Dive Brief:

• In a speech earlier this week, FDA Commissioner Scott Gottlieb called out pharmacy benefit managers (PBMs), drug manufacturers, wholesalers and pharmacies to "stop the shell games" in the drug supply chain.
• He pointed out that despite the fact cheaper, generic drugs are more often prescribed and promoted to patients rather than the more expensive, branded drugs, "generic drugs make up only 26% of prescription drug costs. That’s real savings for patients and our healthcare system overall."
• The overall tone of the speech was one of concern, with Gottlieb highlighting the fact that when the industry is controlled by so few, prices rise, making it difficult for patients to get the life-saving drugs they need.

Dive Insight:

To Gottlieb, the drug supply chain is set up to benefit the few PBMs, wholesalers and pharmacies who control the system, to the disadvantage of patients who rely on certain drugs to survive.

In Gottlieb's view, that comes down to the fact that biologics, biosimilar and generic drugs are barred from entry to the market if they aren't in the best interest of the PBMs, wholesalers or pharmacies to do so.

"They’ve become a mainstay of modern medicine," Gottlieb said, referring to biologics. "And sometimes, they’re the only effective treatment options available to patients. They often operate at the cutting edge of medical science. About a third of new drugs approved by the FDA are biologics. Taken together, biologics now account for about 40% of all U.S. drug spending — and 70% of spending growth — from 2010-2015."

Those who control the drug supply chain do what's in their best interest as businesses — but in this instance, Gottlieb says that's a bad thing, simply because of the nature of the industry. There are thousands of Americans who rely on certain branded drugs to lead a normal life or even just to live.

"As of January, 60 biosimilars were enrolled in the FDA’s Biosimilar Development Program," Gottlieb explained. "To give you a sense of the breadth of activity, we’ve received meeting requests to discuss the development of biosimilars for 27 different reference products. Despite our efforts, however, of the nine products we’ve approved for marketing in the U.S., only three are currently marketed. Delays may be attributed, in part, to ongoing litigation. But the pipeline, while rich, may not be as robust as it ought to be. And this is where the industry’s rebating and contracting practices combine to raise another, perhaps even more insidious barrier to biosimilars taking root in the U.S., and gaining appropriate market share."

"This gets me to how the consolidation, and the contracting schemes that it helps facilitate, can discourage the development of new biosimilars," he said. "I’m sure everyone in the room today is familiar with the delaying tactics that some branded manufacturers have engaged in to delay access to generic competitors – dubbed 'pay for delay.'"

In his speech, Gottlieb warned the industry the FDA would not sit idly by while the industry takes advantage of consumers. That's a warning for every link of the drug supply chain.

Gottlieb said the FDA is currently working on a plan to improve competition in the industry, which he hopes will benefit patients as well as the industry. He shared some details in his speech, saying the FDA wants to help biosimilars gain more market share to balance industry control.

"We hope to have much more to say on this plan soon as we unveil our comprehensive approach in our Biosimilar Access Plan," he said. "But patient access to these innovations will depend on reforms that require every incumbent in the drug supply chain to take greater restraint for putting patients at the heart of their decision-making process. It will depend on steps we take, working together, to empower market competition based on delivering the best clinical outcomes."

Gottlieb's proposal, if implemented, will have implications for drug manufacturers, drug distributors, PBMs, wholesalers, pharmacies and insurers. For some companies, it might mean reinventing whole business models. Furthermore, Gottlieb's speech also suggests acquisitions like CVS and Aetna will be reviewed with greater scrutiny and skepticism.

The healthcare and drug industries were already in upheaval, and this regulatory response is likely to create further uncertainty.