THE BIOPHARMA DILEMMA: Balancing Innovation and Affordability

Amitabh Chandra HARVARD UNIVERSITY

• Panel of Health Advisors, CBO • Speaking fees from Biogen, Novo Nordisk, Pfizer, PCMA,

Roche • Consultant to Microsoft and Precision Health Economics • Advisor to Maxwell Health and HealthEngine

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Disclosures

Oncology is the Largest Area of Focus in R&D

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Source: IMS Institute for Healthcare Informatics. Innovation in Cancer Care and Implications for Health Systems: Global Oncology Trend Report. May 2014.

Number of active products in the pipeline to date = 6,234

Over the Next 5+ Years, Combinations of Targeted and Immuno-Oncology Agents will Account for Many NME Launches and Line Extensions

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Expected Combination Regimen Launches in Oncology

Source: IMS Institute for Healthcare Informatics. Developments in Cancer Treatments, Market Dynamics, Patient Access and Value. Global Oncology Trend Report 2015. May 2015.

Annual Cost Of Recently Approved Oncologic Drugs

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Source: Hirsch BR, Balu S, Schulman KS, et al. The Impact of Specialty Pharmaceuticals as Drivers of Health Care Costs. Health Affairs. 2014;33:1714-1720.

Comparison of Incremental Survival Improvement and Cost of Treatment for Several Cancer Drugs Across Different Approved Indications

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Plus a Hypothetical Scenario in Which Price Is Set per Indication to Yield the Same Total Treatment Cost per Median Benefit (Indication-Specific Pricinga)

Source: Bach P. Indication Specific Pricing for Cancer Drugs. JAMA. October 2014;312(16)129-130.

Potential Combination Therapies Launching by 2021

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Source: IMS Institute for Healthcare Informatics. Global Oncology Trend Report 2015. May 2015.

Attrition Profiles Across Therapeutic Areas

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Source: Calcoen D, Elias L, Yu X. What Does it Take To Produce a Breakthrough Drug? Nature Reviews Drug Discovery. 2015:(14)161–162.

• ACA will increase innovation • expanded market-size • reforms increase value of

insurance

• 21st century cures act will increase innovation

• Personalized medicine will increase prices

• Multi-Manufacturer Combination therapies will increase prices

• Move into riskier areas of discovery will increase

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Monthly and Median Costs of Cancer Drugs at the Time of FDA Approval 1965-2015

Year of FDA Approval

1970 1980 1990 2000 2010

Mon

thly

Cos

t of T

reat

men

t (20

14 D

olla

rs, l

og s

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$1

$10

$100

$1000

$10000

$100000

Individual Drugs Median Monthly Price (per 5 year period)

Source: Peter B. Bach, MD, Memorial Sloan-Kettering Cancer Center

Predictions about the Future

WHAT CAN WE DO?...WHAT

SHOULD WE NOT DO?

HDHPs save 12-15%...but… Patients cut back on prevention, Rx, Tx haphazardly 1/2 of all savings came from the sickest patients No evidence of price-shopping

Source: Brot-Goldberg, Z Chandra A, Handel BR, Kolstad JT. NBER Working Paper No. 21632. Issued in October 2015

12 Source: Chandra A, Shafrin J and Dhavan R. Utility of Cancer Value Frameworks for Patients, Payers, and Physicians. JAMA May 17, 2016, Vo 315, No 19

Specialty Medicines and Generics Outpace Growth of Traditional, Small Molecules and Brands

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2013 medicines spending, and growth segmentation comparison

Source: IMS Institute for Healthcare Informatics. Medicine Use and Shifting Costs of Healthcare: A Review of the Use of Medicines in the United States in 2013. April 2014.

Generic Competition and Drug Prices

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Source: Morton FS, Kyle M. “Markets for Pharmaceutical Products.” Handbook of Health Economics. 2012. Vol. 2. Print.

Evolution of Global Sales for a Selection of Top Branded Biologic Drugs from 2004-2011

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Source: Calo-Fernandez B, Martınez-Hurtado JL. Biosimilars: Company Strategies to Capture Value from the Biologics Market. Pharmaceuticals. 2012;(5)1393-1408.

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Complexity of Small Molecule Drugs Versus Biologics

GCSF: Granulocyte Colony-Stimulating Factor HGH: Human Growth Hormone EPO: Erythropoiesis-stimulating agent mAbs: monoclonal Antibodies

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Biosimilar Pipeline for Biologics with the Greatest Number of Candidates

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Source: IMS Institute for Healthcare Informatics. Medicine Use and Shifting Costs of Healthcare: A Review of 2015 and Outlook to 2020. April 2016.

