Pharma Strategies for a New Reimbursement Environment New York Pharma Forum March 26, 2012 Roger Longman roger.longman@realendpoints.com 1
Pharma business model under threat as R&D less likely to drive value If cost of extracting coal had increased 80x over last 60 • Market view years despite improved – 2010 sales: $390B; 2020 sales: $390B technology, and only deposits – What happens between 2011-2020? left were difficult to access, • Organic growth +$75B then “continued investment • Generic erosion -$107B would be justified by the • Growth from new products (R&D spending) +$32B realistic prospect of either massive improvements in – IRR of R&D spending at current $60B/yr: 0% mining technology or large • Bernstein’s optimistic view rises in fuel prices. If neither – 2010 sales: $390B; 2020 sales: $420B was likely, it would make financial sense to do less – What happens between 2011-2010? digging.” • Organic growth +$75B --Jack Scannell, Bernstein • Generic erosion -$107B Reearch, March 2012 Growth from new products (R&D spending) +$62B • – IRR of R&D spending at current $60B/yr: 3% SOURCE: “Global Pharmaceuticals: Someone Is Very Wrong About the Returns on R&D,” Bernstein Research, May 4 2011 2
Profitability of generics incentivizes innovation … in generics • Lilly’s Effient head-to-head proves superior to Plavix , albeit with additional bleeding… but additional Lilly science shows CYP2C19 gene mutation preventing Plavix metabolization in ~30% of users • Payers and PBMs make considerable money on generics…and Plavix (patent expiring 2012) is 2 nd biggest drug in world • If Effient replaced Plavix payers would face a major loss • Medco does prospective head-to-head trial of Effient vs. Plavix in Plavix responders 3
The results from Effient Source: Sanford Bernstein 4
When Dendreon failed to win market access for Provenge… 5
Dendreon and Lilly aren’t alone: many recent launches underperformed expectations, thanks largely to barriers to access "Market access and reimbursement are the main threats to industry returns. ” --Andrew Baum, Citigroup: “ Shrink, Smarten, Spin ” , Nov 29, 2011 6
Challenges to payer business models just as significant as those to Pharma’s • MLR problem 1 – Falling margins from 2012: increasing pressure on large-group pricing with poor visibility on small-group/individual coverage costs; Medicare Advantage cuts • MLR problem 2: large payers trying to diversify into new businesses…always financially and managerially complex – Need to manage health to make money in Medicare: thus CareMore, Humanicares – Use and sell information & analytics: Optum, HealthCore, Anvita • New payers are coming – with different incentives – Providers as payers: bundled payments (via accountable care, medical home, episodes of care) will force providers to consider product value in relation to cost as well as quality 7
In the US, barriers to access created by increasingly complex set of actors & motivations within the reimbursement environment, including… • Payer concerns about their own changing economics on both the cost and revenue side • Physician concern about payment mechanisms & therapeutic/diagnostic complexity • Patient concern about paying their increasing share in high co- pay plans • Future: at-risk providers should see product choice more holistically – Johns Hopkins/Pepsi agreement 8
Payer power and its limits • Strongest in small-molecule, chronic-care settings – But physician habit still a major influence; tier placement and other restrictions don’t guarantee market success (Januvia vs. Onglyza) • Weak to the point of non-existent in oncology, orphan disease • Middling in many specialty areas – Victoza vs. Byetta – The RA example 9
Most plans think they’re managing arthritis drugs Does your plan require prior authorization for the following RA therapies? SOURCE: Reimbursement Intelligence The Rheumatology Insight Service
But rheumatologists spend money and time getting around the barriers SOURCE: Reimbursement Intelligence 11 The Rheumatology Insight Service
Which means that prior authorizations and step- edits are almost always approved What is the approval rate for prior authorizations and step edits for your RA patients? SOURCE: Reimbursement Intelligence The Rheumatology Insight Service
Conflicting incentives within payers often hurt their ability to manage product use • Rebate traps – Humira vs. other anti-TNFs • Budget challenges: medical director vs. pharmacy director 13
Newer avenues for controlling drug costs • More personalized medicine? • Pathway medicine? • Risk-sharing with product companies? 14
