connecting drug pricing to value: the industry's greatest ... · administered via a covered...

Connecting Drug Pricing to Value: The Industry's Greatest Challenge

Ed Saltzman Defined Health

BIO-Europe Spring Stockholm, Sweden April, 2016

BIO-Europe Spring, April 2016 © Defined Health, 2016

The information in this report has been obtained from what are believed to be reliable sources and has been verified whenever possible. Nevertheless, we cannot guarantee the information contained herein as to accuracy or completeness. All expressions of opinion are the responsibility of Defined Health, and though current as of the date of this report, are subject to change. The opinions and information set forth herein are expressed solely for the benefit of the addressee and only for the purpose(s) for which the report was produced. Without the prior written consent of Defined Health, this report may not be relied on in whole or in part for any other purpose or by any other person or entity, provided that this report may be disclosed where disclosure is required by law. This presentation may contain information provided by third parties such as Thomson Reuters, Wolters Kluwer, EvaluatePharma and others with a proprietary interest in the data provided herein. Please note that you are not permitted to redistribute any such third party information without consent from the originator company. © Defined Health, 2016


Scientific Transformation is Upon Us

Various news headlines


Last year's entrants included two cancer drugs that help the body's own immune cells fight tumors as oncology remained the top area for drug research, attracting nearly one third of all R&D spending. Merck's Keytruda and Bristol-Myers Squibb's Opdivo are the first in a coming wave of expensive immunotherapies. As well as launching a lot more new medicines, the industry has also been enjoying higher success rates in the costly final stage of clinical development, with the number of projects failing in Phase III falling markedly over the last six years. Phase III terminations totaled 56 in the last three years, down from 68 in 2009-2011, according to the Thomson Reuters 2015 CMR Pharmaceutical R&D Factbook.

"Overall, based on the metrics, the industry is looking in really good shape," said Philip Miller, senior director for clinical and regulatory affairs at Thomson Reuters. He noted that drug companies were benefiting from a shift to specialized drugs, many for rare diseases, which tend to progress through clinical development faster than mass-market treatments. The CMR Factbook data shows that experimental medicines overall are winning marketing approval from regulators more rapidly than a decade ago. The biggest turnaround has come in Japan, where the average approval time for a new drug dropped to 306 days in 2014, down from more than 800 days in 2006. Japan's Pharmaceutical and Medicines Device Agency was faster in approving new drugs last year than either the U.S. Food and Drug Administration or the European Medicines Agency, which took an average of 343 and 418 days respectively.

Pharma R&D Productivity Up Substantially

New Analysis Underscores Improving Pharma R&D Productivity Aug 4, 2015 Drug industry productivity is continuing to improve, with a bumper haul of new products being launched and companies proving more successful in the final stages of clinical testing, according to a new analysis.

Data from Thomson Reuters published on Tuesday showed the number of innovative medicines, or new molecular entities, launched globally in 2014 hit a 17-year high of 46, up from 29 in 2013.

http://www.reuters.com/article/2015/08/04/us-pharmaceuticals-r-d-idUSKCN0Q90962015080

Drug industry productivity is continuing to improve, with a bumper haul of new products being launched and companies proving more successful in the final stages of clinical testing, according to a new analysis. Data from Thomson Reuters published on Tuesday showed the number of innovative medicines, or new molecular entities, launched globally in 2014 hit a 17-year high of 46, up from 29 in 2013.

As well as launching a lot more new medicines, the industry has also been enjoying higher success rates in the costly final stage of clinical development, with the number of projects failing in Phase III falling markedly over the last six years. Phase III terminations totaled 56 in the last three years, down from 68 in 2009-2011, according to the Thomson Reuters 2015 CMR Pharmaceutical R&D Factbook.


But Advances in Genetics and Disease Biology Do Not Fit Comfortably Within Traditional Industry Business Model

CHRONOLOGY

HURD

LES


Combination of Scientific Progress and Commercial Hurdles Have Driven Industry Away From Longstanding “Breadbasket”

• Large heterogeneous population

• Chronic, PCP-managed diseases


To This

• Smaller, more homogenous population

• Specialty-treated diseases


And Perhaps Even to This

• Individualized, often autologous therapeutic interventions


Small Molecule

It is Feasible That in Coming Years Today’s 2 Slice Pie Will Need to Accommodate 3

EvaluatePharma

Top 10 Selling Products (WW) Percent by Category

2004 vs 2014 vs est. 2024

Biologic

2004

2014 2024??

