How the Civica Insulin Announcement Could Be Disruptive to the PBM Kickback Scheme

Yours truly has written an article. I have given some more serious thought to the Civica insulin announcement made on March 3, 2022 (my article has a link to the original press release) and I think it could be very disruptive to what I have dubbed the "PBM Kickback Scheme". You can read my assessment below, on LinkedIn at https://www.linkedin.com/pulse/how-civica-insulin-announcement-may-disruptive-pbm-scheme-strumello/ or at https://www.slideshare.net/ScottStrumello/civica-insulin-assessment.

Ironically, this month's New England Journal of Medicine also has a very interesting (and similar) analysis of the exact same topic (the Civica insulin announcement) in its "Perspective" section in an article entitled "A Radical Treatment for Insulin Pricing" (the link to the article can be found at https://www.nejm.org/doi/full/10.1056/NEJMp2203001, although I'm not sure you can buy per-article access to NEJM as unless you subscribe to NEJM, which is different from other journals).

I opted to to self-publish my own article in Scribd because there were points which others have chosen to gloss over which I believe the diabetes world should understand. Those elements happen to be core business strategies. 

Still, my underlying assessment is essentially the same as the NEJM article, and I'm generally in agreement with Harvard's Leemore Dafny: the Civica insulin effort stands to be disruptive. She generalizes it as being disruptive to pharmacy supply chain entities, whereas I believe it will be most disruptive to the PBM kickback scheme (hence my own article title).

In her article, Harvard's Leemore Dafny did identify what she saw as potential risks for Civica which she felt were worthy of acknowledging. For example, she speculated on what types of specific barriers Civica might encounter in executing its insulin plan.

I was especially bothered about the first element she wrote about, because it would be very easy to envision PBMs' doing such a thing using their creepy retail pharmacy contracts (if those don't already contain provisions which they could threaten pharmacies with if they carry Civica insulins), in which she writes:

"Civica will face important barriers to executing this plan, though. In addition to usual implementation and regulatory challenges, intermediaries threatened by this approach may introduce new obstacles; for example, they might pressure pharmacies not to carry Civica's insulin products."

It's easy to envsision PBM's attempting to pressure pharmacies within their retail networks from carrying Civica insulins. After all, the PBM kickback scheme is dependent on patients buying heavily-rebated, branded insulins. If they carry a less costly insulin, that scheme is disrupted. Hence we can imagine PBM's threating pharmacies within their networks that they'll consider it a violation of the PBM contract if they were to carry Civica insulins. The pharmacy contracts PBM's use are now subject to recently-announced FTC scrutiny, which will conduct a study of the impact which PBM contracts have on prescription drug prices for patients and other entities in the prescription drug supply chain.

That said, I believe the other risk she identified isn't a threat at all. She opined: "intermediaries won't try to block Civica's end run and will instead promote new diabetes agents that would be subject to the existing system".

That idea is far-fetched because a vast majority (by some estimates, around 77%) of U.S. insulin users have the autoimmune form (Type 1) of diabetes, and while they use significantly less insulin volume than patients with Type 2 use, the reality is that not one new agent has been ever been developed which has FDA approval for Type 1 diabetes. As a result, no alternative therapies to insulin exist for treating T1D; there are NO new "diabetes agents" for them to promote to that patient population, hence that will not happen.

For the record, NEJM did a very short (7:35) interview with Leemore Dafny about her NEJM article. The NEJM interview link can be found at https://www.nejm.org/doi/full/10.1056/NEJMp2203001 or you can catch that short interview below.
 

I also managed to locate the URL for the MP3 of NEJM interview (NEJM didn't make finding it easy):
https://www.nejm.org/doi/do_file/10.1056/NEJMdo006587/NEJMdo006587.mp3

 

In the article I authored (above), I documented some of the underlying biosimilar insulin business strategies which I thought was particularly relevant to the conversation.

Most notably, my analysis is that biosimilar manufacturers of insulin are essentially FORCED to use offshore manufacturing to ensure their margins are fat enough so they can pay massive rebates to PBM's in hopes of landing one. When that happens, the profits for the biosimilar-maker will roll-in remarkably quickly. In fact, we know that Viatris/Biocon makes its insulin offshore in a massive Biocon factory located in Johor, Malaysia (not far from the Singapore border), and it finally managed to land itself on several formularies in 2021, when its insulin rebates persuaded Express Scripts to drop the innovator Sanofi Lantus from its formularies and instead switch to its FDA-designated "interchangable" U-100 glargine biosimilar Semglee instead. Ditto for the PBM Prime Therapeutics.