Personalized medicine: right drug, right patient… eventually • Only handful of drugs (mostly oncologics) tied in label to diagnostic – Herceptin, Zelboraf, Xalkori, Kalydeco, Plavix, Tarceva, Iressa, Camptosar, Erbitux, Vectibix Gleevec…but not Yervoy, Zytiga, Erivedge, Adcetris, Afintor, Provenge. • Most other available diagnostics have either unproven effect on outcome or don’t dramatically influence physician behavior – Increasing payer concern that molecular Dx drive up costs • Retrospective concerns that diagnostics might be wrong – Plavix CYP2C19 gene mutation test – Tumors have multiple genetic signatures (NEJM 3/12) • Market leaders see diagnostics as a threat – The BATTER-UP consortium to develop an anti-TNF predictive test Diagnostic development almost as risky as drug development…but not as lucrative for • manufacturer – Monogram Bioscience’s $2000 Selzentry diagnostic – Supreme Court ruling on Prometheus patent … whatever the effect, it won’t be positive 15
Pathway medicine: tentative but politically acceptable step towards cost management • Reduce treatment variability by incentivizing MDs to standardize on ASCO or NCCN guidelines • MDs share in cost savings • Payers do not impose treatment regiments: MDs choose pathways laid out by service provider (e.g., Cardinal’s P4, US Onco’s Innovent) who also monitor complianceNumerous pathway providers now offer decision support tools “2012 will be an inflection point for cancer pathways” Ira Klein, Aetna SOURCE: Value & Innovation (valueandinnovation.net) 16
Payers see value in pursuing pathway medicine • Early results (Aetna, 20 Implemented UnitedHealth, Highmark) Number of New Programs Initiated 18 Planned not yet – At least equal outcomes, announced 16 some costs savings Estimated 14 – To really drive savings… 12 • must standardize across, not just within, providers on 10 single pathway program 8 • Deal with non-drug expenses, 6 like imaging and diagnostics 4 • If successful, ability to apply 2 price/utilization pressure to 0 therapies not on 2008 2009 2010 2011 2012 established guidelines SOURCE: Value & Innovation (valueandinnovation.net) 17
Risk-sharing: Most payers see limited value in true pay-for-performance model • Theory is attractive…practice less so • Few if any payers have information/monitoring set-up to assure themselves pharma meeting obligations • In Europe, only drugs which otherwise would not be covered • In US, all deals limited in financial impact by Medicaid best-price rules 18
Results from classic risk-share: J&J/NICE on Velcade • J&J will reimburse/provide free drug to NHS if Velcade not working after 4 treatment cycles • Theoretically, a clear diagnostic so can tell quickly if therapy is working (reduction in Serum M protein) • But administrative hurdles, poor IT systems and paper records means NHS probably not collecting ½ expected reimbursement; review of program now twice delayed • Last resort deal: “If we did it again, we wouldn't do it on an individual patient basis, we'd try to group patients. As is, it's a lot of paperwork for both sides (us and NHS). -- Senior J&J exec 19
Risk-sharing that could work: deals that focus on what payers, MDs care about • Improving adherence – Serono/Prime – Other possibility: makers of small molecule cancer therapies improve adherence to rates achieved by IV drugs • Total cost predictability • Clinical/cost differentiation from standard of care 20
Increasing predictability of total spend on a new drug • AZ/NICE-NHS “single payment access” on Iressa • Normal list: £2500/mo; average patient on for 9 mos. • Under SPA, £12.2k fixed price/patient; no payment for 1 st 2 months so if no effect by 3 rd month, no cost. • “The scheme appears to be working”—NHS consultant pharmacist • But is this risk-sharing or simply capped spend? 21
Clinical/cost differentiation from standard-of care: Coverage with evidence development • Few pivotal trials compare to standard-of-care or, if so, are powered for superiority • Only viable for drugs payers want to cover but can’t (and thus largely a European issue) – e.g. Votrient deal with NHS – Only Sutent covered for renal cell carcinoma – NICE rejected Nexavar, Affintor and Torisel) – GSK agrees to 12.5% discount and head-to-head trial (COMPARZ) against market-leader Sutent. If trial proves Sutent superior (probably on side-effect profile), GSK will rebate undisclosed amount – Can also be seen as way to limit expense exposure 22
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