Reduce Costs of Specialty Therapies through Biosimilars

CBIs 14th Annual Specialties TherapiesLas Vegas, NV

Joseph P. Fuhr Jr. Ph. D.

Lecturer, College of Population Health

Thomas Jefferson University

Jan. 26, 2017

jpfuhr@mail.widener.edu

1

Introduction

• Economics is based on incentives

• People and businesses respond to incentives

• The incentives seemed to be aligning in U.S. biosimilar market

• The biosimilar market will evolve to be highly competitive

• More competitors than can survive long term

• As in all pharmaceutical market there will be a few winners and many losers

2

• R&D costs for one originator biologic have been estimated to be between $1.3 billion and $2.6 billion

• When taking failures into account, the costs could be be as much as $5 billion each

• Merck estimates that 75% of its R&D is spent on failures

• Only 5% to 10% of drugs that reach clinical trials get FDA approval

• Only 30% of those are commercial successes

Biologic Development

3

• Biosimilar development is expected to cost between $100 million and $200 million and take between eight to ten years

• Celltrion has invested $112 million in the development of Remsima, a biosimilar for Remicade

• Entry into the biosimilar market also requires establishing manufacturing facilities that must meet FDA requirements regarding “good manufacturing practices”

Biosimilar Development

4

Some Biosimilar Developments

5

Scientific Name # of BiosimilarsDeveloped/InDevelopment

Reference Product

Global Sales Assumed Patent Expiration

Ranibizumab 3 Lucentis 2015: ~3.6 Billion US: June 2020Europe: 2022

Rituximab 14 MabThera/Rituxan

2105:~7 Billion US: Sept 2016Europe: Feb 2013

Infliximab 7 Remicade 2014: ~9.3 Billion US: Sep 2018Europe: Feb 2015

Tratuzumab 9 Herceptin 2014: ~6.2 Billion US: June 2019Europe: July 2014

Cetuximab 3 Erbitux 2013: ~2.3 Billion US: Feb 2016Europe: June 2014

Bevacizumab 8 Avastin 2015:~6.9 Billion US: July 2019Europe: Jan 2022

Barriers to Entry

• There are many barriers that make entry of biosimilars more difficult than generics

• Biosimilars are much more costly to develop and the process takes much longer than generics

• The cost of establishing a manufacturing facility has been estimated to be around $250 million

• Their complexity makes expertise in manufacturing quite important

6

Barriers to Entry

• Companies experienced in biologic manufacturing will have a learning curve advantage which translates into a cost advantage

• Entrants into biosimilars are likely to be large, biologic originators for other reference products

• The originators have actively responded in a variety of ways

• Lowering price, developing second generation biologics (biobetters), patent extension, better devices and reducing the frequency of dosages

• Enbrel(Amgen) patented extended in U.S. until 2029

7

Barriers to Entry

• Clinical trials are currently needed for approval

• These trials can be quite expensive

• Also 85 percent of clinical trials are delayed because of difficulties in obtaining sufficient patient recruitment

• With so many biosimilars for same reference product makes it more difficult to get volunteers

• The cost of getting the reference product can be high

• Risk Evaluation and Mitigation Strategies (REMs) issue and availability of samples can make it difficult to obtain the reference product

8

• Prescription drugs get market exclusivity for a specific time period

• In U.S. biologics get 12 year market exclusivity from FDA approval and this is not subject to litigation

• Patent rights for 20 years from time of patent application

• Must get FDA approval before marketing drug so effectively around 10 to 12 years

• Economic rationale for exclusivity and patents allow innovator the ability to get a return on investment

• Unfortunately, in U.S. often not clear when patents are valid or patents no longer in effect for biologic which can lead to much uncertainty and patent litigation

9

Exclusivity Period and Patents

Biologics Among the Highest Priced Drugs • Biologics are among the highest priced drugs

• The annual price for Soliris in 2015 was $536,529 and Amgen is developing a biosimilar for it

• They are than 1% of prescriptions filled in the U.S. but account for around 28% of prescription-drug spending

10

11

• Given the higher costs of biosimilars one would not expect prices to decrease as much as in generic market

• In the EU biosimilar competition initially resulted in price decreases of around 20 to 30 percent

• Many biosimilars are being produced by brand name companies which because of their reputation should be at less of a competitive disadvantage than early entrants into the generic market

• Expect competition to be similar to brand to brand than brand to generic

Biosimilar Prices

Complexity

• Complexity of biologic/biosimilar marketplace

• As complex as biologics are: its market is just as complex

• Laws and regulations, competitors, decision makers: payers, providers, patients

• Seen how difficult it is to get law, develop pathway, approval process and patents issue

12

• Revenues for biologics are growing at twice the rate of global drug revenues overall.

