Jake Frenz, founder and CEO of SmithRx.
In the American drug industry, a trend has developed among manufacturers and pharmacy benefits managers (PBM) that threatens to upend a productive balance between rewarding manufacturer innovation and lowering patient costs.
Recently, some PBMs have used their leverage to block biosimilars or favor more expensive ones produced by their parent companies. The trend is costing patients and businesses, stifling innovation and taxing our economy. From 2021 to 2025, biosimilar savings were $38.4 billion under expectation according to the American Journal of Managed Care. One need not look further than the well-publicized games that drug middlemen play to understand why.
In The Great American Drug Deal: A New Prescription for Innovative and Affordable Medicines, Peter Kolchinsky, biotechnology thought leader, advocates for a system where drugs enjoy a period of patent protection to incentivize research and development. Once this period ends, Kolchinsky believes generics should be introduced to lower prices and make the medication more accessible. To him, the transition from brand-name to generic drugs is a mechanism to balance affordable access for patients with a competitive, innovation-driven pharmaceutical industry.
The Role Of Biosimilars
In recent years, biosimilars entered the market to provide FDA-approved, safe and effective versions of specialty drugs. Biosimilars are different from generics in their composition, approval process and standards, but they are similar to generics in two ways: They can be approved and manufactured by other drug companies once a specialty medication’s patent expires, and they offer the promise of lower costs.
In Europe, their introduction led to price reductions of up to 80% for some medications. The U.S. healthcare system anticipated similar results, projecting billions in savings for patients and insurers.
The American Ecosystem
Unfortunately, biosimilars have failed to deliver on expectations in the American market. Why? The answer has to do with PBMs and their role in the drug ecosystem. PBMs were created in the late 1950s to help health plans manage prescription drug costs. PBMs develop lists called formularies that dictate what drugs health plans cover. This initially helped keep costs down by streamlining coverage. But today, PBMs have grown into influential entities with substantial control over drug access and affordability.
Because PBMs control formularies and determine what drugs are covered by insurance, they can influence patient transitions from branded drugs to more affordable biosimilars or generics by adding those alternatives to their formularies. Instead, they often use their leverage to keep patients on pricier medications. Why? PBMs typically derive some of their revenue from manufacturer rebates offered on brand name drugs. The higher the list price on the drug, the larger the rebate so it’s more profitable for them to keep patients on pricier drugs.
A Case Study
Humira’s story illustrates this. Before competitors could manufacture biosimilars in 2023, Humira generated $20 billion in annual sales for manufacturer AbbVie. As Humira’s biosimilars entered the market in 2023, they saw little to no uptake by big PBMs. To incentivize formulary placement, some manufacturers offered biosimilars at two price points. For example, manufacturer Amgen launched its Humira biosimilar, Amjevita, at two price points: the first at $1,557 per 40mg dose, a 55% discount from Humira’s list price of $3,461, and the second at $3,288 per 40mg dose, a 5% discount.
Why would they offer the same drug at two price points? Because the costlier option likely came with a larger rebate, which meant more revenue for the PBM. Note that the larger rebate didn’t lower the net price of the higher priced Amjevita to make it the lowest cost option.
In another move, CVS created a drug manufacturer, Cordavis, and contracted with others to co-produce and sell drugs to its PBM-owned specialty pharmacy. (Disclosure: CVS is in my company’s pharmacy network, and our members can fill prescriptions at CVS Pharmacy locations.) One of those products is Humira biosimilar Hyrimoz. CVS now claims to have removed Humira from its national formularies and converted 97% of its patients to Hyrimoz. While Hyrimoz is more affordable than Humira, it’s not the least expensive option on the market. Antitrust activists are concerned that this type of behavior could discourage investment in biosimilar research and development.
Moving Forward
If left unchecked, the power of PBMs and their complex relationships within the American healthcare system could lead to higher drug costs and diminished returns for drug innovation. By parking patients on biosimilars while limiting competition, some PBMs are protecting their revenue streams at the expense of market access and affordability. Without a commitment to transparency, we risk stifling biosimilar innovation and depriving patients of future breakthroughs and cost-saving alternatives.
As CEOs and heads of benefits, you don’t have to sit back and accept this. It’s time to pay closer attention. You have the power to challenge the status quo and demand better. If your current partners aren’t delivering transparency and cost-efficiency, then it may be time to find new ones who will.
This isn’t just about balancing budgets—it’s about ensuring that the healthcare system advances because the best therapies succeed on their own merit. The choices you make today directly influence the healthcare landscape of tomorrow.
By demanding transparency and supporting competition, organizations can help remove the barriers that stifle biosimilar innovation. This could lead to a more dynamic marketplace where new, cost-effective therapies can flourish—one that drives a future where breakthrough treatments are accessible and affordable for all.
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