The unsustainability of current drug pricing trends. Merrill Goozner Editor Modern Healthcare

Transcription

1 The unsustainability of current drug pricing trends Merrill Goozner Editor Modern Healthcare

2 The economic context: For decades, healthcare surpassed GDP 12.00% 10.00% 8.00% 6.00% Until recently 4.00% 2.00% 0.00% -2.00% % National Healthcare Expenditures Growth GDP Growth

3 Why is the pressure on hospitals? Total healthcare expenditures Total hospital expenditures % hospital expenditures of total healthcare 35.0% 34.0% 33.0% 32.0% 31.0% 30.0% 29.0% 28.0% 27.0%

4 Pct. growth 14% 12% 10% 8% 6% 4% 2% Patent Cliff... Until now 0% -2% Source: IMS Health

5 Spending on drugs by category Expenditures 2013 Percent of Total Percent Change Category ($ millions) Retail pharmacies 168, Mail-order pharmacies 63, Clinics 41, Nonfederal hospitals 28, Long-term care 13, Federal facilities 3, Staff-model HMO 2, Home health care 2, Other TOTAL 325,992 Source: Am J Health-Syst Pharm Vol 71, 2014

6 A relatively small spend for hospitals $936.9 ($ in billions) $1,000.0 $800.0 $600.0 $400.0 $200.0 $- Hospitals Total Spending $28.5 Hospital Spending on Drugs

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9 New dose, new price Prior to 2012, 7.5-milligram cyclobenzaprine HCL (a muscle relaxant) was rarely seen in the market. Average price of the new formulation: $3.79 per pill in post-reform Illinois compared to 35 to 70 cents a pill for 5 and 10 milligram pills. The market share of physician-dispensed cyclobenzaprine HCL of 7.5 milligrams increased from 0 percent in the third quarter of 2012 to 21 percent in the first quarter of In California, since the introduction of the 7.5-milligram products in 2012, the market share of physician-dispensed cyclobenzaprine HCL of 7.5 milligrams increased from 0 percent in the fourth quarter of 2011 to 47 percent in the first quarter of The average price paid for the new strength was $2.90 to $3.45 per pill. The Workers Compensation Research Institute (2015)

10 PhRMA s post-patent cliff strategy

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12 Zaltrap MSKCC just says no Peter Bach and colleagues at Memorial Sloan- Kettering Cancer Center, 10/12/2012, New York Times: We are not going to give a phenomenally expensive new cancer drug to our patients. The reasons are simple: The drug, Zaltrap, has proved to be no better than a similar medicine we already have for advanced colorectal cancer, while its price at $11,063 on average for a month of treatment is more than twice as high.

13 Do specialty drugs need to cost so much?

14 Industry s argument R&D is becoming more expensive now $2.3 billion to develop a new drug, up 145% since 2003 High cost driven by: Time value of investment over decade to develop a new drug Cost of financing failed drug development projects Growing complexity of clinical trials Testing on comparator drugs to accommodate payer demands for comparative effectiveness data

15 The counter arguments R&D is a cost funded out of current revenue. It s not an investment. Approx. 50% of $2.3 billion from the time value adjustment. R&D receives special tax breaks, which reduces its bottom line cost The argument that the cost of successes must cover all the failed drug development projects raises this question: where s the risk? If industry is spending so much on comparing drugs, where are the results? Why must the government spend $1 billion a year on CER?

16 A typical drug company s annual income statement Cost of Goods Sold Bristol-Myers Squibb $16.4 billion in sales (2013) 1% 18% 28% Marketing, Advertising & Admin. R&D 23% Other 30% Earnings After Taxes

17 Chronic hepatitis C disease CDC estimates million infections in U.S. Estimated 16,627 deaths in 2010, from cirrhosis of the liver and hepatocellular carcinoma (liver cancer) Reported new cases fell from over 6 million per year in 1992 to less than 1 million in recent years Patient profile similar to AIDS: intravenous drug users, unprotected sex with at-risk individuals, etc.