• Some estimates have biologics reaching 50% of pharmaceutical sales.

• U.S. sales in 2014 were around $200 billion and grew over 10%

• The U.S. is around 50% of biologics market

• Many biologics have sales of over a billion dollars

• Over 30 biologics have lost or will soon lose patent protection which represents $80 billion

• The reference products for the 5 biosimilars that Sandoz has in its 2020 development portfolio generated nearly $44 billion in 2015 global sales.

• Given the potential market opportunity, there is expected to be an influx of biosimilars into the market

Market Opportunities

13

U.S. Market

• U.S. more complex than EU more private and public payers

• Medicare Part D not allowed to negotiate for discounts

• Medicare Part B controversy over one J-code for all biosimilarswith average selling price

• If each biosimilar does not have a unique J code then firm will have no control over price and could hurt market entry

• Medicaid special discount

14

U.S. Market

• Zarxio entered with 15% discount same as when it entered in EU when launched in EU in 2009

• Pfizer’s Remsima entered with 15% discount

• Not surprising since with generics do not see big discounts when only one competitor

• Bigger discounts come with more competitors

• Private payers can act like tendering similar to what happened in Hepatitis C market with discount of around 46%

15

U.S. Market

• Express Scripts is eager to adopt biosimilars to cut costs

• CVS has put Zarxio on formulary and took Neupogen off

• Ohio Public Retirement System has lower co-pay for biosimilars than reference product

• Prices higher in U.S. than EU so discounts can be greater

• So how low can prices go?

16

U.S. Recent Developments

• Biosimilars for Neupogen (Sandoz), Enbrel (Sandoz), Remicade(Pfizer) and Humira (Amgen) approved

• Two launched and two delayed due to litigation

• Amgen claims has patent protection until 2029 for Enbrel

• Pfizer Inflectra launched at risk

• Neupogen sales fell by 23% with biosimilar in market

17

U.S. Recent Developments

• Sandoz Neulasta biosimilar rejected by FDA in complete response letter, working to address questions

• Second biosimilar application, Celltrion (Remsima) meeting postponed in Feb.2015 due to information requests from FDA but later approved

• Coherus in Dec. 2015 delayed filing to conduct additional PK/PD studies

18

U.S. Legal and Regulatory Issues• First biosimilar approved in U.S. in March 2015 delayed until Sept.

2015 because of legal issues

• Entry 180 days after approval

• Need to know final composition and approved uses of biosimilar

• Patent Dance not necessary

• Patent holder can sue for infringement

• With so many biosimilar applications, FDA resources are becoming strained which could lead to delays in approvals

19

Litigation

• Amgen filed a patent infringement suit against Sandoz, concerning Enbrel and asked the U.S. District Court to grant an injunction to block Erelzi sales.

• J&J Remicade (Inflectra) patent ruled invalid by court but still claims another one

• J&J will appeal at both court level and the U.S. Patent & Trademark Office

• Launch of a Remicade biosimilar by Pfizer prior to the outcome of the appeals is at risk

• Pfizer CEO Ian Read said. "While launch timing of Inflectra will ultimately depend upon a number of factors, such as marketplace dynamics and intellectual property considerations, we are continuing with the preparation of our launch plans for 2016."

• AbbVie has stated that it has a “robust” patent defense system in place on Humira.

• Sandoz launched its biosimilar of Neupogen, but it has asked U.S. Supreme Court to intervene.

20

Litigation

• Supreme Court invited the Solicitor General “to file a brief in this case expressing the views of the United States.”

• The central issue is when the 180 day notice becomes effective at application or approval

• The lower and appeals court decided after approval

• Amgen is fighting with Apotex over a slightly different take on the 180 day issue.

• Apotex, which is developing a biosimilar of Amgen’s Neulasta, went through the entire “patent dance” with Amgen,

• Apotex claims it does not have to give 180 day notice, but Amgen won and Apotex appealed.

