Ed Schoonveld

The pharmaceutical environment is changing rapidly. The Inflation Reduction Act has introduced US price controls.

 Managed care and pharmacy benefit managers have unprecedented market power, allowing them to restrict patient access for new expensive drugs and extract high rebates for undifferentiated drugs. European payers continue to tighten evidence rules. Placebo-controlled trials and single-arm trials typically don’t cut it anymore. Payers warn that evidence gaps frequently lower price and/or limit patient access. Avoiding commercial failure requires risk benefit assessments with a thorough understanding of pricing and access implications of alternative development strategies.

Large pharmas have portfolio management processes that rely on input from clinical, commercial, and access experts to make trade-offs between clinical program options. Focus is on commercial value. Smaller biotechnology firms deliver a large share of early drug innovation. How prepared are they to optimize drug development decision-making?

Biotechs are very focused on developing scientific solutions for devastating diseases. Having that expertise is an essential ingredient for drug innovation success. However, smaller biotechs tend to have limited or no commercial and access expertise in the leadership team and on the board. This can be highly problematic for two reasons:

Phase III clinical programs form the basis for marketing approval by the FDA in the US and by the EMA in Europe. However, these same trials are also the basis for access and pricing approval by payers worldwide. Payers state that wrong clinical trial design, wrong clinical comparator, inappropriate endpoint, and insufficient length of trial are common grounds for payer rejection, access restrictions, and/or inferior price. Avoiding these traps requires analysis and trade-off decisions for Phase II and Phase III trials. Many biotechs are not thinking about these until it's too late.

Biotech firms are often dependent on partnerships with—or acquisition by—large pharmas to fund Phase III development and commercialization. Negotiations focus on the asset’s commercial potential, which can be hampered by lack of evidence or value. This directly impacts pricing, access, and the ability to present strong differentiating value to prescribers. Lack of focus on these aspects can significantly lower the biotech's equity value.

Biotech organizations need to maintain a low investment burn rate, at least in the earlier stages where clinical failure rates can be high. However, it is extremely unwise to ignore the need for at least high-level commercial and access evaluations to guide development decision-making.

How can biotech companies ensure sufficient attention to access and pricing needs, while limiting investments to the essentials? Here are some general suggestions:

Periodically perform commercial/access assessments for a few clearly defined product profiles with some clinical trial design options for each new drug. Consider a range of upside and downside clinical outcome scenarios.

 Focus on a few countries that can serve as a proxy for global potential and evidence needs. While dependent on the therapy area, the list would include the US, Japan, Germany, and France.

 Consider past health technology assessment decisions in each payer system that seem most relevant as analogues for the situation; evaluate each analogue with respect to the healthcare system.

 Evaluate clinical trial design options based on projected commercial results for each trial design option under a range of outcomes and scenarios.

 Ensure that you can call on deep access expertise to guide and validate the analysis and conclusions.

In earlier phases of drug development, payer research may only be needed in cases where the analysis and the hypothesized commercial results have major uncertainties that significantly impact decision-making. Phase III clinical trial design decisions require a higher level of robustness and validation of the access/pricing assumptions through research.

Ed Schoonveld is a value & access advisor for Schoonveld Advisory and author of The Price of Global Health.

1. Schoonveld, E. The IRA is Industry’s Wake Up Call. 

https://www.pharmaceuticalcommerce.com/view/the-ira-is-industry-s-wake-up-call

Articles

Balancing innovation focus with optimized decision-making.


Biotech’s Achilles’ Heel

Global price comparisons for prescription drugs continue to draw the attention of politicians, medical groups, and patient organizations. WHO and lower-income countries advocate for income-based pricing to address their low levels of affordability. However, higher-income countries systematically use lower prices around the world to lower their prices through international price referencing. Is the US subsidizing healthcare in other countries around the world? What is fair?

Given different income levels in countries around the world, the question is whether adoption of prices adjusted for gross domestic product (GDP) yields better commercial results for a drug manufacturer than a fixed price across countries (if that was even feasible given price controls). As variable production cost of most pharmaceuticals is relatively low, price adjustments to address local affordability tend to lead to a higher financial contribution to cover global infrastructure and fixed organization cost. However, the use of international price referencing by higher-income countries can pose serious challenges to this strategy.

Fair Prescription Drug Prices for Americans Act

Medicare price controls, introduced through the Inflation Reduction Act of 2022,

 did not satisfy the appetite for US government intervention in prescription drug pricing. The Fair Prescription Drug Prices for Americans Act

 was introduced on April 19, 2023. It includes regulations that the retail list price in the US for a drug or a biological product may not exceed the average retail list price for the drug or biological product among Canada, France, Germany, Italy, Japan, and the UK. This bill proposes to establish maximum US drug prices through the international price referencing principle, using prices in a basket of other countries with a lower income level without any consideration of differences in GDP between countries.