18 NIH s role HCV similar in structure to AIDS virus; overlap in the research community A target of NIH concern since the 1980s same as AIDS Hundreds of millions spent on research scientists: the search for a protease inhibitor and other drugs One community member was Raymond Schinazi, director of the Laboratory of Biochemical Pharmacology, Emory School of Medicine Over 20 years, Schinazi received at least $7.7 million from the National Institute of Allergy and Infectious Diseases.

19 Pharmasset Schinazi in 1998 formed Pharmasset in Barbados to commercialize drugs to combat HIV, hepatitis B & C developed at Emory Chemists at the company adjusted the original HCV drug candidate for bioavailability, toxicity and developed Sovaldi Spending in 2003 was just $7 million a year, including $1 million in government grants. Went public in 2006 to raise money for continued R&D and to fund its 82 employees. Total losses through 2011 mostly for R&D (company had no products) totaled $314.8 million.

20 Gilead buys Pharmasset In 2011, Pharmasett s oral drug, PSI-7977, looked superior to interferon, an older treatment with only a 50% cure rate and serious side effects. Company had begun third stage clinical trials it was very promising in earlier trials. Gilead, which knew the field because it had a successful HIV drug, made an offer shareholders couldn t refuse: $11 billion, nearly double its market price, which was already 240% above the previous year because of the success in Phase II trials.

21 The payoff Schinazi reportedly received $400 million for his stake in Pharmasset Gilead invested tens of millions in final trials Dec. 2013, FDA approves Sovaldi. Gilead sets price at $84,000 for course of treatment, or about $1,000 a pill. In first 9 mos. of 2014, Gilead sales of Sovaldi = $8.6 billion In other words, Gilead will recoup its entire purchase price in the first year

22 Gilead s Sovaldi bump $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- Profit Margin: 49% 9 mos mos Profit Margin: 28% Total Sales Net Income

23 Is it cost-effective? Merck s Victrelis (boceprevir), and Vertex's Incivek (telaprevir) had come along a year earlier. Only 74% effective, not Sovaldi s 90%. European concerns about their extraordinarily high cost led to this comparative cost effectiveness report in Hepatology, Sept by Italian investigators:

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25 Cost-effective! Study showed cost per QALY gained at 20-32,000 pounds, i.e. just below the British National Health Service s guideline for affordable quality (roughly $50,000).

26 So how did Gilead set Sovaldi s cost? If interferon cost $18,000 to $36,000 for its level of performance and side effect profile; and And adding telaprevir or boceprevir (Victrelis) to the other drug more than doubles the cost of therapy to a range of $48,000 to $85,000; then Sovaldi was clearly worth $84,000 for its level of performance with minimal side effects. In fact, it s a bargain.

27 Is this a proper use of cost-effectiveness analysis (CEA) Yet New York Times Upshot column reported Sovaldi would save the system money through reduced spending on liver transplants, cirrhosis, etc.

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29 The improper use of CEA Just one in five medical interventions save money NEJM (2006) CEA now being used by drug companies to set prices. The British ceiling has become our new floor.

30 The proper use of CEA Sovaldi is reasonable compared to the QALY cost of Zaltrap (aflibercept) for cancer Great Britain s NICE: It estimated the cost per "QALY would run from 62,900 to 66,500 ($97,000 to $102,656) 6 other treatments on the market Though the independent committee considered aflibercept to be a clinically effective treatment, it could not be considered a cost-effective use for NHS."

31 Comparative CEA Can be used to compare comparable therapies. Some recent examples: Avastin (bevacizumab) v. Lucentis (ranibizumab) for agerelated macular degeneration Tweaking the biotech-engineered molecule Prilosec (omeprazole) v. Nexium (esomeprazole) for acid reflux The enantiomer/racemate version of the proton pump inhibitor

32 Biogenerics v. biosimilars The Biologics Price Competition and Innovation Act ("Biosimilars Act"), passed as part of the ACA. Is it really the single most important legislative development since passage of the Drug Price Competition and Patent Term Restoration Act of 1984 ( Hatch-Waxman Act )?