• If either side in that fight asks the Supreme Court to intervene the Supreme Court could decide on both and provide the industry with an answer to the 180-day issue

21

EU Market Experience

• Each country has a unique reimbursement system with different incentives for biosimilar use

• Over much of Europe, initially there has been little financial incentive for the patient, the physician or the pharmacists to opt for lower priced biosimilar products

• This is changing

• Very little switching to biosimilars so uptake did not occur quickly

• Market was limited to new patients for the drugs

22

Biosimilars approved for use in Europe since 200614

Product INNNumber of biosimilar versions licensed in

EuropeYear(s) of approval

Somatropin 2* 2006

Epoetin alfa 3 2007

Epoetin zeta 2 2007

Etanercept 1 2016

Filgrastim 9* 2008–2014

Infliximab 3 2013–2016

Follitropin alfa 2 2013–2014

Insulin glargine 1 2014

23*One somatropin biosimilar and one filgrastim biosimilar were later withdrawn for commercial reasons

Source: IMS

EU Pricing

• EU has tendering which has resulted in some huge discounts 72% in Norway (Orion Resima/Remicade)

• Hospital or plan purchase, generally regional, 45% discounts in France (Hospira Inflectra/Remicade

• NICE least expensive drug including biosimilars should be used for RA

• Originators have responded in some markets by cutting price

• Originator strategy can’t cut prices too much in individual country which could lead to lower prices in all countries

• So profit maximum strategy can be different for different products

• Merck In EU cut Remicade price by 25%

• Napp (Celltrion) claims its price decease is 40% to 50 % off list price in tendering areas but with Pharmaceucical Price Regulation Scheme savings is be 50% to 60%.

24

EU Recent Developments

• Samsung –Bioepsis: Enbrel and Humira biosimilars approved

• Biogen: Remicade and Enbrel biosimilars approved

• Mylan and Biocon: application approved for Herceptin and Neulasta

• Sandoz : application approved for Neulasta

• Remicade sales in Q2 down from $455 million to $339 million in EU

• In some markets biosimilars have 80% of Remicade (Inflectra) market

25

Biosimilars and Brexit

• Loss of access to the regulatory oversight of the European Medicines Agency (EMA)

• UK needs to start its own regulatory body

• No regulatory pathway in place in the U.K. to approve biosimilars

• What happens with biosimilars that have been approved by EMA?

• How would UK choose to approve biosimilars?

• There is going to be period of uncertainty, which could delay biosimilar approvals and launches

• UK is more free market relatively to EU.

• How would this affect biosimilar competition in EU ?26

Other Countries

• South Korea positioned to be major global biosimilar powerhouse• Many companies developing biosimilars• Celltrion’s Remsima(Remicade) approved in over 70 countries and 6

other biosimilars being developed, • Samsung Bioepsis has 5 biosimilars in portfolio • South Korean Samsung is working to expand its biosimilars business

beyond Samsung Bioepis. • Archigen Biotech Ltd., a joint venture between Samsung Biologics

and U.K.-based AstraZeneca, applied for FDA’s approval to initiate phase 3 clinical trials for a biosimilar drug referencing Biogen’s Rituxan (rituximab).

• Japan entering biosimilar manufacturing market• Japanese firms forming joint venture for biosimilars• Nippon entered biosimilars with Cellitrion for infliximab approved in

Japan in 2014.• In 2015 stated to develop Herceptin biosimilar with Cellitrion 27

Norway

• Norway has approved biosimilar versions of the biologicals somatropin, epoetin, filgrastim, infliximab and etanercept

• Epoetin and filgrastim are used for in-hospital treatment (paid by the regional health authority) and by patients at home (paid for by national insurance).

• Tender prices of biosimilars of these two products are discounted up to 89%, Discounts for use outside of hospitals are around 50% for filgrastim and around 25% for epoetin, with a total market share of over 80%

• The tender winner can gain market share outside the hospital

• Somatropin is used for home treatment

• Biosimilar prices somatropin are on average 18 % to 29% below the originator’s

28

Norway

• In 2016 etanercept biosimilar of Samsung Bioepis, Benepalitendered a 47% discount compared to the price of Enbrel

• In 2014 Orion in a tender for Remsima had a 45% discount on Remicade’s list price

• In 2015 the discount increased to 72%

• In 2014 a 52-week Phase IV NOR-SWITCH study concluded that “the switch” from Remicade to Remsima “was not inferior to continued treatment” with Remicade.

• Remsima has 92.9 % of the market share in Norway, 96% in Denmark and 88 % in Finland

• In each of these countries, switching was recommended. In Sweden where switching not recommended biosimilars have 33.5 percent of the market.

29

Denmark

• In Denmark in 2012 Sandoz’s Omnitrope biosimilar won the tender

• Within 2 years Sandoz had 50 percent of the HGH.

