Biosimilar Drug Poses New Test for Medicare Price Negotiations

A drug selected for the latest round of Medicare drug price negotiations stands to get dropped because a lower-cost biosimilar version of it is slated to hit the market this year.

The Trump administration recently unveiled the list of drugs picked for the third cycle of the Medicare Drug Price Negotiation Program, a Biden-era plan that slashes the costs of some of the most widely used and expensive medicines through talks with manufacturers. Among the 15 drugs selected was Genentech Inc.’s Xolair, a popular asthma treatment that has been on the market since 2003 and will soon face competition when a biosimilar version launches.

Drugs are disqualified from the negotiation program if they have a biosimilar—a product that is highly similar to an FDA-approved biologic and has no clinically meaningful differences—that is both licensed and marketed. If a selected drug later has a biosimilar enter the market, the Centers for Medicare & Medicaid Services must determine if it’s a true competitor. If so, the CMS must pull the selected drug from price negotiations.

Xolair’s selection is significant because a cheaper biosimilar is set to enter the market before the negotiation period is over, forcing the CMS to determine what to do about price talks. The decision could affect other biosimilars in development if the program lowers the cost of the drugs they’re aiming to compete against, forcing biosimilars to enter the market at even lower prices, pharmaceutical experts say.

“This opens a new precedent for future drugs that get selected for negotiations and have biosimilars approved and ready to launch,” said Mariana Socal, an associate professor at Johns Hopkins Bloomberg School of Public Health. “From a drug manufacturer perspective, there are still points of uncertainty for biosimilars in the pipeline.”

The negotiation period for the third round ends Nov. 1, but Celltrion USA Inc.’s Omlyclo, a biosimilar to Xolair that was approved by the Food and Drug Administration, is able to enter the US market as early as Sept. 1.

A spokesperson for Genentech said the company stands behind Xolair’s “substantial clinical and economic value” when asked about the selection of its drug. The company has until Feb. 28 to decide if it will participate in this round.

The CMS also plans to remove Johnson & Johnson’s anti-inflammatory drug Stelara, blood thinner Xarelto, and Novartis AG’s heart failure drug Entresto from the program in 2027 after determining those medicines have market competition with at least one generic or biosimilar.

The three drugs were selected for the program’s first cycle that went into effect this year, but because the CMS made the competition determination after the discussion period, they are subject to the negotiated price all of 2026.

Determining Competition

The industry has long pushed back on how the CMS determines which drugs should be selected for negotiations and how long they should stay in the program if biosimilar or generic versions enter the market.

Manufacturers have challenged the agency’s definition of bona fide marketing in court, arguing that the agency isn’t clear on what it will analyze to determine that there is true drug competition.

The CMS, which has largely won in the challenges, argued that its bona fide marketing standard is needed to ensure a biosimilar is genuinely available, rather than it being a limited launch to dodge the negotiations.

The CMS says it will use a “totality of the circumstances” test to determine if robust and meaningful competition exists, which includes analyzing data on market availability, manufacturer agreements, and sales.

Drugs could also dodge the negotiations if a biosimilar manufacturer asks the CMS to pause a selection because its competitor is likely to launch within two years.

Xolair, however, didn’t receive its initial drug application licensure between a certain time period that would qualify it for the delay. Under the the third cycle, the CMS says that a drug must have have received its initial licensure between Jan. 1, 2012, and Jan. 1, 2016, to be eligible for postponement, but Xolair was approved in 2003.

“When a product is selected by Medicare, they’re not looking at the pipeline to see where they are with biosimilars,” said Steve Callahan, senior director of advisory and insights at MMIT, a market access consultant for the pharmaceutical and health-care industry. “It’s kind of up to the manufacturers of biosimilars to petition for the originator to not be selected.”

Unintended Consequences

Xolair’s selection also highlights pharmaceutical industry concerns around the program’s effect on biosimilars, pricing experts say.

Recent studies have indicated that selecting drugs with near-term biosimilar competition for negotiations may produce short-term savings, but surrender greater long-term savings that would be achievable through competition.

The Association for Accessible Medicines, which has been a critic of the negotiations’ impact on biosimilars, has touted how the products generated $56.2 billion in savings since 2015.

“It basically replaces competitive entry, which can be long-term sustaining price reduction and discourage the development of biosimilars,” said Kirsten Axelsen, a senior health policy adviser at DLA Piper.

“If the government controls the price, then the biosimilar has to come in below that price,” Axelsen said. “Biosimilars already have much higher development costs than small molecules, so you’re basically making a smaller market.”

Still, this negotiation round breaks new ground for manufacturers that have additional therapeutics in their pipeline, other pricing experts say.

At least six other drugs in the third round have at least one biosimilar in development, including Dr. Reddy’s Laboratories Ltd. ‘s biosimilar to Bristol Myers Squibb Co.‘s anti-inflammatory drug Orencia that is expected to launch by the end of this year.

“The positive here is that with the timeline for these negotiations, there should be enough time to take into account the competition,” Socal said. “Manufacturers of these high-cost biologics, for the first time, might have a clear understanding of what may happen to their drugs down the line.”