The new Medicare prescription drug benefit is also driving the change in attitude, Seidman says. Most biotech products are administered in the physician’s office, so they’ll continue to be reimbursed under Medicare Part B, rather than the new Part D outpatient benefit. But the advent of the prescription drug benefit, Seidman says, will make the Centers for Medicare & Medicaid Services all the more aware of the amount of money spent under the program.

"Everyone, now that Part D is real, has significant say in the game. No one wants to hit that tipping point where it’s mandatory for Congress to come in and re-evaluate how the program is run," he says.

Biotech companies are starting to feel the pressure. Managed care has already started to shift more costs to patients, so pharmaceutical and biotech companies are trying to modify patient assistance programs to help cover the costs. Some biotech companies are beginning to take things further, by exploring the possibility of annual spending caps. (See "Spending Caps: A Desperate Measure?" sidebar, in this issue [A#2006500102].)

WellPoint expects some pushback from biotech companies in the beginning; Seidman notes the company encountered resistance when seeking price concessions from large pharmaceutical companies in the early days of managed care. But he anticipates that the biotech industry will eventually succumb to what he believes is an inevitability.

"I can go back in time with every one of the major pharmaceutical manufacturers where we sat down and had negotiations with them and they said ‘No, we’re the biggest and we’re the best, and we’re not going to do that.’ And in a matter of time, when they saw how successful we were with the application of formularies and prior authorization and step therapy, they said: ‘can we sit down and have another conversation?’"

With biotech companies, Seidman says, what worked in the past will work again. "We will have those same discussions with the biotechnology firms," he declares. "It’s important that we have a good give and take with these individuals, because we need them to develop these products, and we need to figure out how to keep the benefit affordable."

Omnitrope’s Commercial Implications

If managed care wants to cut costs, the human growth hormone market isn’t a bad place to start. HGH is expensive; the drugs can cost as much as $20,000 a year, and patients take them for the long term—sometimes for life. While the FDA-approved indication for growth hormone—short stature in adults and children—is a relatively small market, the products are also used off-label as an anti-aging product.

So any discount off a $20,000 a year product would incentivize managed care companies to try to switch patients to the lower-cost drug. Right now, WellPoint’s preferred somatropin growth hormone brands are Genotropin, Eli Lilly & Co. ’s Humatrope and Genentech Inc. ’s Nutropin. But if Omnitrope comes in at a lower price point (it’s expected to launch at a 25% discount), the company could reconsider that arrangement.

WellPoint believes it has the leverage to use a relatively new concept—functional equivalence—in cases like Omnitrope. The insurer will review the clinical literature and decide whether Omnitrope can be considered equivalent to other products in the class—a process similar to the way managed care deems drugs to be interchangeable. That would give WellPoint the leverage to decide which growth hormone drugs to cover—a process Seidman expects will result in "one preferred product."

WellPoint doesn’t use that tool in most cases where there are multiple entrants in a single class, but the growth hormone market is an entirely different story, Seidman says. "They really are follow-on biologics—not necessarily generic ones, but competitors in the space. The ability to drive market share to one preferred product provides us with greater latitude in pricing negotiations."

Of course, Pfizer isn’t expected to take a change in Genotropin’s preferred status lying down. Pfizer has a reputation for being a tough negotiator in any setting, but it is starting to embrace discounting, at least when it sees a real danger to a key brand. (See "CMS Takes Sides in the Statin Wars," in this issue Also see "CMS Takes Sides in the Statin Wars" - Pink Sheet, 1 July, 2006..)

And it’s not just Pfizer—depending on the outcome of WellPoint’s assessment of the class, the company could conclude that all hGH are functionally equivalent. In that case, Omnitrope could replace any of the three products currently on WellPoint’s preferred list. And that could easily encourage a price war in the human growth hormone market—which is exactly what the insurer is counting on.

That’s essentially what happened in the erythropoietin market. CMS essentially invented the concept of "functional equivalence" when it decided to reimburse two different products—Amgen Inc. ’s darbepoetin alfa (Aranesp) and Johnson & Johnson ’s epoetin alfa (Procrit)—at the same price in the hospital outpatient setting. CMS’ decision prompted a huge outcry—especially from Amgen, but also from other biotech companies concerned about the precedent. Indeed, the Medicare Modernization Act signed into law in 2003 explicitly prohibited CMS from using that method in the future, and the agency stopped using the term "functional equivalence" long ago.

But clearly biotech companies were right to worry about the precedent, as managed care plans like WellPoint now intend to use similar methods on other products.

Biotech manufacturers confirm that MCOs are starting to squeeze some products. "Managed care...is starting to put some of their typical pills cost-containment on the biologics," Amgen EVP Global Commercial Operations George Morrow acknowledged during Goldman Sachs’ recent health care conference. "It is something that has affected the growth of the market" for the TNF inhibitor etanercept (Enbrel).

Generic Biologics are Coming

WellPoint hopes to make the most of the Omnitrope approval, but don’t think the company will be satisfied for long with half-steps towards a follow-on biologics policy.

Creating a regulatory pathway for follow-on biologics is essential to keep health care costs down, Seidman says, and is another important part of WellPoint’s ongoing business strategy. By managing costs through the use of generics, Seidman says, managed care can free up money for the more expensive specialty biotech products.

"It is absolutely essential that the FDA adopt a follow-on biologics pathway," Seidman declares. "The current situation is not sustainable long-term. We’re not going to be able to afford some of these newer entries without, for example, a generic erythropoietin."

Seidman sees similarities between the resistance biotech has to finding a generic pathway and drug manufacturers’ resistance to over-the-counter switches of allergy medications a few years ago.

"It’s similar to May 11, 2001, when I was testifying in front of the FDA over the switch of Claritin from Rx to OTC status," he says. "I remember FDA asking Schering-Plough Corp. and Aventis, ‘well, if you’re telling me that these drugs aren’t safe enough for OTC use now, when will they be safe enough? When you lose patent protection?’"

WellPoint petitioned FDA in 1998 to force the OTC switch of several prescription antihistamines, including Schering’s loratadine (Claritin) and Aventis’ (now Sanofi-Aventis ) fexofenadine (Allegra). Schering argued that Claritin’s safety profile didn’t support a switch, but a 2001 FDA advisory committee disagreed. Since then, Schering has lost patent protection for Claritin and—indeed—switched the product to OTC status on its own.

The irony of that decision was not lost on WellPoint. "It was one of those tongue in cheek moments," Seidman says. "I think we have a similar situation with the biotechnology drugs: ‘No, it’s not safe. No, we have all of these questions.’"

"We joke that generic biologics are on the horizon, and the horizon never comes, but these are coming. It’s only a number of years before we have a larger number of biological drugs...and I think what we’re looking for is that convergence of an increased application of biotechnology drugs and an FDA pathway for follow-on products."

But even Seidman agrees that a true follow-on biologics pathway may be years away. For now, WellPoint has a handful of classes where it sees an opportunity, and the potential to move aggressively with Omnitrope. If Seidman is right, biotech manufacturers looking for guidance on how managed care will impact biotech markets in the near term should look no farther than their counterparts in the prescription drug market. For managed care organizations like WellPoint, it’s déjà vu all over again.

Welcome to the P&T Committee: Reining in Biotech Prices

More from Platform Technologies

More from Advanced Technologies