Is J&J's Remicade® part of the "rigged" system claimed by FDA's Gottlieb? Pfizer's Inflectra® antitrust suit has the answer.
FDA’s Commissioner Scott Gottlieb said today that a “rigged” system between drug firms and insurers is stifling entry for less-expensive biosimilars. Gottlieb stated that certain payment arrangements “raise another, perhaps even more insidious barrier to biosimilars taking root in the U.S., and gaining appropriate market share.” Is J&J’s exclusionary contract scheme to discourage competition with Pfizer’s biosimilar for Remicade® a poster child for what Gottlieb is lamenting? Pfizer recently sued Janssen over that very question, and the federal court is scheduled to decide a motion answering that question very shortly.
Pfizer’s Inflectra® biosimilar for Janssen’s Remicade® was approved in April 2016 and launched in November 2016. Yet, to date, Inflectra® has struggled to eat into Remicade®’s market share. Pfizer sued Janssen for violating antitrust laws. Pfizer’s principle contention is that Janssen has stifled the market for its biosimilar by forcing insurers exclude coverage for Inflectra® and forcing providers to avoid stocking the drug. This case will test whether Janssen’s exclusionary contracts is a viable strategy for stifling biosimilars, especially where patents alone cannot keep them out.
The case was filed in September 2017 in the federal court in Pennsylvania. As expected, Janssen has moved to dismiss the case. The motion has been briefed, and the court is likely to schedule oral argument in the near-term.
Pfizer claims that J&J stifled competition by inducing insurers and providers to exclude Inflectra®
There is often an “installed base” of patients for certain biologics drugs covering chronic conditions. These legacy patients have been stable on the originator biologic, and thus are unlikely to switch to a biosimilar, even if a lower cost biosimilar is available. (Biosimilars do not typically command the steep discounts seen by small-molecule generics.) For infliximab, the protein in Remicade®, legacy “installed base” patients comprise roughly 70% of the annual market. Thus, Pfzier acknowledges that the sweet spot for Inflectra® are the 30% of new patients coming onto the therapy each year.
Pfizer argues that J&J hatched a distribution scheme titled the “Biosimilars Readiness Plan.” Janssen induced insurers to exclude coverage for Pfizer’s Inflectra®, or any other infliximab biosimilar. It did so by threating to deny rebates for all Remicade® patients, (after raising the drug’s price.) This creates a “rebate trap.” For Pfizer to compete against the trap, it must offer a rebate equal to the Janssen’s rebate. But that means pricing Inflectra® drug below cost. Janssen purportedly turns the screw on insurers even more by threatening to deny rebates across lots of other Janssen drugs if any Remicade® biosimilar is not excluded. There is an exception for patients that first fail on Remicade®. Yet, Pfizer argues this “first fail” exception is illusory since, if a patient fails on the originator biologic, physicians will never prescribe the biosimilar.
Janssen’s “rebate trap” has indirect consequences that further forecloses the market for Inflectra®. Infliximab is an infusion product, which means it must be stocked in advance by clinics and hospitals, rather than directly purchased by patients on an as-needed basis. Given the risks that Inflectra® will be denied coverage, providers have avoided stocking Inflectra®. Janssen further discourages providers from stocking Inflectra® by also offering the providers (hospitals, clinics) discounts and rebates only if they use the same levels of Remicade® before Pfizer’s biosimilar was launched. The net effect, Pfizer claims, is that 90% of providers are not currently stocking Inflectra®. This suggests that Janssen has expanded its monopoly over 70% of legacy patients to almost the entire market (Pfizer puts that number at 96%.)
Against this, Pfizer contends that J&J has actually increased the price of Remicade®, even net of all rebates, discounts and price concessions, thus further extending its monopoly. Rather, the increased premium price is used as a penalty for insurers and providers that refuse to exclude Inflectra®. Thus, according to Pfizer, purchasers are not benefitting from J&J’s Biosimilars Readiness Plan, either in terms of lower prices or wider choice or drugs.
J&J claims Pfizer has a case of sour grapes
Janssen’s response to Pfizer’s lawsuit can be simply paraphrased as, don’t blame us that you don’t know how to sell your product. Just because Pfizer’s biosimilar drug is underperforming does not necessarily mean that Janssen has violated antitrust laws. And Janssen is correct that antitrust laws do not guarantee protection from legitimate price competition.
Against this, Janssen offers numerous reasons that Inflectra® has likely failed, which have nothing to do with Janssen’s exclusionary agreements with insurers and providers. Remicade® has been on the market for years, and physicians are very familiar with it. By contrast, biosimilars remain very new, and physicians and patients are still learning to embrace them. Inflectra® is a biosimilar for Remicade®, but not deemed interchangeable. Remicade® remains cost-effective, and even discounted biosimilars are insufficient to move physicians and patients off the originator drug. Finally, Inflectra® does not just compete against Remicade®, but against lots of other FDA-approved drugs for chronic inflammatory conditions. Put simply, Janssen argues there is no nexus between Inflectra®’s poor sales and Janssen’s exclusionary contracts.
Janssen argues that Pfizer’s suit must fail for two principle reasons. First, Pfizer could have implemented its own scheme to bundle discounts across multiple products. Pfizer clearly has the capacity to do so, and its failure to pursue a similar, legitimate pricing strategy just means that it doesn’t know how to competitively sell its product—not that Janssen is a monopolist. Second, Janssen disputes Pfizer’s claim that its biosimilar is actually priced lower than Remicade®. Rather, Janssen claims that after accounting for discounts, rebates and price concessions, Inflectra®’s net price is not competitive against Remicade®.
Janssen’s first point is really the most critical. And is the point that Commissioner Gottlieb spoke to when describing a “rigged” system. Indeed, Janssen’s defense is a curious one. In response to Pfizer’s argument that Janssen’s exclusionary scheme violates antitrust laws, Janssen essentially argues that everything would be fine if Pfizer also implemented its own exclusionary scheme. But that begs the question—does Janssen’s exclusionary scheme violate antitrust laws or not? If you sue me for stealing your hubcaps, I cannot defend myself by arguing, well, you could have just stolen my hubcaps. Either stealing hubcaps is illegal or it isn’t.
In light of Commissioner Gottlieb’s comments, the biologics industry, including both originators and biosimilars, should take heed of how the Pennsylvania court resolves this issue on Janssen’s motion to dismiss. That decision will suggest whether exclusionary schemes, like that used by Janssen, are categorically blessed or not. If Janssen prevails, then even if biosimilars overcome the originator’s patents, their successful entry may still be stifled by exclusionary rebate schemes. By contrast, if Pfizer prevails, that will mean originators must invest more heavily in their patents as barriers to biosimilar entry.
Janssen’s second argument, regarding whether Inflectra® has in fact been priced lower, is also critical to Pfizer’s success in this case. But it is more fact-specific, and will not necessarily read through to other biosimilar situations. Moreover, this is a fact issue on which Pfizer could prevail on the motion to dismiss, but eventually lose at trial, once all the facts come out.