33 Biogenerics v. biosimilars Historically, some biologic protein products were regulated as drugs. The FDA approved six follow-on protein products PRIOR to the 2009 law: Hylenex (recombinant human hyaluronidase), Hydase (hyaluronidase), Fortical (recombinant calcitonin) Nasal Spray, Amphadase (hyaluronidase), GlucaGen (recombinant glucagon for injection), and Omnitrope (somatropin) without requiring new efficacy clinical trials. So the question on the table post-2010 was: Would the FDA require biochemical equivalency testing or human clinical trials?

34 FTC 2009 report Competition between a biologic drug and a follow-on biologic is much more likely to resemble brand-to-brand competition than the dynamics of brand-generic competition under Hatch-Waxman. Why? FTC forsaw trials, not bioequivalency. Europe: 2003 legislation; guidelines by European Medicines Agency has approved 16 biosimilars, including 2 growth hormone products, 2 like Remicade (autoimmune diseases), 5 ESAs (like Eprex/Epogen), and 7 GCSF products (like Neupogen). Prices 25% or more below innovator products. Meanwhile, the U.S. model: Aranesp for Epogen & Procrit Clinical trials because Amgen wanted exclusivity

35 FDA s most recent draft guidance FDA will take a case by case approach Biosimilar manufacturer must first submit extensive structural and functional studies Based on that data, FDA may approve it, but this is unlikely to happen in practice. (Falit et al, Health Affairs, Feb. 2015) Even drugs with fingerprint-like similarity to the reference product will have to generate animal and clinical data Interchangeability designation will require manufacturer demonstrating the same clinical result and the risk in terms of safety or diminished efficacy of alternative or switching between use of the biological product and the reference product is not greater than the risk of using the reference product alone. Since it can cost $50,000 per patient to demonstrate switching is safe, the expense of pursuing interchangeability will comparable to pursuing a new drug application. We ve gotten to 80% generics for small molecule drugs largely because of pharmacist-driven substitution. Few if any companies are likely to pursue an interchangeable designation.

36 Big savings? In 2011, eight of the top 20 drugs in the United States in terms of sales were biologics, and year-on-year biologic spending grew at 6.5 percent, compared with 2.3 percent for small molecule drugs. Rand study released in Nov., 2014: projected $44 billion in savings over decade to But that was only 4% of total projected spending on biologics

37 PhRMA s growing reliance on specialty drugs many of them biologics In 2013, 15 of 27 new drugs were specialty drugs (leukemia, hep C, lymphoma, multiple sclerosis, etc.) In 2014, 17 of 41 new drugs were specialty drugs; 11 were biologics 25 were given priority review; 16 standard review Average monthly cost for specialty drugs was $3,500 to payers and patients 10x non-specialty medications

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39 Tools to combat high drug prices In existing markets where generics exist (and future biosimilars), increased use of tiered pricing and copays where direct patient costs are involved (valuebased insurance design) But these tools are less likely to be effective with specialty drugs since patients will quickly run over the ACA caps on annual costs ($6,500/$13,000 per year).

40 Formularies Use cost-effectiveness analysis to inform formulary decisions Use formulary exclusion and step therapy (switching to higher cost drug only after failure on biosimilar/generic) Aggressive bargaining when there are multiple providers Express Scripts and AbbVie (Viekira Pak) v. Gilead/Sovaldi & Harvoni Independent physician practices less likely to use formularies because of Part B s ASP+6% reimbursement structure

41 Oncology the special cast Providers find it difficult to directly limit choices Most oncologists still earn their living by marking up price of drugs an incentive to use pricier medicines Payers are experimenting with: Alternative fee schedules for generics Higher case management fees so they act as a medical home Shared savings based on fee-for-service benchmarks Bundled payments tied to profit margins on pre-determined regimen United s experiment

42 Conclusion We are entering an era like the 1990s and early 2000s when rapidly rising drug prices influenced both headlines and bottom lines Political landscape is inhospitable to legislative solutions Regulatory landscape (FDA/CMS) is unfavorable to cost-control Scientific advances in era of precision/personalized medicine will give the problem of high prices on specialty drugs greater urgency: there will be more drugs at higher prices for rare conditions where there are few alternatives Organizations looking to control drug costs will have to develop greater expertise in use of CEA, formularies, informed patient decision-making tools, and physician alignment