Generic drugs have long delivered huge savings over their brand-name counterparts. That isn’t likely to happen, though, with knockoff versions of some of the expensive drugs on the market today.  Rival versions of so-called biotech drugs, called biosimilars, are just starting to be released, and health insurers and drug-benefit managers say they expect them to cost nearly as much as the brand-name originals did for years.  One big reason: Pharmaceutical companies have been raising prices on biotech drugs about to lose patent protection to squeeze out more revenue before competition arrives, according to insurers, drug-benefit managers and pharmaceutical-industry consultants. And makers of the knockoffs are setting their prices just below those marked-up ones.  The main patent on Humira, a biotech that is one of the nation’s top-selling drugs, is set to expire on Dec. 31. Over the past three years, with competition looming, the maker of the treatment for rheumatoid arthritis and other autoimmune diseases has increased the list price eight times, by a total of 73%, to $49,362 for a year’s treatment.  By the time a biosimilar for Humira goes on sale, it will probably cost well above what Humira charged before its cost began rising rapidly, says Jim Carlson, vice president of clinical-pharmacy services at OmedaRx, the pharmacy division of Cambia Health Solutions in Portland, Ore.  “We’re not expecting to see anything close to the price relief we saw with traditional medicines when the generics become available,” he says.  A spokesman for AbbVie Inc., ABBV -0.03 % the maker of Humira, said the company “prices its medicines based on the value that those medicines bring to patients and the competitive environment.”  The cost of biotech drugs matters because it is a big contributor to increases in overall drug spending. Many of the therapies cost tens of thousands of dollars or more for a single course of treatment. Spending on biotech drugs nearly doubled in the past five years, to $128.7 billion in 2015, and accounted for 54% of the increase in prescription-drug spending overall since 2010, according to IMS Health, IMS -0.67 % a prescription-drug data and consulting firm.  Biotech drugs are more difficult and expensive to make than traditional chemical-based pills. That is true of their knockoff versions, as well, making biosimilar makers unwilling to sharply undercut prices of the original versions.  “I really don’t expect big relief from biosimilars,” says Steven Marciniak, vice president of pharmacy programs at Priority Health, an insurer based in Grand Rapids, Mich.  The first biosimilar on the U.S. market, a knockoff of Amgen Inc. AMGN 0.67 % ’s cancer-care drug Neupogen, was priced just 15% below the branded drug late last year. During the three years before, Amgen had raised the list price of a vial of Neupogen by 15.7%, according to data firm Truven Health Analytics.  With traditional medicines, which are much easier to manufacture than biotech drugs, pharmaceutical companies facing generic competition calculate whether they can charge more for branded versions without facing pushback from health insurers and drug-benefit managers, according to industry consultants. They often begin raising the price two or three years before the generic is expected to hit.  They sometimes also reduce the discounts they negotiate with health insurers and drug-benefit managers, says E.M. Kolassa, a former drug-company pricing official who now consults at Medical Marketing Economics LLC.  “You’re facing this absolute loss of an asset, so you start in the last couple of years raising the price,” he says.  List prices for the last 14 big-selling drugs to face generic competition rose an average 35% during the two years beforehand, while their cost after discounts increased an average 22% during that time, according to data from SSR Health LLC, which analyzes drug prices and occasionally advises companies on pricing. Those increases exceeded price and cost growth for all drugs by an average 13 percentage points.  The cost of blockbuster drug Lipitor began increasing more rapidly in late 2009, two years before the Pfizer Inc. PFE 0.53 % cholesterol fighter lost patent protection, according SSR. During those two years, Lipitor’s price after discounts jumped by one-third, to $2.60 a pill.  Pfizer says it took into account a variety of factors in pricing Lipitor, including affordability and the potential to reduce other health-care costs. It says that once generics became available, the price of drug treatment dropped by more than 90%.  The cost of another traditional drug, blood-pressure medication Diovan from Novartis AG NVS -0.27 % , rose 24% to $1.89 a pill in the two years before going generic, according to SSR. Novartis declined to comment on the price increase.  Health insurers and drug-benefit managers say it often makes more sense to pay the higher prices than switch patients to a less-expensive branded drug because they expect substantial savings when the generic becomes available.  “You want conversion to the generic at launch, because on average it’s a pretty big decrease in price,” says Steve Johnson, senior director of health outcomes at Prime Therapeutics LLC, a drug-benefit manager in St. Paul, Minn.  