The affordability of prescription drugs has been getting worse, but companies like CVS and Cigna are developing private-label alternatives that could help lower costs. David Wainer reports in The Wall Street Journal:
Most shoppers are familiar with CVS Health’s many private label products, from women’s daily multivitamins to heart-healthy trail mix.
There is a reason CVS and other retailers place those products prominently on their shelves: Store brands are more profitable for them because they offer higher margins. Now CVS is deploying that same approach to the much more profitable business of blockbuster prescription drugs. The move already seems to be paying off and spreading to other managed care organizations, like Cigna Group, with major repercussions for manufacturers of lower-cost biosimilar products. These are cheaper versions of biotech drugs made from living cells, which are far more complicated to make than traditional pills.
Last year, CVS Health launched a venture called Cordavis, a unit that will partner with drug manufacturers to commercialize these biosimilar drugs.
Many such drugs have been coming off patent in recent years, representing a massive opportunity for middlemen such as CVS that stand between drugmakers and patients. CVS says the biosimilars market in the U.S. is projected to grow from less than $10 billion in 2022 to more than $100 billion by 2029.
The timing of the Cordavis announcement was no accident. It came just as Humira, the highest grossing drug of all time, was set to start facing competition from biosimilars. Over its lifetime, the autoimmune drug for conditions like rheumatoid arthritis has generated more than $200 billion in sales for its maker, AbbVie. For years, AbbVie used a wall of patents to keep cheaper copies of Humira from entering the U.S. market.
Last year, biosimilar products finally arrived and were offered at huge discounts. At last, it seemed, competitors would come in and bring the price of the expensive drug down. But due to the warped incentives in the U.S. healthcare system, none of the new biosimilar products captured significant market share. That is because middlemen, known as pharmacy benefit managers, one of which is CVS’s Caremark, preferred to steer most patients to the branded version of Humira. Why would they do that? Because they were being paid handsomely. AbbVie’s decision to offer steep rebates—basically payments to the PBMs, much of which is passed on to payers—allowed AbbVie to hold on to about a 95% market share.
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