Session 60 PD, Predictive Modeling for Pharmaceutical Cost Growth

Presenter: Joseph Farago

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Private Drug Plan Forecast2016-2018

Summary of Key Findings and Messages

Joe Farago Executive Director Healthcare Innovation and Reimbursement

2

Prescription Drug Coverage in Canada2015

Drug Insurance Population Coverage

Drug Spending byInsurance Type

Coverage with both public and private = ?

Private lives = 24 million (67%)

Public lives = 12.6 million (35%)

Source: CLHIA Facts and Figures, 2016 (People with coverage for Extended health care). Innovative Medicines Canada Public Plans Database (interim) - sourced from provincial health ministry reports, 2015.

Source: CIHI NHEX 2015 & 2016, CLHIA (data year 2015)

Source: QuintilesIMS, Canadian Drugstore and Hospital Audit, MAT December 2016Chart taken from PRA February 2017 Industry Luncheon

1991

0%

-5%

5%

10%

15%

20%

25%

-0.9 4.9

1991

11.1 10.0

1989

11.0 9.1 8.0 2.2 4.6 4.1 9.9 12.7 11.5 13.6 16.7 12.8 8.9 9.5 7.1 8.3 6.1 6.9 6.5 1.7 0.0 3.26.30.6

1990

1994

1992

1993

1997

1985

1996

2000

1988

1999

2003

2001

2002

2006

2004

2005

2009

2007

2008

2012

2010

2011

2015

2013

2014

2016

Continued patent cliff, combined withgeneric pricereforms

Peak of patient cliffand generics’ sales, pre-pricing reforms

Drug cost growth is cyclicalGrowth in 2014+ signals a new but modest growth era

Hep C

4

Total Prescribed Drug Spending and Patented Drug Spendingas a Share of Total Health Care Spending, Trend

5%

7%

9%

11%

13%

15%

17%

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 f

$ Bi

llion

s

Prescribed Drugs Total Health Care Prescribed Drugs Share Patented share

Source: CIHI NHEX 1975-2015 and 2016; IMS Brogan Pharmafocus (Canadian Drug Stores and Hospital); PMPRB Annual Report 2015. Prescribed Drugs here include sales of prescription drugs made to hospitals (added to CIHI NHEX prescribed drugs figures).Prescribed Drugs excludes OTC and personal health supplies, includes mark-ups, dispensing fees, and plan administration costs. (as per CIHI NHEX definitions)

5

Total Sales of Curative Hep C Medications, Growth Curve2014-2016

Source: QuintilesIMS, Canadian Drugstore and Hospital Audit, Months ending December 2016

6

Hepatitis C Market Drug Costs: Public vs. Private Claims Split2013-2016

Private Plans paid for ¼ of total Hep C costs and in 2016 were back to 2014 levels

$ 28$ 86

$ 185

$ 91$ 90

$ 85

$ 521

$ 555

-

100

200

300

400

500

600

700

800

2013 Annual 2014 Annual 2015 Annual 2016 Annual

Mill

ions

Private

Public

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The Future of Biosimilars: TNF Illustration

8Private Drug Benefits Importance

Sanofi Survey 2016

Chiropractic care

Massage therapy

Psychotherapy/mental health counselling

Critical illness insurance

Services from healthcare professionals other than doctors

Life Insurance

Short-term disability insurance

Physiotherapy

Long-term disability insurance

Dental plan - major and orthodontic coverage

Vision care coverage

Dental plan - basic and preventative coverage

Prescription drug plan

0% 20% 40% 60% 80% 100%

IMPORTANCE OF PLAN COMPONENTS Very/somewhat important

BASE: All plan members (n-1,500)

Employee Assistance Program (EAP) or Employeeand Family Assistance Program (EFAP)

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Access to Future Innovation

Source: http://www.phrma.org/innovation/meds-in-development

The Prescription

11

The Total cost components of a Prescription

12

WHAT IS “FORECASTING"

….the use of historic data to determine the direction of future trends

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Agenda

• Background

• Definitions• Methodology• Assumptions

• Detailed Forecast

• Summary of Total Forecase Scenarios

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Definitions and LegendQI = QuintilesIMS

PDP = Private Drug Plan market, i.e., health insurance carriers insuring or administering prescription drug claims in Canada

PDP drug cost = drug claims costs adjudicated through private insurers nationally across Canada

Trend factor = Cost growth (positive or negative)

CAGR = Compound annual growth rate; a measure of “average” year to year compounded cost growth over a certain period; does not take into account fluctuations in growth over the period.