• In 2013 Novo Nordisk the originator won the tender

• Patients were switched from biosimilar to the originator

• In 2014 Sandoz won the tender with an 83% discount

30

Other Countries

• Cipla (India)to build biosimilar plant in South Africa

• Biocon (India) is planning to file biosimilar approval applications for Neulasta in the U.S. and Herceptin and Humirain the U.S. and E U within the company's fiscal year

• Biocon launched a Lantus biosimilar in Japan and the European Medicines Agency will be reviewing an application for a biosimilar of Neulasta

• Pfizer committed to a new $350 million biosimilar manufacturing facility in China

31

Government Policies that Disadvantage Biosimilars• Part B one “J” code for all biosimilars for same reference

product.

• Firm has no control over CMS reimbursement rate

• Since reimbursement rate is determined after product purchased physicians who choose biosimilars may pay higher price than reimbursement

• Wrap around services may not be provided by lowest price biosimilar thus decreasing consumer welfare

• FDA recognizes quality may differ but CMS reimbursement system does not

• Part D has consumer subsidies for reference products but not biosimilars when it donut hole 32

• Biosimilar uptake in the EU has been successful when stakeholders have the right incentives.

• High biologic prices is leading to pressure by payers to switch to lower priced biosimilar

• Bundling of payments for providers so that they receive a fixed price for treatments would encourage the use of less expensive inputs, including biosimilars

• Many biologics are physician administered; bundling would be easily adopted for these biologics

• Similarly, the growth of ACOs, encouraged by the ACA, where providers earn higher profits for cutting costs, would seem to encourage the use of biosimilars 33

Incentivizing Market Acceptance

• Reference pricing, which make patients pay out of pocket for prices above the insurance reimbursement rate, can encourage patients to seek biosimilars

• In the U.S. market, third party private payers have the ability to negotiate the best deal for their clients and use tier pricing

• In the U.S. exclusive arrangements could be utilized to encourage more competition and will lead to more rapid expansion of the use of biosimilars, similar to the hepatitis C market

• The uptake of biosimilars could proceed faster than the experience in the EU and other developed markets

34

Incentivizing Market Acceptance

Naming Issues

• FDA has decided biosimilars have a 4 letter suffix

• Highly similar but not identical so should have different names

• All have same name more difficult to distinguish between products

• Better to have different names so easier to trace if adverse events

• Since most biosimilars are being produced by brand name firms different names should not be a competitive disadvantage

35

Post Marketing Vigilance

• Batch to batch variations in all biologics

• Biosimilar batch may be more similar to originator (reference product) than originator

• FDA needs to monitor adverse events

• Post- marketing surveillance programs for all biologics

• Immunogenicity can occur in biologics

• Importance of naming issue

• All have same name more difficult to distinguish between products

• Better to have different names so easier to trace if adverse events

36

Switching

• Switching issue in EU initially only new patients were getting biosimilars

• Established patients kept on originator biologic

• So little of market was opened to biosimilars

• This changed with Norway tender

• NOR-switch study concluded switching from Remicade to Remsima does not affect patients

• Switching will be key to uptake and is occurring in U.S.

37

Celltrion

• Celltrion has dual distributorship in EU

• If one distributor can discount at 72% and purchasing from Celltrion

• What is Celltrion’s cost of production and what are they selling it for to distributors?

• Celltrion does not care what discounts are because it is getting its price

• Greater discounts more sales for Celltrion

• Some have claimed that the government of South Korea has subsidized the development of biosimilars to foster the growth of the domestic industry

38

Second Generation Biologics

• Some originators are producing second generation originator biologics which offer various benefits over the first generation biologics

• Neulasta is administered once a week compared to Neupogenwhich is given daily

• Neulasta second-generation of Neupogen single treatment cycle cost of $3,400 compared with Neupogen’s cost of $6,000

• Roche has developed new Gazyva which is 2nd generation of Rituxanin/MabThera

• In clinical trials Gazyva results in extra year of life

39

Second Generation Biologics

• So will physicians stop prescribing rituximab and go to Gazyva

• Market shares may be misrepresented if have 2nd generation product

• Roche turning to subcutaneous reformulations to deter biosimilar competition.

• For Mabthera (Rituxan U.S.) treatment time reduced from 2.5 hours to 7 minutes

• Herceptin had 47% of market but with subcutaneous has 70% of the market

• Reference products are going for new formulations or device combinations to counter biosimilars

40

• It is important to note that the primary policy objective is to increase consumer welfare

• The market share of biosimilars is not a fully informative metric

• The relevant welfare benchmark is not price of the biosimilar relative to the reference product, but the comparison price before competition

• The increase in quantity due to lower prices increases access

Consumer Welfare Gains

41

Potential Gains from BiosimilarCompetition • Prices of biosimilars will be about 25 to 30 percent less than

their reference products.

