Can We Make Innovative Medicines Affordable? Part 2

By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL

Concluding A Most Insightful Drug-Pricing Discussion – Part 2

In last month’s issue, we published “Can We Make Innovative Medicines Affordable? A Most Insightful Discussion On Drug Pricing — Part 1.” Developed from the Our Common Goal: Ensuring Access and Affordability of Innovative Medicines panel discussion at the 2017 BIO International Convention in San Diego, participants include an insurance industry executive (Steven Miller, M.D., SVP and chief medical officer at Express Scripts), three biopharmaceutical industry executives (Ron Cohen, M.D., CEO of Acorda Therapeutics [session moderator], Jeremy Levin, DPhil, MB, BChir, CEO of Ovid Therapeutics, and David Meeker, M.D., former EVP of Sanofi Genzyme) and one executive who spanned biopharma, retail pharmacy, drug distribution, and insurance (Jeffrey Berkowitz, formerly EVP at Merck, Walgreens Boots Alliance, and UnitedHealth Group). We pick up where we left off with Jeffrey Berkowitz responding to a question posed by David Meeker.

MEEKER: How do we move from where we are to a new world that allows examples like the pricing of Kevzara [an anti-IL 6 antibody launched by Regeneron and Sanofi at $39,000 per year, a price 30 percent lower than the two most widely used TNF-alpha rheumatoid arthritis drugs] to happen?

BERKOWITZ: Since we are in a world where there is 90 percent generic penetration and the fact that drugs coming to market are either second in class or highly innovative, there is an opportunity to do more creative things to get a broader value proposition. But to your point, there are perverse incentives throughout the healthcare system (e.g., wholesalers make more money when drug prices are increased, retail pharmacies tend to make less money when generic prices go up). This whole idea of a social contract [an initiative in which pharma companies have pledged not to raise prices more than a certain amount per year] on drug pricing is a little surprising. How many industries can proactively announce they are only going to take a 10 percent price increase every year and get applauded for doing so?

COHEN: But embedded in that statement of, “We’re only going to take no more than 10 percent,” is an assumption that for a lot of that 10 percent, their contracts are such that they are netting 3.5 or 4 to 5 percent, and the other 5 to 6 percent is going to the frictional players in the system (e.g., pharmacy benefit managers [PBMs], pharmacies, wholesalers).

MILLER: Actually, when you calculate rebates, what a biopharma gives to Medicare, Medicaid, and 340Bs are rebates. Biopharmas can blame high drug prices on a company like Express Scripts, because it is easy to blame the middleman. But biopharma is loath to point out that the government is actually taking most of the rebates. PBMs are the recipient of the rebate but are actually not the beneficiary of a lot of the rebate dollars. Express Scripts is moving to an indication-based reimbursement model to overcome the loss of existing rebates, which can happen when a new product comes to market at a lower price and without a rebate. We can’t move the entire market share from one product to the new product overnight, because if we did, our insurance payers would lose an enormous amount of rebates. One of the problems with our maladapted healthcare system is a biopharma can actually bring a cheaper product to market and still have trouble getting market share.

COHEN: Earlier you gave praise to Regeneron and Sanofi for coming in at a reasonable $37,000 drug price for dupilumab. But how do we know what’s expensive and what’s not? Because $37,000 is still a lot of money.

MEEKER: There’s no drug-pricing rule book that you can reference for determining what is a fair price for anything. We live in a world of negotiation. But to get to a negotiated understanding of what is fair requires starting early, and our early dialogue, long before approval, wasn’t about the drug, but the disease. Our first goal was for everyone to understand the problem we were trying to solve. When people think about eczema, they think it is a little rash. We had to explain that we were talking about treating much more severe forms of atopic dermatitis. We went through pictures and discussions until everyone had a collective sense of how severe the disease is potentially affecting this number of patients in the United States, which brought us to the drug-price range of where we thought dupilumab should be.