LOE = Loss of exclusivity, i.e., brands that will lose patent and face competition from generics

NDEs = New Drug Entries, i.e., new innovative drugs entering the market (not new versions of existing drugs)

Biosimilars = drugs that are considered “similar” to and therapeutically equivalent to biologic drugs by Health Canada, but they are not chemically interchangeable (not like generics to brands) and they may not have all the same approved indications

PLA=Product listing agreement

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Data Definitions and Disclaimers

• IMS private plan claims database captures approximately 70% of all private drug plan claims (85% of pay-direct market), and is highly representative across all Canada.

• Therefore absolute values are a portion of the total, while trends and growth rates are accurately represented

• Total PDP cost is not projected for the ~30% of private spending not captured by IMSB databases

• Drug cost includes mark-ups but does not include dispensing fees, except in Quebec

• Non-transparent PLA and rebates are not captured in the forecast

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

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1 New Drug Entries – i) impact of recent NDE launches, and ii) impact of future NDE launches

Future market events: individual effects on the forecast

2 Cost per claim increases – effect of brand list price increases and other factors increasing cost per claim

3 Generic entry – effect of genericisation and generic pricing policies on total drug cost

4 Biosimilars – impact of biosimilar launches on total drug cost (separate from generic event)

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1) New Drug Entry impact estimated by considering growing influence of products in the years following launch

• Two components based on historical data from 2011-2015:

• Recent NDE impact: impact in 2016-2018 of increasing utilization of drugs which launched in 2011-2015.

• Future NDE impact: impact of drugs which will be launched in 2016-2018. Impact estimated based on observed impact of 2011-2015 launches

Forecast Year Recent NDE Impact Years

2016 2015 2014 2013 2012 2011

2017 2016 2015 2014 2013 2012

2018 2017 2016 2015 2014 2013

Actual Recent NDE impact

Forecast Recent NDE impact

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2) Cost per claim increases seen in historical data used to calculate average increases for 2016-2020

• 2011-2015 historical data used to calculate annual cost per standard unit increases for brand products, weighted for DIN value

• Sensitivity analysis performed to show cost per unit impact on drug cost and inform creation of high/low increase scenarios

Drug Cost per Std Unit growth, weighted by DIN yearly Drug CostAverage

2011-20152011 2012 2013 2014 2015

Brand DINs - 1.32% 1.36% 1.50% 1.18% 1.34%

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

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3) Generic Entry erosion curve based on observed experience of 98 products with generic competition from 2011-2015

• Historical data used to measure loss of exclusivity (LOE) impact: 98 products in PDP 2011-2015 data experienced entry of generic competitors

• Speed of generic entry, number of generic competitors, generic pricing as % of brand, and erosion of market share quantified

• Resulting generic erosion curve applied to brands expected to undergo LOE in 2016-2018

• Small molecule (chemical) only

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

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3) 80 brands* expected to undergo LOE in forecast period; generic pricing assumptions based on pCPA rules

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

# of generic manufacturers Generic price as % of brand

Oral solid Non- oral solid

1 75% 75%

2 50% 50%

3+ 25% 35%

*Does not include biologics, covered in Market Event #4: Biosimilars

Source: http://formulary.drugplan.health.gov.sk.ca/PanCanadian.aspx

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4) Revised Biosimilar market event informed by domestic and int’l data; Canadian uptake curve expected to be distinct

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

• IMS RxDynamics was used to study patient uptake and turnover for Inflectra vs. Remicade by inferred indication, starting May 2016

• IMS MIDAS data set was used to compare uptake/turnover for biosimilars that have launched in US, UK, Germany, Italy, and others; although biosimilar experience in Canada is expected to differ greatly

• Derived biosimilar uptake curve applied to biologics expected to face biosimilar competition in 2016-2018 based on IMS and IMC expert opinion and considering the above evidence sources

Market Event definable variables

Biosimilar cost/claim as % of bran biologic – current estimate ~60%

Share of new patients starting biosimilar vs. brand - 50% in 1st year of biosimilar, 75% in 2nd, 90% thereafter. No switching considered.

Brand biologic price drop after biosimilar entry – 20% brand price decrease 1 year after biosimilar launches due to PLA

Historical Trends2011-2015

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Historical PDP drug cost Compound Annual Growth Rate (CAGR) 2011-2015

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

Drug Cost (Billions)CAGR 2011-2015

2011 2012 2013 2014 2015

Brand $4.80 $4.94 $5.10 $5.43 $5.77 4.7%

Generic $1.49 $1.52 $1.51 $1.56 $1.68 3.1%

Total $6.28 $6.46 $6.61 $6.99 $7.45 4.4%

Total Year-over-year

- 2.8% 2.2% 5.9% 6.6% -

4.80 4.94 5.10 5.43 5.77

1.49 1.52 1.511.56

1.68

$0

$1

$2

$3

$4

$5

$6

$7

$8

2011 2012 2013 2014 2015

Dru

g Co

st (B

illio

ns)

