“The more time I spend here, the more confused I become.” That was the verdict of Sandoz CEO Richard Saynor on the various frustrations of the US off-patent market, as he explored dysfunctional elements of the country’s generics and biosimilar framework in conversation with Lupin CEO Vinita Gupta and Amneal president and co-CEO Chirag Patel at the Association for Accessible Medicines’ annual conference in Florida in February.
In a wide-ranging discussion that covered aspects such as pharmacy benefit manager middlemen and opaque rebates, US trade tariffs and reshoring, the “CEOs Unplugged” panel pulled no punches – with Saynor in particular making clear his irritation with many of the mechanisms that underpin the US market.
“If I could have one thing, it would be transparency,” Saynor began, referring to the opaque pricing and rebate arrangements inherent to PBM contracting. “If there was genuine transparency on the level of rebating at a product level, people would be amazed.”
“Why do we need a PBM?” he asked, joking that “if you burned down Optum, other than a bunch of smoke and a load of corporate jets, I’m not sure what value they really have. Healthcare systems everywhere else in the world seem to function without the middleman.”
As an example, he said, “if you look at the most recent launch of something like adalimumab,” then for these biosimilar rivals to Humira, “in collaboration with the originators, [PBMs] were able to distort the access of products to patients, which is really what it’s about. So now you’re seeing volumes of adalimumab usage going down because of the rebating mechanism that the originator is allowed to use in the US, in conjunction with the PBM. That’s not serving patients.”
“Whereas if you look at Europe, the numbers of patients accessing biologics has doubled, because access has become more affordable.”
PBM reform has been long desired by the off-patent industry, and legislative measures addressing this issue are included in pending legislation that re-introduces aspects that were not passed late last year when a key funding bill failed.
Lupin CEO Gupta described the bill as “a move in the right direction,” but emphasized that “we need real reform” given that “PBMs are able to take such a large percentage of the economics in the value chain.” Citing a recent Berkeley Research Group study, Gupta said that of total gross spending on medicines in the US, “roughly 50% is the middleman,” with brand companies taking around 46% and generics firms less than a tenth.
“So to really bring healthcare efficiency in the country,” she said, it was key to address “what service the middlemen, the PBMs, provide – and what is commensurate rational or reasonable return for the services that they provide.”
Faster Adoption Needed For Complex Products
Gupta said that another barrier for generics firms was speed of adoption for newly-launched products, which was similarly linked to PBM dynamics.
“For example, one of our respiratory drugs where we were first to market, a Spiriva (tiotropium) generic, we are one and a half years into the market but have been able to convert only under 40% of the market, because we are blocked by PBMs,” she related. “They have rebates with the brand that guts our exclusivity, and the value of what Hatch-Waxman had intended for generic companies to have in terms of incentive.”
“So I think it’s important to really get rid of the rebating and come up with a more rational way of remunerating, maybe with a percentage, a service fee or something that is more reflective of the value that they bring to the table.”
For Saynor, the blame went to the brand companies as well as the middlemen. “Actually it’s as much the originators as the PBMs, they’re in this together,” he suggested. “With some of the originators… if what was happening with Humira (adalimumab) was happening in Europe, I’d go to jail, it’s illegal. The level of rebate, the cross rebating is illegal. The lack of transparency… I’d be deeply worried as CEO of that company. And yet somehow [in the US] it’s acceptable.”
US Market Is Too Unpredictable
Another challenge in the US was “the lack of predictability,” Saynor said. “So honestly, we’ll never develop a product specifically for the US. We’ll develop it for Europe and then try and bring it to the US.”
As an example, he pointed to Enbrel (etanercept), a product for which Sandoz has an approved biosimilar rival in the US but cannot launch until 2029. “Bizarrely, a US judge thinks that a 30-year patent life is perfectly acceptable,” Saynor pointed out. “We launched that product five years ago in Europe, but we can’t launch until at least 2029 [in the US]. If I was running a business hoping that this was my launch to make my business successful, I’d be bankrupt by now.”