MILLER: The other thing Jeff Berkowitz and I do is look across our entire book of business and try to calculate what the total increase is going to be for our insurance plan sponsors. There are some years where you have a lot of drugs coming into the marketplace, and there is less flexibility to determine if a drug can be priced a little higher. There are other years when a drug company may be the only new entrant to the marketplace and isn’t competing against much else, which allows more flexibility in our book. But PBMs aren’t tasked with managing the price of one drug. We are tasked with managing the total drug spend for a plan sponsor. Insurance payers are starting to look at their specialty pharmacy spends as being different from their traditional oral-solid pharmaceutical spend. This is because they are seeing more specialty pharmacy patients, and the products these patients need are expensive and have been increasing by double digits.

BERKOWITZ: Everybody’s got a forecast, and everybody’s got planning, which can get blown up. For those who don’t know, once a PBM’s business is sold, it only turns over every three years or so. As these are typically three-year agreements of very large populations, the value a company like Express Scripts brings to a payer or an employer is built over time. If a new revolutionary, high-priced product comes to market during one of those three years, it can totally blow up that value, company forecasts, and plans, and there is very little that can be done.

MEEKER: How should the launch and price of the Hepatitis C drug Sovaldi have been handled?

MILLER: Everyone here has been expressing the importance of talking to payers early. When it came to Sovaldi, I can’t find a single payer that had been talked to prior to its launch. We at Express Scripts knew a product was coming, but we didn’t know what the price of the product was going to be.

MEEKER: But if they had talked early, what would that conversation have been like?

MILLER: It would be similar to how Express Scripts worked with Regeneron and Sanofi. We would have been investigating the number of patients we could anticipate treating. What is going to be the burden to the payer? Is the payer going to be able to absorb the cost of the treatment over an annual budget? Based on that information, we would have been able to help the manufacturer determine a price that the market could bear. Now, I will admit that I was the Chief Whining Officer when Sovaldi came out. Because at $1,000 a tablet, and the fact that it was approved in December, which is after insurance plan budgets had been approved for the coming year, every one of Express Scripts’ insurance plans would be in trouble. Further, I knew patients of these plans were going to be denied other therapies because of the cost of treating Hepatitis C with this new therapy. People at insurance companies were going to be losing their jobs because of Hep C. Don’t get me wrong, it’s a spectacular drug. As a transplant nephrologist by training, I have seen a lot of Hep C and had no success treating these patients prior to Sovaldi. The drug wasn’t the problem; it was the price and the fact that we had no advance notice and weren’t consulted as to what that price was going to be.

COHEN: Within the first year or so of the Sovaldi launch, UnitedHealth reported about a $100 million quarterly loss, which was almost entirely the result of not being able to anticipate the Hep C onslaught when developing its premium structure.

What if every commercial-stage biopharma company signed up for taking price increases of no more than X percent (i.e., a social contract), perhaps a percentage somewhere around that of medical inflation? Further, what if all of these companies agreed to engage with insurers, PBMs, etc., on all new drugs in their pipelines at least a year and a half before anticipated approval (i.e., listening tours)? Would that end the drug-pricing problem?

MILLER: Almost. But we also need to have a vigorous biosimilar marketplace. In the last decade, it was the generics that actually created the headroom for biopharmaceutical innovation. Here’s how. Consider a patient needs to go on a new cancer drug, which is typically more “expensive” because it is new. What allowed insurers to be able to pay for these new innovations was the ability to move larger numbers of other patients over to generic treatments in a variety of other therapeutic areas. Effectively utilizing generics helped Express Scripts keeps drug spend pretty constant. Similarly, the hundreds of billions of dollars saved by the use of biosimilars will enable insurers to cover other new therapeutic innovations.

LEVIN: I agree. There cannot be a perpetual franchise for biologics. It is unconscionable for companies that have benefited from the appropriate period provided for under patent law to try to prevent the entry of a biosimilar. Rather than spend money on lawyers, they should be investing in new products to replenish their pipelines.

COHEN: What I am hearing is: Depending on the drug and the indication, it is possible for new therapies to be priced at about a million dollars per patient, and in the right circumstances, assuming there was agreement on the product’s value, it could be reimbursed.

