High costs of new drugsCarin A. Uyl-de Groot, PhDProfessor of health technology assessmentiBMG/iMTA, Erasmus University RotterdamUyl@bmg.eur.nl

Thanks to Maureen Rutten and Marc Koopmanschap

ContentIntroductionChronology of drug innovationThe life cycle of a drugPricing of new drugsChallenges facing several stakeholdersReimbursement*

Cancerhttp://www.youtube.com/watch?v=LEpTTolebqo

Examples prices of new drugsPompe disease: Myozyme:- Cost: Euro 500,000- Outcome: difficult to assess- ICER: around 1 mln Melanoma: Vemurafenib:Progression free survival: 5.3 vs 1.6 months mnt monthsCost: 8.471 euro per monthMelanoma: Ipilimumab:10-20% patients benefitCost: 84.000,- per patientBudget impact: 20-40 mln

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*System objectivesPolicy goals in health care Goal: Ensuring affordable and equitable access for (all) patients to effective medicinces in a sustainable manner

Policy goals, criteria and HTA aligned?

GoalPolicy criterionin HTA?Quality of careHealth gainCure Yes (QALYs)Care ???SustainabilityBudget impactYes (cost/BI)Equitydisease severity(need indicator)Yes, good enough?Trade off Q vs SCost-effectivenessYes (ICER)

Cost-effectiveness vs drug reimbursementmany EU countries: CE a formal reimbursement criterium,BUT: no country (except UK) has strict & transparant threshold (range) for acceptable cost per QALY

NL 2005-11: only 30% (=19/63) of drugs with positive 1B decisions had pharmacoeconomic evidence!! (Franken et al 2012)Many exemptions: 24 orphan drugs, 7 HIV drugs(Scotland stricter on PE evidence)4 insufficiently founded evaluations got a positive decision

HEALTH CARE EDUCATIONROADSSECURITYHOUSINGENVIRONMENTDEFENSEDEVELOPMENT AIDEMPLOYMENTINTEREST

*Development drug expenditure (in mln), 2002-2009Expensive drugsOther drugs

Question: Why are the prices of new drugs high?

Development processSucces rate Uptake of innovationReimbursement

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Pfizer -- http://www.pfizer.co.uk/pfizer_uk/navigation/research_frame.htm and Medical Devices and TechnologiesDevelopment phase: a long and winding road to registration*

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Rev.5/99

Discovery

Exploratory Development

Full Development

Registration

Large Amounts ofCandidate MedicineSynthesized

Project Teamand Plans

Synthesisof Compounds

EarlySafetyStudies

Candidate

FormulationsDeveloped

ExtensiveSafetyStudies

Screening

Studies in HealthyVolunteers Phase I

Candidate Medicine Tested in3-10,000 Patients (Phase III)

Studies in 100-300Patients (Phase II)

Clinical DataAnalysis

20) Idea-to-new medicine road - Full Development phase

In this Full Development stage, known as Phase lll, several thousand patients with the particular disease receive the drug in carefully controlled studies to test its safety, tolerability, and efficacy. Finally, if the compound has proved its worth in all these tests, it enters the Registration phase in which the data of its entire history are compiled and analyzed in a regulatory submission. In the US a New Drug Application, or NDA, is submitted to the FDA for review. In parallel, a Marketing Authorization Application (MAA) is filed in Europe, followed by a Japanese NDA. Only after a successful regulatory review does the candidate become a new medicine.

Development phaseFrom discovery to patient*

Life cycle of a drugTime Salesdevelopmentintroductiongrowthmaturitydecline*Ellery and Hansen, Pharmaceutical Lifecycle management, Wiley 2012

Development phase: clinical trials (phase 1 to 3) in humans

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Development phaseDiscovery and development of a successful drug1514131211109876543210YEARSINTRODUCTION/REGISTRATIONDEVELOPMENTBASICRESEARCHPOST-MARKETING SURVEILLANCE Phase IVCLINICAL TEST (HUMANS) Phase I to IIIPRECLINICAL TEST (ANIMALS)SYNTHESIS, EXAMINATION & SCREENING122 - 55 - 103,000 10,000QUANTITY OF SUBSTANCES*

Costs of development new molecular entity (NME)

Estimation: 1 billion euros

Cost factor:R&D (including failures): 17%ManufacturingMarketing and promotion: 23%

More is spent on marketing than on R&D *

Costs per clinical phase in percentage of total R&D, period 2000-2007*

PhasePercentage of total R&DPre-clinical (incl. Basic research)8%Phase I12%Phase II20%Phase III60%

Declining number of NME approved by FDASource: www.fda.gov*

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Introduction phaseDifferences in the uptake of innovation*

Growth phaseSlower rate of growth than typical industrial productSwitching patients to other drugs may be riskyMe-toos or established drug classes are doing wellPromotion limitedHealth authorities cautious about letting new drug be introduced initially to a broad population because of safety issuesMore and more biologics that target multiple smaller indications, which are introduced successively over the life of a drugCost containment policies affecting supply, demand, price

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Growth phase: International Reference Pricing (IRP) is used in some form in most European countries IMS HEALTH Pharmaquery Sept 2012 *

OECD (2011), Pharmaceutical expenditure, in Health at a Glance2011: OECD Indicators, OECD Publishing.Growth in real per capita pharmaceutical expenditure, 2000-09 (or nearest year)*