So “at every level,” he said, “whether it’s patent litigation, payers, the behaviors of the originator, it’s a loaded game, and it’s driven predominantly by the vested of interests of the originators, who charge massive prices. If you look at the sticker price of Humira, it’s about $80,000 a year. The net pricing is probably about 10% of that. That’s all rebate and that drives a lot of behaviors, and PBMs become addicted to that and it gives a huge power back to the originators.”
And concurring with Gupta’s point about the reduced significance of 180-day incentives for generics in the US, Saynor said “this business worked extremely well under Hatch Waxman, but slowly over time that’s been eroded… so the days of being rewarded for challenging a patent, investing, building opportunities have gone.”
Pharma Tariffs ‘Such A Bad Idea’
Conversation also inevitably turned to the prospect of US trade tariffs potentially affecting the pharmaceutical industry, and how this would have an impact on the off-patent sector.
“Tariffs are such a bad idea, right?” commented Amneal’s Patel. “Obviously we know that, but nobody’s going to listen to it right now,” especially given the ongoing tensions especially between China and the US.
From his perspective, he said, “for generics, only 14%-15% of active pharmaceutical ingredient comes from China; still 45% is India, about 40% is Europe, zero in the US.” However, he suggested, Chinese tariffs “could create an issue on key starting materials and fine chemicals because they are supplying 90% of KSMs and fine chemicals for the industry. So it will create issues with API manufacturing if something like that other material they will not supply.”
“So we do have a situation on hand and China has leverage,” Patel warned. For that reason, he suggested, “we need certain manufacturing in the US, including the fine chemicals and KSM needed to make these APIs” for essential medicines, albeit acknowledging that this “will take a few years.”
US Manufacturing ‘Not Realistic’
But Gupta countered that “I think that to get all of the API manufacturing, KSM manufacturing into the US is not realistic. I think we have to really acknowledge and recognize the complexity of the supply chain in the pharmaceutical industry. For the generic industry in particular, China is a dominant player on the KSM front.”
Meanwhile, “India is building a presence on the KSMs and the government has provided a lot of incentives to those manufacturers to really create capacities for essential APIs and KSMs over the last few years.”
“I think it really takes a strategic partnership with allies,” Gupta suggested. “We have to work with our allies. I mean if you look at the supply chain of the generic drugs right now, 70% of finished dosages are imported into the US, and 47% of generics by volume are imported out of India, 15% of biosimilars are imported from India.”
“So there is a reason why we have the supply chain we do. I think if you move a lot of the manufacturing into the US, you have to ask the question: who’s going to pay for the cost increase? Is the government willing to pay for it? And then are we addressing at the end of the day the goals that the government wants to, through DOGE?”
“Health efficiency requires an efficient, resilient generic drug industry,” Gupta stated. “And I think it is done not by America alone, it is America with its allied partners – working together with Europe, India, companies that currently are invested into making products available for the US and finding ways to maybe do some manufacturing in the US for products that are essential, but otherwise really leveraging the cost advantage that we have built over time in different parts of the world.”
For Saynor, the issue “comes back to economics,” with the Sandoz CEO reiterating that “we sell a packet of antibiotics cheaper than a packet of M&Ms. And then for a dollar we get about 15 cents of the whole supply chain too. A patient pays a dollar, we make 15 cents on that dollar. That’s not sustainable.”
“And I’m sorry, we supply nearly two thousand different molecules all over the world. How on earth can we localize all of those? It’s impossible. The economics don’t make sense.”
“So I think the reality is that in the end, the person who is going to suffer the most for this for the next three to five years while all of this happens is going to be the patient,” with the US “the least attractive market in the world for commodity generics.”
The suggestion of relocating manufacturing to the US “sounds wonderful, but it’s going to take three to five years,” Saynor pointed out. “What’s going to happen for the next three to five years? China’s not going to sit and wait, they’re going to really put the screws on, so it’s going to get an awful lot worse before it gets better.”