MILLER: Spark Therapeutics is working on a gene therapy for hereditary blindness. In this situation, there is no medical spend offset for such a product, because currently there is no medical treatment. So let’s throw a hypothetical number out that the cost of this new treatment will be $1 million per eye. Insurers now have $2 million in completely new spend. Are plan sponsors going to be willing to pay $2 million for a treatment that might be palliative, because not all gene therapies will be curative? In the case of Spark’s new product, children still can’t read newsprint, but they can see better and are able to navigate around a room without an aid. As we are supposed to be in the business of providing better health for people, we are going to have to figure out how to pay for such a treatment, which means cutting out every ounce of waste in the system to have available dollars. There will be other gene therapies (e.g., hemophilia) where we are paying $150,000 to $200,000 a person. Even at a price of $2 million, there’s going to be ROI. If the hemophilia product was the first gene therapy product to come to the market, it would be a much easier argument. But it looks as if Spark’s eye treatment will be the first gene therapy to market (probably this year), and though the population that will be served is tiny, we still don’t have a healthcare system designed to pay for it. I think the price will be justified, and big payers should be able to figure it out. However, for small, regional health plans, it could be very challenging, especially if they have a family with multiple kids needing treatment.

COHEN: Where do we go from here?

BERKOWITZ: The concept of value-based contracting around therapeutic classes is getting simpler, because there are even fewer opportunities as we continue to solve problems on the edges. However, do we have the necessary skillsets? For example, it has traditionally been the lawyers who have done all the negotiations on rebate-oriented contracts. Yet now we are asking these same lawyers to sit in a room with really creative scientists solving really meaty problems around diverse pieces of data in a fragmented system. These lawyers don’t have the skillsets necessary to support a completely new contracting construct.

LEVIN: In addition, it is not just a matter of bridging the gap between scientists and lawyers to help with value-based contracting: the legal system also inhibits in some cases the various elements of a healthcare system from working together better. There are very clear regulations about who can talk to whom, when, and what they can and cannot talk about. We need to take a hard look at some of these regulations. For example, it is very difficult for CEOs of multiple sclerosis-oriented companies to sit together alone in the same room without lawyers. And they certainly cannot have a discussion on the current MS pricing system. I imagine it to be very difficult for insurers and PBMs to function in a “column” discussion with one company on one drug without looking to ensure that all companies with a similar drug are included at that table.

MILLER: Let’s have a moment of truth. You three (Cohen, Levin, and Meeker) do not represent biopharma, as you have been involved in these discussions repeatedly, while many of your colleagues avoid these conversations. As such, the vast majority of industry is not where we are [on this panel] today, and this includes payers. Most of the people doing contracting for payers, including my company, are trained to beat the ever-living daylights out of the pharmaceutical manufacturers.

BERKOWITZ: That’s why I call what we are seeing with “value-based pricing” as being a box-checking exercise. For when you look into what companies are really doing when they announce the development of an intrinsic value-based contract, it often involves a very small population or is a piloted program.

LEVIN: Jeff Berkowitz and I have gone to battle negotiating over generic contracts. And while it was all very polite, it was still a battle about dollars and cents — it’s really a commodity discussion. I don’t think we (Cohen, myself, and Meeker) are in that business, and we need to develop, as Jeff says, a far deeper understanding of value-based contracts for branded medicines. But I think we all understand that in the absence of true focus and change within industry on this issue, regulators and policymakers may implement forms of pricing control that will be catastrophic in its complexity and distance from a robust value-based pricing system.

COHEN: At this moment there is legislation being proposed that would allow for the reimportation of drugs to the United States. As other countries allow for government-developed price controls, the United States would essentially be importing these price controls. This spearheads the way for the federal government to negotiate/set the price — which, as we all know, isn’t much of a negotiation. In addition, counterfeit drugs are a major source of revenue for certain terrorist groups, so we need to think about that when considering reimportation.

