SummaryMultiple Inflation Reduction Act provisions impact biologics and biosimilars, but the net impact and potential consequences will vary across products.
Add-On Payment for Physician-Administered Biosimilars
The Inflation Reduction Act (IRA) established an 8% add-on payment rate for biosimilars (subject to sequestration) under Medicare Part B beginning on October 1, 2022. If a biosimilar’s average sales price (ASP) is lower than the originator product, the biosimilar is eligible for the higher payment rate, which lasts 5 years under the IRA and replaces the previous 6% add-on. Under this provision, biosimilar reimbursement is set at ASP plus 8% of the reference product’s ASP (higher than the reference product’s add-on of 6%) and is meant to provide physicians with a greater incentive to use biosimilars.
The full impact of the policy remains to be seen. Complex supply chain dynamics influence providers’ ability to choose a particular biologic, whether it is a brand name or biosimilar. For example, providers affiliated with a health system may be required to administer an on-formulary product selected by their organization’s pharmacy and therapeutics (P&T) committee. Even if a biosimilar does not carry an interchangeability designation, the P&T committee may consider the products therapeutically equivalent and select the product with the best overall economics, accounting for rebates and discounts. If a biosimilar cannot offer a financial advantage, the health system may forego the add-on payment for the biosimilar in favor of the brand.
Part D Reforms and Rebate Dynamics
Part D redesign increases plan liability in the catastrophic phase of the benefit from 15% to 60%. Additionally, plans will assume more liability for low-income subsidy enrollees. Competitive dynamics for biologics are expected to shift as plans look to manage catastrophic spending, and this may provide new opportunities for lower-cost alternatives. Inflation penalties for Part D products will also limit manufacturers’ ability to raise prices to offer higher rebates to maintain preferred placement, providing further opportunity for lower-cost alternatives, including biosimilars.
Medicare Drug Price Negotiation and Biosimilar Value Proposition
The IRA allows biologics to be negotiated 11 years after Food & Drug Administration (FDA) approval unless a biosimilar competitor is available and marketed. A biosimilar manufacturer may request a delay in negotiation if their biosimilar is expected to come to market within 2 years. Even with the delay provision, most biologics will be eligible for negotiation before a biosimilar would typically be expected to enter the market, given the current dynamics of reference product patent terms and regulatory exclusivities.
Medicare drug price negotiation may therefore erode the value proposition for a potential biosimilar entrant. If Medicare can negotiate a significantly lower price for a given product, biosimilars in the pipeline may then carry a lower value proposition than initially expected, while others may exit the market or never launch. Additionally, a lower overall margin due to the maximum fair price may place greater importance on being the first-to-market biosimilar. As a result, the number of biosimilar market entrants may decrease relative to current expectations, if manufacturers no longer see incremental market share as a sufficient return on investment.
Market Entry and Negotiation Risk
The IRA exempts from negotiation biologic products with a high likelihood of biosimilar entry within 2 years of the reference product being selected for negotiation. Consequently, a multi-source marketplace may have greater net benefits to both reference products and biosimilar manufacturers.
As a result, the posture that brand biologic manufacturers take toward their biosimilar competitors has the potential to undergo a fundamental shift. Historically, the dominant strategy in biopharmaceutical markets has been to prioritize the longevity of the brand via patent protection and litigation, which often made it difficult for generic/biosimilar manufacturers to enter a market. However, the exemption from negotiation due to biosimilar entry could shift the dominant loss of exclusivity market strategy, representing a new approach that may lead to more expeditious biosimilar entry. This dynamic may introduce new incentives for strategic settlements with certain biosimilar manufacturers; however, the exact terms of such settlements could also limit the number of entities able to initially enter a market.
It remains to be seen how regulating bodies such as the Federal Trade Commission and Centers for Medicare & Medicaid Services would view new loss of exclusivity market strategies that lead to targeted market entry arrangements. The IRA stipulates that biosimilar and reference product manufacturers cannot enter an agreement that dictates market launch tactics. Additionally, initiatives by the Biden administration (e.g., the FDA, Federal Trade Commission, and Department of Justice) regarding patent practices and infringement suits factor into how these behavior changes will be interpreted and how oversight will be applied into the future.
The Future of Biosimilar Markets
The IRA’s changes to competitive dynamics will impact originator biologics and biosimilars in intersecting ways. While there is potential for a fundamental shift in behaviors between reference product and biosimilar manufacturers that results in speedier market entry of biosimilar alternatives, the potential for simultaneous market contraction may have a negative impact on biosimilar pipeline development. These dynamics raise questions around how access to biologic drugs will evolve and the role of competition in driving patient access.
Avalere’s experts in Medicare, competitive marketplace dynamics, and IRA implementation are supporting healthcare stakeholders in unpacking the scenarios and outcomes of shifting behaviors in the marketplace. To learn more about how we can assist you in thinking about your competitive market access strategy, connect with us.
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