What role does the government have to play in disruption in healthcare? Alexander Gaffney, RAC PwC Health Research Institute

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1 What role does the government have to play in disruption in healthcare? Alexander Gaffney, RAC PwC Health Research Institute

2 When policy leads to disruption Through the prism of FDA innovation. The key takeaways: Innovation takes time and money. Good government policy can allow for it to take less time and less money, and set the stage for stable investment. PwC

3 Pharmaceutical R&D is decreasing in efficiency Number of drugs approved per inflation-adjusted $1 billion in R&D spending / Source: Scannell, Blanckley, Boldon & Warrington. Nature Reviews Drug Discovery.

4 How tough is it to develop a new drug? It depends on the type Percent of compounds entering phase 1 testing obtaining FDA approval All drugs Oncology drugs Non-oncology drugs Orphan disease drugs Metabolic/Endocrinology Central Nervous System Autoimmune/Inflammation Infectious disease Ophthalmology Vaccines Cariovascular Genitourinary 3.4% 6.20% 13.8% 15% 15.10% 20.9% 19.60% 25.20% 25.50% 21.60% 32.60% 33.40% Source: Estimation of clinical trial success rates and related parameters. Chi Heem Wong, Kien Wei Siah, Andrew W Lo. Oxford Academic Journal of Biostatistics..

5 11.2% 11.2% 10.7% 9.2% 7.8% 6.8% 6.1% 5.3% 5.2% 6.7% 13.8% How tough is it to develop a new drug? Tough, and the odds of success can vary from year to year. Percent of compounds that started Phase 1 testing that eventually obtained FDA approval Source: Estimation of clinical trial success rates and related parameters. Chi Heem Wong, Kien Wei Siah, Andrew W Lo. Oxford Academic Journal of Biostatistics..

6 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Generic drug approvals are steadily on the rise at the FDA Since FY2015, a sustained boost in the number of full and tentative approvals FY FY FY FY Number of full approvals Source: PwC Health Research Institute analysis of FDA generic drug approvals. Number of tentative approvals

7 States take action Both with the support of federal regulators and in the absence of federal action Takeaway: Small government can have a big impact on disruption in the same way that big government can PwC

8 States are increasingly taking action on drug pricing Number and fate of state legislative actions taken to address drug pricing concerns by targeting pharmaceutical companies Transparency Measures* Price Control Measures Failed Pending Passed Failed Pending Passed *Includes study orders Source: PwC Health Research Institute analysis of data from Congressional Quarterly, National Academy of State Health Policy, National Conference of State Legislatures

9 Under the Trump administration, states are asking for flexibility in how their administer their Medicaid programs An increasing number of Section 1115 waivers requesting eligibility changes ME WA OR NV CA ID UT MT WY CO ND SD NE KS MN IA MO WI IL MI OH IN KY TN WV NY PA MD VA NC SC VT NH NJ DE CT MA RI Washington D.C. Proposal implements more stringent eligibility and/or benefits restrictions Proposal implements a work requirement, as well as more stringent eligibility and/or benefits restrictions AZ NM TX OK AR LA MS AL GA FL Proposal implementing a work requirement as well as more stringent eligibility and/or benefits restrictions approved by CMS Source: MaryBeth Musumeci, Robin Rudowitz, Elizabeth Hinton, Larisa Antonisse and Cornelia Hall, Section 1115 Medicaid Demonstration Waivers: The Current Landscape of Approved and Pending Waivers, Kaiser Family Foundation, Feb 1, 2018

10 New entrants to healthcare Government actions can help or hinder disruption. Takeaway: Government actions can catalyze disruption. Its actions can also chill certain types of innovation. (And sometimes both at the same time) PwC

11 DOJ continuing to go after pharmaceutical and device companies 2017 fraud recovery levels increase compared to 2016, with a continued focus on False Claims Act prosecutions $1.45 billion $1.63 billion Veterans Health Care Act Controlled Substances Act Foreign Corrupt Practices Act $298 million Federal Food, Drug, and Cosmetic Act Federal Food, Drug, and Cosmetic Act; False Claims Act False Claims Act Source: PwC Health Research Institute analysis of Department of Justice news releases.

12 In honor of valentines day, an excerpt from a real FDA Warning Letter Roses are red, Violets are blue, Your product is made with love, yes, a ton But that s a labeling violation under 21 CFR 101.4(a)(1) WARNING LETTER Your [ ] products are misbranded [ ] because they are fabricated from two or more ingredients, but the labels fail to bear a complete list of all the ingredients by common or usual name [ ] as required by 21 CFR For example, Your Nashoba Granola label lists ingredient "Love". Ingredients required to be declared on the label or labeling of food must be listed by their common or usual name [21 CFR 101.4(a)(1). "Love" is not a common or usual name of an ingredient, and is considered to be intervening material because it is not part of the common or usual name of the ingredient. Source: FDA Warning Letter sent to a bakery on September 22, 2017

13 Two trends driving disruption: EHR and mobile phone adoption What s next for personal health records and information sharing? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Basic EHR adoption (percentage) Smartphone adoption in US (percentage) Source: Electronic health record data from the Office of the National Coordinator for Health Information Technology. Smartphone adoption data from ComScore MobiLens survey.

14 A few closing thoughts Innovation is hard. Good policy and incentives can help make it easier, faster and cheaper. Government can act as an enforcer. Sometimes that s good. Sometimes that s bad. Sometimes it creates an environment conducive to disruption. Not all government resides in Washington. What states do can have a huge impact on disruption and innovation at a local level. PwC

15 For more information, please visit: www. twitter.com/pwchealth 2018 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.