Pushing the generics button on the biosimilars contracting

Prateek Yadav

Published in

ZS Associates

5 min readApr 14, 2024

Unpacking alliances between biosimilar manufacturers and payers: A deep dive by ZS’s Biosimilars CoE

By: Komal Gurnani and Prateek Yadav

The United States biosimilar market is expected to grow from less than $10 billion in 2022 to over $100 billion by 2029, according to CVS Health. The potential for financial gains in the biosimilar market has not only attracted pharmaceutical companies but also major healthcare players like CVS, which recently announced its entry through its new subsidiary Cordavis. Cordavis will co-produce and commercialize unbranded biologics as well as biosimilars through a private label. With payers in the U.S. having increasing control over patient treatment decisions, volume-based play is gaining momentum alongside value-based play with the potential to disrupt the biosimilar market and redefine contract dynamics altogether.

The deal’s fine print

Through Cordavis, CVS intends to partner with manufacturers to bring low-priced versions to tap into uninsured or cost-sensitive groups. The first company Cordavis will collaborate with will be Sandoz, to produce an unbranded Hyrimoz — a Food and Drug Administration (FDA)-approved adalimumab biosimilar. It was launched by Sandoz in July 2023, in a high-concentration formulation version with a dual pricing strategy of 5% and 81% list price discount.

The Cordavis partnership creates a strategic alliance that leverages both companies’ strengths, potentially benefiting patients through increased access to affordable biosimilars. Around 33% of the U.S. population is covered by CVS Health, with its vertically integrated U.S. business: CVS Pharmacy, CVS Caremark and Aetna. With CVS already holding a strong market share, collaboration with Sandoz would provide it with additional advantages, such as:

· Ensuring supply surety and quality assurance

· Higher influence on biosimilar utilization management

· Building a patient-centric image by bringing cheaper versions.

Similarly, Sandoz will also benefit greatly from this partnership in the form of increased market presence, overcome ‘rebate hurdles’ against Humira — at least at CVS — and provide affordable treatment options to more patients.

Volume versus value dynamic

We believe the Cordavis collaboration with Sandoz and other manufacturers, will create a two-sided dynamic for manufacturer-payer contracting negotiations:

· The volume contracting dynamic will emerge as the new end of the spectrum where a Cordavis-like entity will contract with multiple manufacturers for biosimilar as well as discounted biologics and drive down the overall list prices. This will push the biosimilar contracting paradigm to shift and look more like generics. Early movers for volume contracts will have an advantage in the form of discount range versus volume trade-off.

· The value contracting dynamic, where high-list price drugs pursue access contracts to reach the appropriate patient segments, will see a significant shift as well. The size of the portfolio being negotiated will shrink in size due to the switch of loss of exclusivity (LoE) drugs like Humira from value to volume play end of the spectrum. Large pharma portfolios driven by differentiation and overall reputation, have played a key role in the past in driving up manufacturer negotiation power and placing new launches to get preferred placement, which will now face reduced negotiation power.

Consequences for stakeholders and interests

Cordavis’ entry promises a multi-layered impact, influencing numerous stakeholders with varied interests as listed below. With too many price options for the same drug substance, fast-evolving discounts and evolving contracting dynamics, this can confuse stakeholders, specifically patients in choosing the right medication:

Patients: Increased access to reduced-cost biosimilars

Increased education and awareness–initiatives from the FDA, health plans, patient advisory groups (PAGs) and industry sponsors, will ensure more patients are aware and able to access biosimilars with reduced list prices as well as out-of-pocket (OOP) costs. Increased access is expected to drive market penetration in currently untapped segments — such as the uninsured market and those with stricter financial limitations.

2. HCPs: Increased comfort with cost-effective biosimilars

Beyond safety and efficacy, healthcare professionals (HCPs) consider each patient’s OOP cost while making treatment decisions. Biosimilars backed by pharma and payers will bring a reliable option to meet clinical and financial considerations.

3. Specialty pharmacists: Drug availability and biosimilar switching

We expect CVS Health pharmacies to stock and dispense Cordavis-produced biosimilars like Hyrimoz and the unbranded Humira, due to preferred partner contracts. The likely mix of stocked products may include low-priced and partnered options along with a high list price option if its manufacturer offers rebates. However, the high list price option is unlikely to be the ‘fastest moving product’ on its shelves.

4. Biosimilar manufacturers: Boosting market development and supply

Biosimilar manufacturers will gain a lot more by offering price discounts to the CVS-Cordavis entity. Preferred formulary placement, partnering across the strong manufacturing and quality control value chain and through the co-producing and co-marketed biosimilars with Cordavis, ensuring supply guarantee, driving wider access to eligible patients and beefing up investor confidence. Both CVS and Cordavis, through its direct-to-employer channel for biosimilars, could also lead to added market growth.

5. Reference product manufacturers: Unlocking growth in underserved populations

With biosimilars becoming more commonly enforced options for early-line patients, a Cordavis co-branded original biologic can be a great strategy to unlock untapped market growth with a volume-play mindset. Value-based contracting dynamics are unlikely to be influenced directly by Cordavis and indirectly they will shrink the overall size of the value-based portfolio by moving LoE assets to the volume end of the spectrum.

In conclusion

Looking ahead, expect future deals to unlock more savings for patients, especially those with limited insurance coverage. As manufacturers compete for market share, exclusive payer-manufacturer agreements for private labels might lead to deeper discounts on wholesale acquisition costs, which could eventually translate to lower OOP costs for patients. This is particularly relevant for individuals with high-deductible health plans or Medicaid, where lower list-price biosimilars are likely to become increasingly attractive options.

Pushing the generics button on the biosimilars contracting

Written by Prateek Yadav