Regenerative Gene Therapy Cell Therapy

Personalized - Autologous

Small Molecule

Small Molecule

Small Molecule

Biologic

Biologic

Biologic

Regenerative, etc. ????


The Result: Industry Revenues Once Driven Mostly by Large Volumes of Comparatively Inexpensive Drugs

Product Company 2010 WW Sales ($M) US Cost of Annual Therapy ($)

Lipitor Pfizer 10,733 2,050

Seretide/Advair GlaxoSmithKline 7,946 2,960

Plavix Bristol-Myers Squibb 6,666 1,833

Humira Abbott Laboratories 6,548 23,258

Avastin Roche 6,214 125,996

Rituxan Roche 6,113 48,073

Diovan Novartis 6,053 1,227

Crestor AstraZeneca 5,691 2,736

Herceptin Roche 5,221 63,471

Zyprexa Eli Lilly 5,026 5,470

EvaluatePharma

Annual Cost of Therapy (US) for Top 10 Selling Drugs in 2010


Today are Driven by Smaller Volumes of Ultra High-Priced Specialty Drugs

Product Company 2015 WW Sales ($M) US Cost of Annual Therapy ($)

Humira AbbVie 14,090 39,949

Harvoni Gilead Sciences 14,049 91,663

Lantus Sanofi 7,462 3,809

Rituxan Roche 7,336 59,952

Avastin Roche 6,880 146,989

Herceptin Roche 6,739 80,310

Remicade Johnson & Johnson 5,753 34,801

Revlimid Celgene 5,749 117,744

Seretide/Advair GlaxoSmithKline 5,582 4,094

Enbrel Amgen 4,831 41,035

EvaluatePharma

Annual Cost of Therapy (US) for Top 10 Selling Drugs in 2015


And it Looks Like There is No End In Sight

Compound Company Class Highest Phase / Indication WW Sales e2020 ($M)

First Launch (WW)

tenofovir alafenamide Gilead NRTI P3: HIV, Hepatitis B 3,734 2016

neratinib Puma Biotech Pan-HER (ErbB) inhibitor P3: Breast cancer 2,818 2017

atezolizumab Roche Anti-PD-L1 Mab P3: NSCLC, bladder cancer, RCC, breast cancer 2,575 2016

elbasvir + grazoprevir Merck NS3/4A protease & NS5A

polymerase inhibitor PreReg: Hepatitis C 2,126 2016

obeticholic acid Intercept FXR agonist PreReg: Primary biliary cirrhosis, NASH 1,827 2016

dupilumab Sanofi IL-4 / IL-13 Mab P3: Asthma, Eczema 1,654 2016

ixazomib Takeda Proteasome inhibitor PreReg: Multiple myeloma 1,524 2016

mepolizumab GSK IL-5 Mab PreReg: Asthma 1,369 2015

osimertinib AstraZeneca EGFR tyrosine kinase inhibitor PreReg: NSCLC 1,298 2016

venetoclax AbbVie Bcl-2 inhibitor P3: CLL 1,176 2016

EvaluatePharma

Top 10 Near-Term Drug Launches


Except When One Looks From Other Vantage Points

Clinton's Promise on Treatment Prices Hits Pharma Shares 22 September 2015

http://www.theguardian.com/us-news/2015/sep/22/hillary-clinton-promise-treatment-prices-hits-drug-companies-shares-daraprim

Shares in European pharmaceutical companies have dropped following Hillary Clinton’s promise to bring down the price of prescription drugs. The frontrunner for the Democratic party’s presidential nomination put the drugs industry on notice on Monday after it was revealed that a US company had increased the cost of a drug used by HIV patients from $13.50 a pill to $750 (£485).