Total Brand and Generic PDP Drug Cost, 2011-2015Generic Brand

Baseline Growth Model

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The Baseline Growth Model

• The Baseline is an extension of the historical trends• Used actual PDP data from 2011-15 to develop the QI

quantified historic trends in:• Recent NDEs (does not include new NDE’s)• Cost per unit increases held to 2015 levels• Growth by class, therapeutic type is factored into model

• The Baseline is the foundation of the “Forecast”, the base case with no major changes. This is not realistic as we know things will change, hence the need for the Forecast assumptions

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Baseline total drug cost CAGR

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

Year-over-Year Growth CAGR 2011-2015

CAGR 2016-20182011 2012 2013 2014 2015 2016 2017 2018

Brand - 2.9% 3.2% 6.6% 6.3% 3.2% 5.9% 5.5% 4.7% 5.7%

Generic - 2.6% -0.9% 3.6% 7.4% 7.9% 6.9% 6.6% 3.1% 6.7%

Total Baseline Drug Cost

Growth

-2.8% 2.2% 5.9% 6.6% 4.3% 6.1% 5.7% 4.4% 5.9%

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Baseline high-cost drugs cost growth is forecast at CAGR of 7.1% for 2016-2017

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

High-Cost Drugs definition: average $10,000 annual cost per claimant in any calendar year 2005-2014 from the Private Pay Direct Drug Plans or Ontario Public Drug Plan.

7.0%7.3%

8.1%

$BnImpact on Baseline Total PDP Drug Cost

2016-20182016 2017 2018

Baseline drug cost $7.77 $8.25 $8.72 5.9%(CAGR)Baseline drug cost growth 4.3% 6.1% 5.7%

High Cost Drug cost impact on baseline

$1.52 $1.63 $1.74 $4.89 (sum)$1.63 (avg)

High Cost Drug total drug cost growth

3.7% 7.1% 7.0%7.1%

(CAGR)

Non-High Cost drug cost growth

4.8% 5.8% 5.3%5.5%

(CAGR)

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Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

0.64 0.77 0.89 1.03 1.14 1.27 1.39 1.510.150.17

0.200.21

0.240.25

0.260.270.11

0.120.13

0.08 0.19 0.08

0.821.00

1.17

1.40 1.66 1.71 1.831.95

$0.0

$0.5

$1.0

$1.5

$2.0

2011 2012 2013 2014 2015 2016 2017 2018

Dru

g C

ost

(bill

ions

)

Historical 2011-2015 and Baseline 2016-2018 PDP drug cost by High-cost category

Symptomatic Use

Curative Care

Rare Disease

Oncology

Chronic

2016-2018 High-Cost Drugs Baseline Forecast, by Category

High-cost drug Total PDP drug cost % by category

2011 2012 2013 2014 2015 2016 2017 2018

Chronic 77.6% 77.1% 76.5% 73.4% 68.8% 74.5% 76.1% 77.3%

Oncology 17.7% 17.1% 16.9% 15.3% 14.2% 14.3% 14.2% 13.9%

Rare Diseases 3.9% 4.0% 5.2% 5.6% 5.6% 6.1% 6.3% 6.4%

Curative Care 0.6% 1.5% 1.3% 5.6% 11.3% 4.9% 3.3% 2.3%

Symptomatic Use 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1%

Baseline forecast

• High-Cost Drugs definition: average $10,000 annual cost per claimant in any calendar year 2005-2014 from the Private Pay Direct Drug Plans or Ontario Public Drug Plan. • Rare Disease list from US FDA Orphan Drug List Registry: https://www.accessdata.fda.gov/scripts/opdlisting/oopd

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Therapeutic class cost growth in the 2016-2018 Baseline Growth

Therapeutic Class Drug Cost CAGR2011-2015

Drug Cost CAGR 2016-2018

All 4.4% 5.9%

Biologic disease modifiers for RA/PsO/IBD 13.6% 7.6%

Anti-depressants and anti-psychotics 4.2% 6.8%

Cardiovascular -10.0% 2.1%

Antidiabetic 11.6% 13.5%

Anti-infective agents 12.9% -0.4%

Gastrointestinal drugs -0.7% 5.6%

Bronchopulmonary therapy 5.7% 6.6%

Other immunomodulating/ immunosupressive agents

13.4% 11.1%

Hormones and synthetic substitutes 6.0% 2.8%

Oncology 10.3% 8.1%

Analgesics -1.8% 0.8%

Blood formation and coagulation 2.5% 2.7%

Skin and mucous membrane preparation 4.1% 2.6%

Other CNS 3.0% 6.2%

Anticonvulsants -5.3% 8.4%

Autonomic agents 5.8% 7.9%

Nutritional Products 2.5% 1.4%

Other therapy areas 7.8% 6.0%

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In the baseline growth, PDP drug cost is expected to increase faster than utilization over 2016-2018

