Pharma Strategies for a New Reimbursement Environment New York - - PowerPoint PPT Presentation

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

• Market view

– 2010 sales: $390B; 2020 sales: $390B – What happens between 2011-2020?

• Organic growth +$75B
• Generic erosion -$107B
• Growth from new products (R&D spending) +$32B

– IRR of R&D spending at current $60B/yr: 0%

• Bernstein’s optimistic view

– 2010 sales: $390B; 2020 sales: $420B – What happens between 2011-2010?

• Organic growth +$75B
• Generic erosion -$107B
• 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

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If cost of extracting coal had increased 80x over last 60 years despite improved technology, and only deposits left were difficult to access, then “continued investment would be justified by the realistic prospect of either massive improvements in mining technology or large rises in fuel prices. If neither was likely, it would make financial sense to do less digging.”

• -Jack Scannell, Bernstein

Reearch, March 2012

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 2nd 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

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The results from Effient

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Source: Sanford Bernstein

When Dendreon failed to win market access for Provenge…

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"Market access and reimbursement are the main threats to industry returns.”

• -Andrew Baum, Citigroup: “Shrink, Smarten, Spin”,

Nov 29, 2011

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Dendreon and Lilly aren’t alone: many recent launches underperformed expectations, thanks largely to barriers to access

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

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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

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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

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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

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But rheumatologists spend money and time getting around the barriers

SOURCE: Reimbursement Intelligence 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

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Newer avenues for controlling drug costs

• More personalized medicine?
• Pathway medicine?
• Risk-sharing with product companies?

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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

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SOURCE: Value & Innovation (valueandinnovation.net)

Payers see value in pursuing pathway medicine

• Early results (Aetna,

UnitedHealth, Highmark)

– At least equal outcomes, some costs savings – To really drive savings…

• must standardize across, not

just within, providers on single pathway program

• Deal with non-drug expenses,

like imaging and diagnostics

• If successful, ability to apply

price/utilization pressure to therapies not on established guidelines

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SOURCE: Value & Innovation (valueandinnovation.net) 2 4 6 8 10 12 14 16 18 20 2008 2009 2010 2011 2012 Number of New Programs Initiated

Implemented Planned not yet announced Estimated

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

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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

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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

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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

1st 2 months so if no effect by 3rd month, no cost.

• “The scheme appears to be working”—NHS

consultant pharmacist

• But is this risk-sharing or simply capped spend?

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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

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What will Big Pharma do?

• Hide from payers

– Continue emphasis on what were once biotech’s markets: high-priced drugs for populations small enough to avoid too much payer oversight (oncology,

• rphans, anti-virals, orphans, MS)

– But reaching the pricing ceiling, at least in oncology, maybe HCV

• Economy growing 2%; overall medical growing 4%; oncology expense growing 15%; In

2000, 2 top-10 onco products >$1B; 2010, all top-10 >$1B

• How will state Medicaid organizations afford add-on HCV care?
• Give payers, MDs, patients what they want as system moves

towards bundled payments

– Head-to-head trials vs. standard of care powered for superiority – Focusing on endpoints of key concern to payers, MDs – e.g.,

• Total cost of care as payers forced to manage overall spend without splitting

pharmacy & medical benefit

• Reduced patient monitoring, fewer patient visits

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