Martin Shkreli, a former hedge fund manager who now runs Turing Pharmaceuticals, said that although patients typically took the drug, Daraprim, for several weeks, it was still a bargain. “This drug saves your life for $50,000,” he told Bloomberg TV. “At this price, it’s a no-brainer.” Shkreli said producing the 62-year-old drug at the old price was not financially viable but his comments could prove the final straw for the drugs industry, which has been accused of overcharging for treatments for cancer and other diseases.

Clinton tweeted on Monday: “Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on.” Clinton’s comment, made shortly before the UK stock market closed, sent shares of US biotechnology companies falling on Monday. It was later reported that she is proposing a $250 monthly cap on prescription drugs for patients with chronic or serious medical conditions. The impact of her comments spread to European drugmakers on Tuesday. In the UK, shares of GlaxoSmithKline and AstraZeneca fell by more than 3% and Shire, the Irish biotech company, dropped more than 4%. Roche, the Swiss drugmaker, and Germany’s Merck each fell more than 2%.


Battle Just Starting

Medicare Program; Part B Drug Payment Model

A Proposed Rule by the Centers for Medicare & Medicaid Services on 03/11/2016 Summary: This proposed rule discusses the implementation of a new Medicare payment model under section 1115A of the Social Security Act (the Act). We propose the Part B Drug Payment Model as a two-phase model that would test whether alternative drug payment designs will lead to a reduction in Medicare expenditures, while preserving or enhancing the quality of care provided to Medicare beneficiaries. The first phase would involve changing the 6% add-on to Average Sales Price (ASP) that we use to make drug payments under Part B to 2.5% plus a flat fee (in a budget neutral manner). The second phase would implement value-based purchasing tools similar to those employed by commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization. We believe this model will further our goals of smarter, that is, more efficient spending on quality care for Medicare beneficiaries. Purpose: Part B includes a limited drug benefit that encompasses drugs and biologicals described in section 1861(t) of the Act. For the purposes of this proposed rule, the term “drugs” refers to drugs and biologicals paid under the Part B program, as well as biosimilars. Currently covered Part B drugs fall into three general categories: drugs furnished incident to a physician's services, drugs administered via a covered item of durable medical equipment (DME), and other drugs specified by statute. Based on our claims data, we estimate total Part B payments for separately paid drugs in 2015 were $22 billion (this includes cost sharing). In 2007, the total payments were $11B; the average annual increase since 2007 has been 8.6%. This significant growth has largely been driven by spending on separately paid drugs in the hospital outpatient setting, which more than doubled between 2007 and 2015, from $3B to $8B respectively. Section 1115A of the Act authorizes the Innovation Center to test innovative payment and service delivery models to reduce program expenditures while preserving or enhancing the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program beneficiaries. We propose to exercise this authority to test whether the alternative drug payment designs discussed in this proposed rule will lead to spending our dollars more wisely for drugs paid under Part B, that is, a reduction in Medicare expenditures, while preserving or enhancing the quality of care provided to Medicare beneficiaries.

https://www.federalregister.gov/articles/2016/03/11/2016-05459/medicare-program-part-b-drug-payment-model

First phase: changing the 6% add-on to Average Sales Price (ASP) under Part B to 2.5% plus a flat fee. Second phase: implement value-based purchasing tools similar to those employed by commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization. We believe this model will further our goals of smarter, that is, more efficient spending on quality care for Medicare beneficiaries.


And it May Be A Long One

Stop the CMS Proposed Part B Drug Demonstration Project! Background

♦ On March 8, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule outlining a demonstration project that would modify drug reimbursement based on Primary Care Service Areas (PCSAs), which are based on zip codes that include primary care providers and the Medicare beneficiaries they serve.

♦ ASCO believes that it is inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques.

♦ ASCO has long advocated for—and has shared with CMS its comprehensive payment reform proposal—to achieve high-quality, high-value care for every patient with cancer.

♦ Physicians did not create the problem of drug pricing and its solution should not be on their backs.

Current Status

♦ ASCO is currently conducting detailed analysis to determine the full impact this proposal will have on access to care for Medicare beneficiaries facing a cancer diagnosis. ASCO will send detailed comments to CMS during this comment period.