ChallengesPipeline NME dryingCancer: need for more therapeutic value (not only end of life drugs)Higher development costsIncreased regulatory requirements because of safety concernsTougher environment for pricing, reimbursement, listingIncreased competitionEarlier generic drugsPoor image*

Tougher environment for pricing, reimbursement, listing

Regulatory

QualityEfficacySafetyPricing, Reimbursement

Comparative effectiveness in real worldCost-effectiveness (trial-based and model-based) Purchase, listing

Budget impact analyses*

What is our Product? - Product PositioningA molecule is not a product..for price estimation purposes we must define its positioning Positioning (here) = place in the treatment regimenLine of therapy?Target Patients?Prevention or treatment?Monotherapy or combination?Positioning variablesdifferent implications for..Reference PricePositive Differentiation ValueNegative Differentiation ValuePerceived ValueVRD

Price Optimization across countriesUSFranceGermany1. Assess individual market price/demand dynamics UKCanadaetc

Recent turbulence, turning point in NL?CvZ to delist 2 expensive ultra-orphan drugs (Pompe/Fabry, after 5 yrs conditional reimbursement)

Fueled discussion (finally.) =>Ethical to stop treatment?Ethical to value health monetarily?Ethical to deny the scarcity of resources?Better options to limit cost explosion?Why are these orphan drugs so expensive?Negotiate on prices with industry?

9/2012 CvZ, struggle-> advise reimburse,but not in regular benefit package

Recent turbulence ultra orphans in NL

Argument contra reimbursement:Cost per QALY too high (up to 1 mln per QALY)

Argument pro: For subgroup that benefits it is established treatment for several years (acquired right on care)

Lesson: maybe conditional reimbursement of these orphan drugs 5 years ago was unwise?

A proposal for ultra orphans in NL

Say: WTP/QALY for normal drugs up to 80,000 per QALY, Say: for ultra orphan drugs WTP 300,000 per QALY

For sub group that really benefits say a gain of 0.75 QALY per year

Given max WTP/QALY -> max drug costs per year:= 225,000 (as 225,000/0.75= 300,000).

Message of reimbursement authorities to producers:Dont develop drugs with annual treatment costs of more than 225,000 , we will not even allow conditional reimbursement.

Reimbursement (1)Coverage with evidence NL: final reimbursement decision after 4 years, based on cost-effectiveness in daily practice and appropriate drug use (extended in 2013);

Quite comfortable arrangement for producers: 4 years a high price (t=0-4, risk for payer);

Reimbursement (2)Volume-price agreements (France ea) sales < Y price P1; sales > Y lower price P2

Advantages:less uncertainty on budget impactindustry can cover R & D costs (Price1*Volume1)

Disadvantages: does not address value for moneynegotiations not transparant

Reimbursement (3)Contract : reimbursement depend on treatment success (outcomes based risk sharing, Pay for performance) August 2012 CVZ omalizumab (severe asthma)

Advantages:no cure, no pay => value for moneyapplication on best patient sub groups after contract new decision possible

Disadvantages:transaction costs contractclear outcome indicator crucialcost of monitoring/registration

Equal access: dynamics in treatments multiple myeloma (I)

Equal access: non small cell lung cancer patients receiving 1st line Iressa or Tarceva (II)

Thank you!

***Similar system objectives:ensuring affordable and equitable access for patients to effective medicines in a sustainable manner

Based on three pillars:System sustainabilityEquityQuality of Care

***The goal of all of the life sciences customers is to deliver either first-of-kind or new medicines, drugs, treatments, or devices or deliver new generics to help with a therapeutic area. The process is long, convoluted and does require new ideas as espoused in Pharma 2010. For now, the discovery process is quite iterative as are early stage clinical development. As clinical trials near filing dates, the process is much more sequential.No more low hanging fruit: most easy wins have been madeBig pharma organizations not ideal breeding ground for innovation*Many duplicate drugs in a class. Not driven by medical need but by companies wanting a share of a highly profitable market.Medical breakthroughs rarer than incremental improvements of existing drugs.**In the past, pharmaceutical spending has tended to rise ata faster pace than total health spending in OECD countries(see Figures 7.4.3 and 7.1.2). This trend has now reversed tosome extent: between 2000 and 2009, real pharmaceuticalexpenditure has grown by around 3.5% per year on averagein OECD countries, while total health spending hasincreased by 4.0%. In a few countries (Luxembourg, Norwayand Italy), the growth in pharmaceutical spending hasactually been negative over this period. [Note that figuresfor Luxembourg refer only to prescribed medicines.]In Ireland and Greece, where pharmaceutical spending wasgrowing at a very rapid pace, governments have recentlyenforced emergency measures mainly big price reductions and announced the implementation of more structuralpolicy reforms. In other countries, such as France,Germany or the United Kingdom, price reductions orrebates on pharmaceuticals have often been used asadjustment variables to contain health spending growth(France), tackle health insurance funds deficits (Germany)or cap pharmaceutical companies profits on NHS sales(the United Kingdom) (OECD, 2010b).*Before we are going to discuss important areas of life cycle management at different phases of the life cycle we need to discuss a number of challenges the pharmaceutical industry is facing nowadays.*In past almost any slight advantage was rewarded with good price high reimbursement and wide formulary listing. Physicians were the sole decision makers.That is no longer the case **