NATO countries are bound to contribute 2% of their GDP to NATO, yet only 11 of the 30 NATO member states contribute the agreed upon income-adjusted share. Former President Trump’s undiplomatic style of raising the issue with European countries was not ideal, but it did raise broader awareness that despite European concerns over Vladimir's Putin’s expansion interests beyond Ukraine, they don’t pay their fair share, even after adjustment for GDP. For drugs, we don’t accept GDP adjustments for price, while for guns, we accept that countries pay less than their GDP adjusted share.

One might ask: Why should I pay more for my medications than my friends in London or Rome? Is it fair to not pay the same? What’s the point of working hard for more income if each product is priced based on income level? On the other hand, if patients cannot afford it, then the cost of covering drug company overhead will have to be funded by the ones who can, but at even higher prices. For this reason, it makes economic and social sense to accept “differential pricing” across countries, provided that individual governments pay their fair share and don’t abuse it through price referencing and authorized importation, as recently authorized by the FDA for Florida.

Government payers use their monopsony powers to demand lower prices. Individual companies usually have no choice other than either accepting the price or staying locked out of local sales. Companies are not allowed to coordinate with other companies to break through the government’s purchasing power, as this would be deemed collusion. Just like with guns, European governments don’t pay their fair share for drugs. Many countries demand price reductions for drugs when they exceed budgets that did not adequately fund aging populations and growing healthcare needs.

,” the National Institute for Health and Care Excellence (NICE) in England has not adjusted its cost-effectiveness standard for inflation in 25 years. Canada is disallowing price premiums of new innovations based on local price levels that are founded in decades of compulsory licensing, allowing generic manufacturers to ignore patents and produce the product for a low royalty of 4% of its generic price. Fair pricing?

Rather than attacking the drug industry on its pricing, shouldn’t the US government help the industry to fight unfair price control practices that systematically leech on US subsidies, similar to lack of funding of the joint NATO task?

1. H.R.5376 - Inflation Reduction Act of 2022. Congress.gov. 

https://www.congress.gov/bill/117th-congress/house-bill/5376/text

2. S.1218 - Fair Prescription Drug Prices for Americans Act. Congress.gov. 

https://www.congress.gov/bill/118th-congress/senate-bill/1218/text

3. FDA Authorizes Florida’s Drug Importation Program. FDA. January 5, 2024. 

https://www.fda.gov/news-events/press-announcements/fda-authorizes-floridas-drug-importation-program

The impact of income-based price controls in healthcare. 

Justifying Price Fairness

Affordability of healthcare and prescription drugs is a serious issue, but there is not always a “bad guy” in societal challenges. Patient affordability of drugs is important to everybody; after all, medicines on a shelf don’t do anybody any good, certainly when patients go untreated.

 Rachel Cohrs called it “Sen. Bernie Sanders’ prescription drug pricing theater,” where Merck CEO Robert Davis, Johnson & Johnson CEO Joaquin Duato, and Bristol Myers Squibb CEO Chris Boerner were grilled with the same questions that were asked in a similar congressional hearing five years ago. Subsequently, the Inflation Reduction Act (IRA) of 2022 passed, under which Medicare was authorized to negotiate drug pricing with the pharmaceutical industry. Many might be wondering, why did Sanders need a sequel?

Complaints about company profits, CEO salaries, and price differences with other countries were the highlight of the event. With respect to company profits, an annual Deloitte analysis

 shows that the internal rate of return on R&D investments for the top 20 companies by R&D spend was only 1.2% in 2022. We may run the risk of killing one of the last remaining US industries. High CEO salaries may raise some questions. However, this would be a general societal discussion about income distribution, as high CEO salaries are not unique to pharmaceutical companies.

The overall healthcare cost has been rising rapidly in the US, reportedly tripling from 6% to 17% of gross domestic product over the last 45 years.

The cost share of prescription drugs has been very constant at 12% to 13% of healthcare cost since 2000. Drug costs carry the brunt of political attention, where they are only a small part of a broader healthcare affordability problem. Cost of healthcare cannot be simply blamed on a “bad guy.” Scientific advances create many opportunities, but also come with resource trade-offs.

US list prices for prescription drugs are often higher than in other countries. Net prices can be much lower. European countries, Canada, Australia, and Japan typically have government price controls for prescription drugs. They have a vested interest in using their monopsony power and price control legislation to minimize the government funded drug bill. That does not necessarily mean it is done fairly.

In England, the National Institute For Health and Care Excellence (NICE) is setting the maximum price at which a prescription drug can be reimbursed by the national health system. However, the calculation has not been corrected for inflation since its institution in 1999, 25 years ago. Correcting for cumulative inflation, the “acceptable” price levels are now less than half of what they were at NICE’s inception in 1999. On top of that, the UK government demanded rebates of 27.5% in 2023 to address budget overruns.

Through international price referencing, this directly affects pricing in other countries. As another example, Canada has artificially reduced pricing by instituting compulsory licensing, which was only reversed in 1987 with safeguards that prices could not substantially increase from the then-established generic price levels.