5.9%

4.3%

Baseline Total PDP Drug Cost and Claims Growth %CAGR 2016-2018

2016 2017 2018

Baseline drug cost ($Bn)

$7.77 $8.25 $8.72

5.9%Baseline drug cost

growth4.3% 6.1% 5.7%

Baseline claims (millions)

143.4 149.8 156.1

4.3%Year-over-year claims

growth4.5% 4.4% 4.2%

The “Forecast”Trend Factors

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1 New Drug Entries – i) impact of recent NDE launches, and ii) impact of future NDE launches

2 Cost per claim increases – effect of brand list price increases and other factors increasing cost per claim

3 Generic entry – effect of genericisation and generic pricing policies on total drug cost

4 Biosimilars – impact of biosimilar launches on total drug cost (separate from generic event)

Future market events: individual effects on the forecast

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We started with a realistic set of assumptions to drive the “events” in our forecast

Market Event The “Forecast”

1) New Drug Entries 2011-2015 historical average yearly NDE impact

2) Cost per claim increases 1.34% cost/claim increase (average 2011-2015)

3) Generic Entry Number of generic entries based on 2011-2015 LOEs. No further price reductions

4) Biosimilars

Share of new patients starting biosimilar vs. brand - 50% in 1st year of biosimilar, 75% in 2nd, 90% thereafter

Brand PLA at 80% begins 1yr after biosimilar entry in Q3, biosimilar priced at 60% of brand

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

34

Forecast trend factor assumptions are the most realistic, and increase the Baseline drug cost CAGR by +1.0% over 2016-2018

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

Forecast

Baseline Growth

6.9% CAGR

5.9% CAGR

5.9%

-0.9% -0.8%

1.2%1.4%

5.9%

Baseline forecast developed by IMSB, assumptionsand market events applied in collaboration with IMC

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8%

7%

6%

5%

4%

3%

2%

1%

0%

-

1%

-

2%

Baseline GenericEntrants

Biosimilars New Drugs

Cost/Claim Increases

Net Impact

In Summary: The Forecast scenario produces a drug cost CAGR of 6.9% for 2016-2018

1.0%

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How did the “Forecast” do for 2016?

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

5.1%

6.8%7.0%

4.3%

6.1% 5.7%

0.0%

2.0%

4.0%

6.0%

8.0%

2016 2017 2018

PDP

Dru

g Co

st G

row

th

Forecast Drug Cost Year-Over-Year Growth %, 2016-2018

Actual Drug Cost Growth 20164.1%

Forecast

Baseline Growth

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Actual PDP drug cost growth was 4.1% in 2016; 1.0% less than the 5.1% in the Forecast

ScenariosLow – High

Trend Factors

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Sensitivity Analyses were performed using Low and High drug cost trend factor assumptions

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

Market Event Low Trend Factor Forecast High Trend Factor

1) New Drug Entries

50% of 2011-2015 historical avgNDE impact

2011-2015 historical avg yearly NDE impact

150% of 2011-2015 historical avgNDE impact

2) Cost per claimincreases

1.18% cost/claim increase (lowest seen in 2011-2015)

1.34% cost/claim increase (historical average 2011-2015)

1.50% cost/claim increase (highest seen in 2011-2015)

3) Generic EntryFaster generic entry: 3+ generics

enter immediately at LOEDefault number of generic entries

based on 2011-2015 LOEs

Slower generic entry: 1 add’lgeneric entrant after each year of

LOE

4) BiosimilarsBrand PLA at 60% begins 1yr after biosimilar entry in Q1, biosimilar at 60% of brand

Brand PLA at 80% begins 1yr afterbiosimilar entry in Q3, biosimilar at

60% of brand

No brand PLA, biosimilar at 60% of brand

Additional Sensitivity Variables

Blockbusterlaunch

No blockbuster launch No blockbuster launch No blockbuster launch

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Full range of trend factor scenarios results in forecast drug cost CAGR from 5.1% to 8.4% over 2016-2018

Baseline growth developed by QI; assumptions and market events applied in collaboration with IMC

%Year-over-Year Total PDP Drug Cost Growth %

Total PDP Drug Cost CAGR, 2016-20182016 2017 2018

High Trend 5.9% 8.2% 8.5% 8.4%

Forecast 5.1% 6.8% 7.0% 6.9%

Low Trend 2.9% 7.0%* 3.3% 5.1%

Baseline Growth 4.3% 6.1% 5.7% 5.9%

* Low scenario has smallest drug cost increases in $ terms, but relatively stagnant biosimilars impact in 2017 results in high-year-over-year growth.

41Forecast Conclusions

Thank you