Note that Prime Therapeutics as a PBM is basically joined at the hip with Express Scripts anyway. In late 2019, Prime Therapeutics announced a partnership with Express Scripts to provide its retail pharmacy network and pharmaceutical manufacturer contracting, hence it pretty much does whatever Express Scripts does, although unlike Express Scripts, Prime Therapeutics does include both the branded (Semglee) and unbranded (Viatris U-100 Insulin Glargine) versions of the insulin glargine on its formularies, with comparable placement for both on its formularies (Sanofi's Lantus is still excluded), ultimately leaving the decision up to employer plan sponsors if they opt to include the less costly, unbranded product. Many plan sponsors choose not to do so, as it potentially reduces the amount of rebate dollars they can collect as "premium offsets" because patients aren't helping to bankroll it with their own pharmacy expenditures.

For its part, the March 3, 2022 Civica insulin press release contained a curiously little-acknowledged, yet critically important paragraph (see the release at https://www.businesswire.com/news/home/20220303005321/en/Civica-to-Manufacture-and-Distribute-Affordable-Insulin/ for details), which reads:

"Civica has entered into co-development and commercial agreement with GeneSys Biologics for these three insulin biosimilars. Civica will use drug substance produced in partnership with GeneSys and will have exclusive rights in the U.S. to market and sell these insulins at costs that are substantially lower than what is currently available in the U.S."

That means is the Active Pharmaceutical Ingredient ("API") for its insulins will be cultured in biorwactors at Hyderabad, India-based GeneSys Biologics and the API will then be shipped in bulk to Civica's own factory in Petersburg, Virginia which for insulin will essentially become a "fill & finish" facility rather than an actual manufacturing facility where the insulin is actually made. I'm not sure what they mean when they say the insulin will be manufactured in Virginia, because it will actually be manufactured in India. For the record, by some estimates, Hyderabad, India produces some 40% of API's used by U.S. drug companies. Some is due to pharma's greed to line their own shareholder's pockets, and occasionally its because the sources for those API's are mainly from Indian or Chinese companies.

JDRF's CEO Aaron Kowalski acknowledged this reality in an interview he did for the "Diabetes Connections With Stacey Simms - Type 1 Diabetes" podcast. If you listen carefully to that conversation (the link to that podcast can be accessed at https://diabetes-connections.com/i-think-we-have-an-answer-jdrfs-ceo-explains-the-plan-for-non-profit-insulin/) (to hear it; you can skip ahead to 5:46) in which he says:

"So, there's kind of two components to this: one is we're working with a partner in India who will be manufacturing the active part of the insulin, so that would be the insulin molecule itself. And then, that will be shipped to a plant in Virginia where they will package and bottle the insulin or put it in pens. They, the Civica team has been building that plant, and this manufacturer has the capability of making insulin already."

Only Civica will be packaging insulin which has already been cultured in GeneSys Biologics bioreactors located in Hyderadad, India. Why do they insist in saying that Civica is actually "making" or "manufacturing" that insulin when they are essentially packaging and labeling it with a reputable partner located offshore?

Oddly, that's the not-so-little part which I believe really turns the PBM rebate game on its head. The Civica insulin plan will instead use the margins which are derived from offshore manufacturing to instead reduce patient prices, rather than pay legally-exempted kickbacks to PBM's as rebates. By comparison, Viatris/Biocon is using the margins it derives from making their glargine insulin in Johor, Malaysia to pay massive rebates to Express Scripts and Prime Therapeutics so they carry the medicine on their formularies.

That's a very big deal if Civica actually pulls it off.

The NEJM interview with Leemore Dafny said "I've been told that they've hired a number of experts who have a lot of experience in this part of the value chain...they also have partnership from a lot of payers" as a result, she sees room for optimism in the business model Civica will be taking.

Those are certainly positive signs.

But in MY article, I also acknowledge another unappreciated side-effect of the Civica insulin deal which has so far yet to be acknowledged by anyone:

Civica will transfer the ability for patients and their doctors to freely select a particular insulin. That was previously a dynamic which PBM contracting and rebate aggregation effectively ended. That means that now, once Civica's insulins are introduced, biosimilar versions of insulin at an affordable price could effectively become a reclaimed dynamic which PBM's seized from patients and their doctors.

That's how diabetes is managed in most other affluent markets; yet the U.S. is a rare outlier in that our choice of insulin is based on whichever company pays the PBM the biggest rebates, not the one which is therapeutically most beneficial to the patient. Remember: Novolog and Humalog are NOT designated by the FDA as being "interchangeable" with one another, but the PBM's treat them as interchangeable anyway (in effect, PBM bean-counters are practicing medicine without an actual medical license).

In any event, its worth acknowledging that both myself and NEJM concur that the Civica insulin arrangement promises to disrupt an industry which has proven itself resistant to fundamental change. It will be a great day in the U.S. when that happens!