Since drugs rebates are confidential, it is hard to know the exact cost to the managed care organization (MCO) or pharmacy benefit manager (PBM). Unfortunately, MCOs and PBMs don’t typically pass on rebates to patients, so, in some cases, the patient copay can even be higher than the cost of the drug. As a typical example, seniors pay a $205 copay for a 110-mcg inhaler of fluticasone propionate (generic Flovent; the least expensive option in the drug class) with WellCare Value Script, but pay $118 without insurance through GoodRx. Obviously, the health insurance company is making profit on each of these prescriptions.

With the increasing share of high deductible plans, the rapid growth of exclusion lists, and formulary design shifts to higher copay and co-insurance rates, MCOs and PBMs have shifted much of the increasing cost burden to patients. Who is the bad guy?

Ed Schoonveld is a value and access advisor for Schoonveld Advisory and author of The Price of Global Health.

1. Cohrs, R. In a Showy Hearing, Bernie Sanders Gets Few Answers About Lower Drug Prices. 

https://www.statnews.com/2024/02/08/bernie-sanders-drug-prices-pharma-ceos/

2. May, E.; Gupta, L.; Taylor, K.; Miranda, W. Seizing the Digital Momentum: Measuring the Return From Pharmaceutical Innovation 2022. Deloitte Center for Health Solutions. January 2023. 

https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/life-sciences-health-care/deloitte-ch-en-lshc-seize-digital-momentum-rd-roi-2022.pdf

The Price of Global Health: Drug Pricing Strategies to Balance Patient Access and the Funding of Innovation

. Routledge Taylor & Francis Group. 2020. 

https://www.routledge.com/The-Price-of-Global-Health-Drug-Pricing-Strategies-to-Balance-Patient-Access/Schoonveld/p/book/9780367279400#:~:text=Description,aspects%20of%20the%20pharmaceutical%20industry

4. Cohrs, R. Pharma Group Blasts UK’s Drug Rebate Scheme Shortly After Lauding 'Landmark' Spending Deal. 

https://www.fiercepharma.com/pharma/pharma-group-blasts-uks-statutory-drug-rebate-scheme-days-after-lauding-landmark-deal#:~:text=The%20Association%20of%20the%20British,the%20U.K.%20demanded%20in%202023

Fighting for patient affordability doesn’t necessarily require a scapegoat.

In Search of the ‘Bad Guy’

Advances in technology, aging of populations, and unhealthy lifestyles have contributed to rapidly rising healthcare costs. Healthcare affordability is a large issue for governments, insurers, employers, and patients today, but there is concern that it could become a much bigger issue tomorrow. How do we deal with that?

Cardiovascular diseases and cancer have a large impact on patient lives. New technological solutions have helped to alleviate the humanistic burden but have also increased the healthcare bill. Many unmet needs remain in almost all therapy areas. Technical advances will likely produce new medical and pharmaceutical solutions that will come with tough budget choices. How should government payers choose between covering increasing healthcare necessities and needs for the other two largest US budget items, social security and defense? Let’s consider two disease areas with different challenges.

Without any effective interventions, Alzheimer’s disease alone, it's been reported, can 

 due to long-term care needs. Recently approved Leqembi, made by Eisai and Biogen, showed modest effectiveness in terms of delay of onset of cognitive symptoms. The drug offers hope that the amyloid plaque avoidance strategy may ultimately lead to improvements and avoidance of the debilitating effects of the disease. High treatment costs will add to the healthcare bill, but it will be offset by savings due to avoidance of long-term care needs. Any effective and safe drug treatment will attract a high volume of patients that need preventative treatment for many years. With the current generation of drugs, one could make the argument that improvement of patient and caretaker lives and system savings will be limited. However, it is critical to continue investments to hopefully at one time cure Alzheimer’s disease and avoid impending healthcare system bankruptcy. 

Recent evidence of the weight loss and cardiovascular health benefits of Ozempic and Wegovy have garnered plenty of social media attention and hype. With 

 of the US population being obese and an additional one third overweight, according to the NIH, a question arises on what the appropriate use of these drugs is. How should we incorporate weight loss drugs in our lifestyles? There is a broad spectrum of need across the population, ranging from morbidly obese patients that are in need of new solutions to otherwise healthy individuals to maintain a nourishing lifestyle. Ballooning sales of these drugs poses some
fundamental questions for our society and the industry. Will we get to a point where most of the population takes drugs to control weight for the rest of their lives, and should we work harder to encourage maintaining a healthy food chain and lifestyle?

Which healthcare innovations should be covered by government and private health insurance? Should health insurance premiums vary depending on body mass index, fitness, or even gene map? That raises many ethical and fairness questions, particularly since some of these factors are beyond our individual control. As the government shoulders a large proportion of healthcare costs, how should it choose between covering increasing healthcare necessities and needs in the other two largest US budget items, social security and defense?

Narrowly focusing on drugs as a solution to weight problems opens up concern as to what the role of weight loss drugs should be, for which populations, and how it fits with tighter control of our food chain, personal lifestyle responsibilities, and interventions such as bariatric surgery. This question can only be solved by a tighter collaboration between the pharma sector, medical community, FDA, and the health insurance industry.

Ed Schoonveld is a value and access consultant, and author of The Price of Global Health.

The debate continues as to how government payers should weigh covering
healthcare needs versus other budget items.