match right away.

It's also worth noting that, given the originator’s ability to legally finagle an additional five years of market exclusivity in the U.S. (to make up for European market financial losses), there’s always a chance the innovator would be in a position to offer an 80 percent rebate for Humira on the traditional formularies, as well. AbbVie may be letting biosimilars come to market in 2023, but it would also have the financial power and the formulary opportunities to challenge biosimilars in a rebate and post-rebate world.

Though employers’ interest levels in this formulary and the resulting market dynamics will not be fully understood anytime soon, this news creates a fascinating and critical line of inquiry for biosimilar makers. As the healthcare space continues to advance and other payers perhaps choose to follow in Express Scripts’ footsteps, how will biosimilars — which have been a hybrid commercialization exercise in and of themselves — fare within a hybrid rebate space?

As per usual, please feel free to be in touch with your own thoughts or questions below in the comment section or via email (always off-the-record) at anna.welch@jamesonpublishing. I always look forward to hearing from readers to enhance my own understanding of this complex space.