• The savings to consumers and society could be much greater in the case of biosimilars because of their higher prices

• Revimid which treats multiple myeloma and whose annual cost in 2015 was $128,666

• A 30 percent saving on this drug would be about $38,600

• Lipitor, one of the world’s blockbuster drugs lost patent protection in 2011

• The annual cost for a 20 mg regimen of treatment with Lipitor in 2011 was $1939

42

Potential Gains from Biosimilar Competition• Even if the generic price were 90 percent below that of Lipitor,

annual per patient savings would be $1745

• Biosimilar competition is also expected to result in substantial benefits.

• A RAND study estimated that savings from biosimilar competition could save $44.2 billion in the U.S. over 10 years

• Generic drugs have saved over a trillion dollars in healthcare costs between 2002 and 2011

43

Competition

• Sandoz committed to launch 5 biosimilars by 2020.

• Sandoz developing biosimilars for Enbrel, Humira, Neulasta, Remicade, Rituxan, as well as others.

• Amgen has 9 biosimilars in pipeline

• With Pfizer-Hospira merger, Pfizer will be in biosimilar market

• Samsung Biopsies phase 3 trials on etanercept (Enbrel), infliximab (Humira)and adalimumab (Remicade)

• Amgen and Sandoz are all working on a biosimilar for Humira

• Momenta and Mylan in 50/50 relationship to develop 6 biosimilars

• Mylan is paying $45 million upfront and an additional $220 million more in milestones.

44

Biosimilar Risks

• Shire bought Baxalta and ended biosimilar program with Momenta and Coherus.

• Eprius selling assets of $14 million acquisition of Broceros to biosimilar partner Polpharma (Poland) for $3.5 million to stay in business

• Eprius files for bankruptcy

• Pfizer terminated partnership with Pfenex for biosimilar for Genentech Lucentis

• Formycon stock up 16% after announcement allegedly only remaining developer

• Some firms stopped development of Rituxan biosimilar45

Patient and Physician Education

• The FDA and industry have created campaigns to educate the public about biosimilars

• The FDA believes that “the success of this burgeoning industry will rely on educating and earning the trust of patients and providers.”

• These include information concerning safety and scientific development as well as the FDA approval process

• Generic Pharmaceutical Association (GPhA) has formed a Biosimilar Council whose goal is “to ensure a positive environment for patient access to biosimilar medicines.”

46

Patient and Physician Education

• The council provides information about the safety and efficacy of biosimilars

• It also focuses on among other things educating health providers and the public about biosimilars

• Various biosimilar companies have also set up educational campaigns

• For Zarxio, Sandoz has dedicated sales force, educational programs and patient co-pay program

• Pfizer will focus on healthcare providers for its Remicadebiosimilar

• Some payers have education program 47

First Mover Disadvantage

• Most markets first mover has advantage

• Advantage: can come in at higher price

• As more biosimilars enter price will decrease

• Disadvantage: Higher cost of entry

• FDA approval: more uncertainty and thus high costs of preparation for approval process

• Legal issues and costs due to potential patent issues

• Cost of educating physicians and patients concerning what a biosimilar is and the quality of biosimilars

• Later movers can free ride on all of the above and may not need dedicated sales forces

48

Hatch-Waxman (Generics)

• Thirty years ago, the U.S. was faced with similar concerns as it developed regulatory framework for generic chemical drugs entry

• The resulting Hatch-Waxman Act was intended to balance competition and innovation as is BPCIA

• The major public policy goal was to enhance competition from generics, which would lead to lower prices, but still provide the originator with the incentive to innovate

• The Hatch-Waxman Act has been successful in a number of ways

49

Hatch-Waxman (Generics)

• It took some time for U.S. consumers to accept generics

• Presently, 84% of the small-molecule chemical market in the U.S. consists of generic drugs

• Third party payers have induced patients to use generics by lower out of pocket payments

• Many consumers still believe that generics are simply an insurance company device to save money

• Generic drugs have saved over a trillion dollars in healthcare costs between 2002 and 2011

50

Ironic Relationship

• Ironic relationship between generics (biosimilars) and originators companies

• The generic market (biosimilars) would not exist without the originators market

• Nothing to copy

• The branded market is also helped by the existence of generics

• The generic market decreases the price of older drugs.

• Allows for higher priced newer drugs

• Consumers benefit from both

51