Biotech drugs, also called biologics, are fashioned through genetic engineering and manufactured in living cells. The first was approved in 1982, and today they treat diseases ranging from cancer to multiple sclerosis.  Insurance companies, drug-benefit managers and employers, eager to reduce costs, have been awaiting the arrival of their knockoff versions, biosimilars. They have taken longer to hit the market than analysts initially expected.  So far, only two biosimilars have been approved in the U.S. The first was the biosimilar version of cancer-care drug Neupogen, called Zarxio, which is made by Novartis. Last month, the FDA approved the second biosimilar, of Johnson & Johnson JNJ -0.25 % ’s rheumatoid-arthritis drug Remicade.  The Remicade knockoff—Inflectra from Pfizer and Celltrion Inc. 068270 1.24 % —hasn’t yet gone on sale partly because Johnson & Johnson has accused Celltrion in a lawsuit of infringing six Remicade patents. Celltrion has denied the allegations.  Humira, which is injected, belongs to a class of therapies that have transformed treatment of rheumatoid arthritis and other immune-system diseases, turning debilitating disorders into manageable conditions for millions of patients.  No other biotech drug faces more potential biosimilars than Humira, which is the target of a dozen knockoffs in development, according to Sanford C. Bernstein & Co. That is a product of the drug’s commercial success: It is consistently among the top sellers in the U.S., generating more than $8 billion in annual sales.  The drug, first approved in 2002, is now authorized for nine uses in the U.S. and awaiting approval for a 10th, which has contributed to the sales growth.  Its manufacturer, AbbVie, was spun off from Abbott Laboratories ABT -0.51 % on Jan. 1, 2013, with Humira as its primary product. Humira accounts for two-thirds of its sales. Two days after the spinoff, on Jan. 3, AbbVie made its first of its eight increases in Humira’s list price, according Truven Health Analytics.  The AbbVie spokesman says the list price doesn’t reflect discounts or rebates given to government, managed-care organizations and other commercial health plans, which often makes the cost paid by insurance companies far lower than the list price. As the company increased the list price, it also offered bigger discounts, he said.  Between 2013 and 2016, AbbVie increased prices more than it increased discounts, according to an analysis by SSR’s Richard Evans, a former U.S. pricing official at Roche Holding AG RHHBY -0.47 % .  Humira’s cost “accelerated as the anticipated launch date for copycat versions drew nearer,” Mr. Evans says. By the end of 2015, a year’s treatment with Humira averaged $27,665 after discounts, up 49% from three years earlier, according to SSR’s analysis.  The price increases are “making health insurance more and more expensive,” says Eileen Wood, chief pharmacy officer at the Capital District Physicians’ Health Plan Inc., which insures 430,000 people in New York state. To cover Humira’s higher cost, the company had to raise premiums this year by an average of $16.52, and the drug now accounts for $66 of the average member’s annual premium, according to Ms. Wood.  Leticia Hughes, whose 12-year-old son Ashton takes Humira for juvenile arthritis and Crohn’s disease, says she took a new job teaching nutrition at the University of Kentucky earlier this year because its health plan had lower out-of-pocket drug costs than her old employer’s.  Under her old insurance, she says, she was paying as much as $2,200 a month out of pocket for Humira, half her family’s monthly income, until she hit the annual maximum. Under her new insurance, she says, she has typically paid $600 a month.  Ms. Hughes says that was a big improvement, but still more than the monthly rent. “We don’t feel we can afford to buy a house with our medical expenses,” which include 12 other drugs for her son, she says.  She says she recently qualified for financial assistance from AbbVie, which could cut her out-of-pocket costs to as little as $15 a month.  AbbVie’s spokesman says the company helps commercially insured patients afford their copayments, and provides the product at no cost to eligible patients through a patient-assistance program and not-for-profit foundation.  As AbbVie raised prices in anticipation of biosimilars, it also moved to fend off competition through the patent office. It assembled what it has said is one of the largest patent portfolios protecting a single drug—more than 70 patents over the past decade.  “Any company seeking to market a biosimilar version of Humira will have to contend with this extensive patent estate, which AbbVie intends to enforce vigorously,” Chief Executive Richard Gonzalez told analysts in October.  The patents, he said, should keep biosimilars off the market until at least 2022.  Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com
Biosimilars, the knockoff versions of expensive biotech drugs such as Humira, are likely to be nearly as costly as the drugs they resemble, adding to pressure on overall health costs.