♦ However, preliminary analysis shows this proposal—which focuses only on drugs and not overall reform to support patient-centered care—will have a devastating impact on community practices.

♦ We need to make Congress aware of our concerns and urge Congress to prevent CMS from finalizing this precarious initiative.

♦ We are deeply concerned this risky, unproven experiment to Medicare Part B drug payments will jeopardize the health of millions of Medicare patients with cancer.

Alert Congress Today

♦ Protect the health and safety of Medicare patients, especially vulnerable seniors, who rely on Medicare Part B drugs!

http://cqrcengage.com/asco/app/onestep-write-a-letter?0&engagementId=182433

ASCO believes that it is inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques. We are deeply concerned this risky, unproven experiment to Medicare Part B drug payments will jeopardize the health of millions of Medicare patients with cancer. Alert Congress Today: Protect the health and safety of Medicare patients, especially vulnerable seniors, who rely on Medicare Part B drugs!


With Strong Forces on Both Sides

AARP Supports CMS’ Medicare Part B Demonstration Project March 23, 2016 WASHINGTON, DC — AARP supports The Centers for Medicare & Medicaid Services’ (CMS) demonstration project that modifies how Medicare pays for certain prescription drugs administered by physicians and other clinicians. The goal of the five-year project is to determine whether alternative payment approaches will lead to better value and higher quality care for patients. “Last year Medicare Part B spent $22 billion on prescription drugs, double the amount spent in 2007,” said Nancy LeaMond, Chief Advocacy & Engagement Officer at AARP. “This spending escalation is simply unsustainable. We cannot continue to ask taxpayers and Medicare beneficiaries to pay for exorbitantly priced prescription drugs without any consideration of whether their money is being well-spent.”

Currently, Medicare Part B pays providers based on a drug’s average sales price plus an additional 6%. The proposal will change this add-on payment to 2.5% plus a flat fee of $16.80. CMS also plans to implement value-based purchasing—or paying for drugs based on how well they work—for a limited number of prescription drugs. CMS hopes that these changes will improve how Medicare Part B pays for prescription drugs, as well as support physicians and other clinicians in delivering higher quality care. “This project is a thoughtful, measured approach to modernizing the way that Medicare pays for what are often incredibly expensive drugs,” said LeaMond. “Many of the changes that CMS is considering in this demonstration project are already being used in the private sector.”

CMS’s proposal includes multiple opportunities for public input, adds a new exceptions process that will allow providers and Medicare beneficiaries to obtain medically-necessary drugs, and will keep beneficiary cost-sharing responsibilities the same with the option of reducing or waiving them entirely. The demonstration will last for five years and does not reflect a permanent change to the Medicare program. Also, the proposed model will not prevent doctors from prescribing the drugs that they believe their patients need.

http://www.aarp.org/about-aarp/press-center/info-03-2016/aarp-supports-cms-medicare-part-b-demo-project.html

“Last year Medicare Part B spent $22 billion on prescription drugs, double the amount spent in 2007,” said Nancy LeaMond, Chief Advocacy & Engagement Officer at AARP. “This spending escalation is simply unsustainable. We cannot continue to ask taxpayers and Medicare beneficiaries to pay for exorbitantly priced prescription drugs without any consideration of whether their money is being well-spent.”


One Certainty Amidst Uncertainty: Rx Prices and Value Will Be More Closely Connected

CVS, Express Scripts plan value-based drug pricing April 03, 2016 Recently CVS and Express Scripts announced they are rolling out plans to determine the price and access to cancer drugs based on the value per indication. The approaches reflect a growing number of initiatives meant to tie drug prices to value, such as an analytic tool deployed by a Memorial Sloan Kettering doctor in 2015. Peter Bach, MD, director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, released the tool called the “DrugAbacus,” which allows users to modify a number of parameters and compare a given drug’s actual price versus the calculated value-based price derived from the parameters.