MONEY-BACK GUARANTEES OR “DRUG WARRANTIES”

• Allow patient cost-sharing to depend on outcomes or drug performance

DESCRIPTION

• Boosts initial demand by reducing risk to patient

• Provides payers with improvements in perceived and actual value

• Facilitates earlier adoption of drugs with preliminary evidence bases

BENEFITS

• Exposes manufacturers to risk of patient outcomes that depend on non-drug factors – e.g., poor adherence or poor patient behavior

• Legal implications for ASP and Medicaid best-price rules uncertain

• Higher prices for patients who benefit; lower total spending

CHALLENGES

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Example of a Money-back Guarantee in Medicine

Integra-Med Fertility Shared Risk Refund Program • IVF typically requires multiple attempts • Each attempt is approximately $7,000 • Integra-Med offers three attempts for price of two • If no baby results, patient refunded 70%–100% • Approximately 75% of patients enrolled in this multiple-attempt

program have a baby

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Source: Albany IVF. IntegraMed Shared Risk Refund Program. Available at: http://www.albanyivf.com/images/pdf/IntegramedPricingforAlbanyIVF.pdf. Accessed May 9, 2016.

Examples of Possible Targets in Cancer

DRUG DISEASE SALES ($ MILLIONS)

Avastin Metastatic Colorectal Cancer 1,182c

Dacogen Myelodysplastic Syndrome 250d

Herceptin Breast Cancer 764c

Rituxan Non-Hodgkin’s Lymphoma Rheumatoid Arthritis

1,489b

Vesanoid Promyelocytic Leukemia 55d

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Notes: Sales figures are from (a) 2002, (b) 2003, (c) 2005, and (d) unknown. Source: Goldman N. Novel Approaches to Cost-Sharing. June 10, 2011. Available at: http://www.howtomanuals.net/novel-approaches-to-cost-sharing.html. Accessed May 9, 2016.

Put Physicians, not Hospitals in Charge

Physician Led Bundles will be more successful than ACOs

PHYSICIAN EXPERT SYSTEMS

Provider Decision Making: Implications of Oncology Drugs

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• Five oncology groups participated from 2009-12, all patients with breast, colon and lung cancer—1,024 patients in all

• Identified 19 different “episodes” based on tumor site, stage, HER2 status, whether chemo is used, etc.

• Each group selected a single chemo regimen for each adjuvant therapy episode “on the basis of their interpretation of the medical literature”

• Practice receives an episode payment at initial visit to cover 4-12 months of treatment, depending on episode

• Episode payments covered chemo drugs (based on the practice-selected regimen) at acquisition cost

Eliminated incentive for providers to choose more expensive therapies simply because they are more profitable

Source: Newcomer LN, Gould B, Page RD, et al. Changing Physician Incentives for Affordable, Quality Cancer Care: Results of an Episode Payment Model. Journal of Oncology Practice. July 8, 2014.

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Study not powered to determine which costs drove the decline in total medical costs, but evidence suggests declines in hospitalizations and therapeutic radiology use Sample size insufficient to evaluate survival or most other quality impacts

CHEMOTHERAPY DRUG COSTS TOTAL MEDICAL COSTS

Increased by

179% ($8M vs. $21M)

Decreased by

34% ($33M vs. $98M)

Results of United Experiment: Compared to FFS

Source: Newcomer LN, Gould B, Page RD, et al. Changing Physician Incentives For Affordable, Quality Cancer Care: Results Of An Episode Payment Model. Journal of Oncology Practice. July 8, 2014.

Bundled Payments Knowledge of Costs

Rich Data on Longitudinal Outcomes

Loyal Patients

Scientific Credibility

Humility + Courage

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Takeaways

BioPharma Innovation and Prices will increase • Worldwide increase in market-size

• Price increases from more risky ventures

• Growth in income-inequality

• Precision Medicine -> Orphan Rx

• Multi-manufacturer combination therapies

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Opportunities • Biosimilars and plan design

• Innovative Pricing

• Bundles before ACOs

• Physicians showing the way

Top 20 Pharmaceutical Companies' R&D Forecast Through 2020

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Source: EvaluatePharma. World Preview 2014, Outlook to 2020. June 2014. Note: Forecast pharmaceutical R&D spend based on a consensus of leading equity analysts’ estimates for company-level R&D spend.

Worldwide Total Pharmaceutical R&D Spend in 2006–20

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Source: EvaluatePharma. World Preview 2014, Outlook to 2020. June 2014.

Biomedical Research Funding by Source, 2003–2007

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Source: Dorsey ER, de Roulet J, Thompson JP, et al. Funding of US Biomedical Research, 2003-2008. JAMA. 2010;303(2):137-143.

Large Difference Between List Prices and Net Price

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Source: IMS Institute for Healthcare Informatics. Medicine Use and Spending in the U.S.: A Review of 2015 and Outlook to 2020. April 2016.

Oncology Spending

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Source: IMS Institute for Healthcare Informatics. Medicine Use and Shifting Costs of Healthcare: A Review of 2015 and Outlook to 2020. April 2016.

The Nation’s Health Dollar ($3.0 Trillion), Calendar Year 2014, Where it Went

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Source: CMS. National Health Expenditure Data. 2016. Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/PieChartSourcesExpenditures2014.pdf. Accessed May 12, 2016.