MEEKER: We have to be patient, because the reality is this is not going to change overnight. When we talk about self-regulation on the part of the industry, there isn’t going to be a pact where every company agrees to sign up. But there will be companies that lead by example, and slowly more companies will get on board, because we all have a vested interest in the system’s success, and if it breaks, we all lose. Secondly, I want to be rewarded for innovation that solves a problem, and then be able to get that solution to everybody who needs it. But to compete in that world, I don’t want to be stuck trying to navigate contracts that are in place for three to four years, for those won’t allow me to get the volume needed.

LEVIN: If reimportation of drugs is allowed, we need to understand that the FDA does not have the funding and the manpower to adequately review the integrity of the supply chain and quality of these “reimported” drugs or all the sources from which they come. Some estimate that the majority of the drugs in the Middle East and Africa are fakes or counterfeit. America’s custody chain of getting a drug from the manufacturer to the patient is robust and largely managed better than most of the world. To safely reimport drugs would require significant investment in FDA infrastructure, manpower, and substantially increased inter-agency international agreement and cooperation.

BERKOWITZ: The United States has 90 percent generic penetration. Three manufacturers represent 50 percent of the U.S. volume of generic distribution. You have four buyers that represent 95 percent of all generic purchases in the United States. And yet, in the U.S., even for highly commoditized drugs, the prices for generics are higher here than anywhere else in the world.

LEVIN: Innovation in the generic industry should be in developing new low-cost manufacturing capabilities.

COHEN: To Steve Miller’s earlier point on biosimilars, biopharma’s value proposition of funding innovation through high prices for a limited exclusivity period depends on having a robust genericization process, which includes biosimilars.

Now, David Meeker mentioned earlier that drugs have been steady at about 14 percent of total healthcare spend. But as we get into developing more curative drugs, we will be replacing procedures and some of the requirements for provider care. As such, we can anticipate more drugs taking over a larger share of healthcare spend. But unfortunately, health insurance plans aren’t currently structured to accommodate such a scenario. So what do we do?

MILLER: There are a number of stakeholders who need to work toward changing the system, including payers. High-deductible plans do not work, because very few families in the United States have $2,000 in the bank. Most people who buy a high-deductible plan are essentially playing roulette that no one in their family is going to get sick. We have got to make changes to these plans and put in guardrails so the maximum out of pocket for any prescription is, for example, $250, as we have a lot of data indicating nonadherence to medication skyrockets when the out-of-pocket expense surpasses $250.

BERKOWITZ: We are not going to solve any of these issues if we continue to have biopharma, large pharma, PBMs, retail pharmacy, drug distributors, and payers continuing to operate in a vacuum. We need a forum where these groups can come together.

COHEN: There is the Council For Affordable Health Coverage, and its members include Aetna, BIO, Cigna, CVS Health, Express Scripts, GSK, and Sanofi, just to name a few.

MILLER: Express Scripts has not found that particular coalition to be very useful, as it is mainly an advertising coalition. It was supposed to have a public relations campaign and was not intended to assist with driving healthcare policy change. There are a lot of coalitions out there, all have agendas, and many are often fronts for different organizations.

BERKOWITZ: It goes back to the beginning of taking the time to engage early. I’m often surprised at how many senior-level biopharmaceutical executives will fly at a moment’s notice to the Czech Republic to do a business review for that country, but have never visited Humana, a company which probably represents somewhere between 5 and 15 percent of their company’s total dollars.

MILLER: The reason we have had a difference at Express Scripts in working with Regeneron and Sanofi is because we are now engaging the highest level of our company with the highest level of their companies. In the past, executives on both sides delegated this engagement to someone else. Here’s some advice: The people biopharma companies get to come to AdComms on the payer’s side are not the decision makers. Neither Jeff [Berkowitz] nor I go to AdComm meetings, yet we are the ones who make the decisions. The people you are getting to come to these meetings are some midlevel physicians or other person who actually does denials or utilization management, and you could make better use of your resources.

COHEN: I’d like to offer a concluding thought. It is up to us (i.e., employees of the healthcare industry) to reach out to the senior levels of our organizations to get change to happen in a constructive way. Because in the end, it is all about the patient, for we are all patients, too.

For additional insights on drug pricing, be sure to check out our special drug pricing roundtable published in Life Science Leader’s July 2016 issue.