Health plans are using the abacus to determine what drugs to pay for when setting up one size fits all pathways. “There are a broad spectrum of options for implementing value-based contracting,” says Christine Cramer, spokesperson for CVS Health. “These include contracting with drug manufacturers as well as with providers in ways to ensure both cost effectiveness and improved outcomes. At CVS Health, we are in the process of exploring various options and developing new capabilities in this area.” For example, says Cramer, CVS is currently developing value-based contracting approaches within its exclusion formularies, which align discounts to specific indications rather than at the level of broad therapeutic categories. “For many drugs, particularly oncology agents and drugs for autoimmune diseases, one drug may have several different indications and the number of competitive drugs or the clinical utility may vary by indication,” she explains. “By negotiating formulary positions based on the specific indications we are able to create greater competition, lower costs and improve value for our clients. “Keep in mind that overall, these types of contracts are very complex and are often influenced by government regulations and are dependent on process and infrastructure,” Cramer says.

According to DrugWonks.com, at a recent National Business Coalition on Health panel discussion, CVS vice president and head of specialty client solutions Surya Singh, MD, said: “I think we want to pay more for drugs that work better ... to push [manufacturers] to think about pricing things that have a better impact on survival at a higher price point and pricing things that don't have as much impact on survival at a lower price point.” Singh went on to say: “Herceptin has gotten a lot of attention for being very good in breast cancer. It's very well studied and has great benefits. ...It’s also used in gastric cancer. The benefit in gastric cancer is minimal, but [the indication] is on label. Should we pay the same for the drug on a unit cost basis when it's used for something where it doesn't work as well? I don't think so.”

Robert Goldberg, PhD, vice president and cofounder, Center for Medicine in the Public Interest, said in a recent DrugWonks blog post: “Except that prior to Herceptin, people with advanced gastric cancer had no other treatment options. It was originally given to the 15% of gastric cancer patients that had ERBB2 overexpression and/or amplification. Overall survival was modest [2.7 months] but significant because of dearth of other therapies to keep people alive. Now there are large initiatives to identify subsets of gastroesophageal cancer based on patterns of immune response. That's how innovation evolves. Cutting the price of taking on the most challenging tumor types cheapens the lives of those seeking to survive.”

http://managedhealthcareexecutive.modernmedicine.com/managed-healthcare-executive/news/cvs-express-scripts-plan-value-based-drug-pricing

Recently CVS and Express Scripts announced they are rolling out plans to determine the price and access to cancer drugs based on the value per indication. The approaches reflect a growing number of initiatives meant to tie drug prices to value, such as an analytic tool deployed by a Memorial Sloan Kettering doctor in 2015. Peter Bach, MD, director of MSC’s Center for Health Policy and Outcomes, released the tool called the “DrugAbacus,” which allows users to modify a number of parameters and compare a given drug’s actual price versus the calculated value-based price derived from the parameters.


Which Means At Least Some Impact From EU Value Assessment “Imports”


These May Not Be Like Other Imports We Have Come to Love!

♦ ♦

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiFheDYvubLAhXG0h4KHYUQDLEQjRwIBw&url=http://www.today.com/popculture/too-little-too-late-grammys-finally-deem-beatles-legends-2D11981962&psig=AFQjCNGP8vHSy11BdO2xj8bCNnBENjDInw&ust=1459361305743732�


But Rather Fear and Dread!

https://www.nice.org.uk/


Problem: Connecting Value to Price More Challenging in Pharma Than in Some Other Businesses!


22

And Value Measures are Highly Stakeholder Dependent

Elements of Drug Value How Quantified Beneficiaries Timing of

Benefit

Timing of Payment (to manufacturer)?

Outcome at episode of care

QALYs, HTAs at Time 0 Patients receiving drug Today Today

Perpetuity value

QALYs, HTAs over time indefinitely Patients receiving drug Post patent

expiration ?

Option value

Various methods to assess novelty and "upside" (e.g. risk adjust NPV, real options pricing)

Society and patients receiving drug (for future indications)

When there is evidence of efficacy

?

Intangible value/hope

Willingness to pay (WTP) analyses that measure value via trade offs

Society especially those at risk for certain disorders or with family members with said disorders

Today and forever ?

Innovation Willingness to pay (WTP) analyses

Society if productive innovation

Today and forever ?


So What Can We Learn From Each Other?

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