Ad Header



The Pulse of the Pharmaceutical Industry

Special Feature – Value of Medicines: The value equation

Written by: | | Dated: Friday, February 16th, 2018


As more innovative – yet even more expensive – therapies enter the U.S. market, brand marketers  will have to find equally new and innovative ways to prove the value of their medicines to payers  and patients, especially as insurance plans continue to put more of the cost burden on patients.


What is the price of innovation? What is the value of a medicine that provides therapeutic benefit but has awful side effects that reduce quality of life? Or what is a drug’s value when it is a real innovation but its long-term benefit is an unknown and its potential overshadowed by its high list price? These are the questions that manufacturers will have to wrestle with as they usher new classes of therapies to market and find new ways of demonstrating their value to payers and patients in the United States.

The second half of 2017 saw some milestone approvals for drug innovation. In August 2017, Novartis received marketing clearance for the first chimeric antigen receptor T-cell (CAR-T) therapy as the FDA approved Kymriah for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later relapse. And then in December 2017, Spark Therapeutics received approval for Luxturna, a novel gene therapy for a rare form of inherited vision loss.

Neither therapy is inexpensive. Kymriah was announced at $475,000 for a treatment course, and Luxturna is priced at $850,000.


National Academies of Sciences steps in

In November 2017, the National Academies of Sciences released a report, “Making Medicines Affordable: A National Imperative.” The report makes several recommendations to gain control of pharmaceutical prices in the United States.

“This is a difficult challenge. There may be trade-offs between current drug affordability and new drug availability,” the report’s writers say in the introduction. “Controlling drug costs too rigidly, for instance, could potentially reduce the expected profits of drug companies, and this could alter their decisions regarding major investments to develop new drugs.

“Furthermore, the complex nature of the nation’s medical system – which includes patients, clinicians, hospitals, insurance companies, drug companies, pharmacists, pharmacy benefit managers, various government agencies, advocacy organizations, and many others – makes it very difficult to predict the precise effects of any specific policy changes. This is exacerbated by the fact that there is very little publicly available information on the costs and profitability for the drug companies and various other participants in the system.”

The report recommends that the federal government consolidate and apply its purchasing power to directly negotiate prices manufacturers and strengthen formulary design and management. The government should also improve methods for assessing the value that drugs provide and also ensure that incentives to develop drugs for rare diseases are not extended to widely sold drugs.

“In addition, increased disclosure about the financial flows and profitability among the participants in the biopharmaceutical sector should be required,” the report says.

Other recommendations include encouraging access to generic drugs, speeding up the review processes for generic manufacturers, and eliminating DTC advertising for prescription drugs and “provide more useful information to patients about the potential benefits and costs of treatments, thereby reducing inappropriate demand for higher priced drugs.

“Finally, insurance plans should be modified to reduce the financial burden that patients and their families currently experience when they need costly prescription drugs, and individual cost-sharing arrangements that are based on drug prices should be calculated as a fraction of the net purchase prices of drugs rather than the list prices from manufacturers. The government should also tighten qualifications for discount programs that have drifted from their original intent to help vulnerable populations,” the report says.


Perspectives on pricing

But the report is off in its assertion that drug prices are one of the fastest-growing components of national health care, according to Dan Renick, president of Precision for Value, which provides payer insights and strategy, health economics and outcomes research, managed markets marketing and promotional effectiveness strategies.

The Centers for Medicare reported that drug spending grew by 1.3 percent in 2016 while national health expenditures grew at 4.3 percent. Renick says this growth has actually been the rule rather than the exception for the decade.

“You have to put things into context, there was a blip of sorts when the hepatitis C drugs came out in 2014 and 2015, and drug expenditures naturally expanded quite a bit during that two-year period,” Renick told Med Ad News. “Since then, they’ve gone back to a decade of what’s been pretty modest growth, including two years, 2010 and 2012, where there was no growth. It seems to be a pretty popular media fascination to keep pointing at drug prices, when national health expenditures have grown far greater than prescription drug spending.”

There were also drug price increases in the late ‘80s-early ‘90s that followed the Medicare “best price” implementation, Renick says, and increases during the 1990s led to the high deductible health plans that slowly but surely started to take over the commercial space in benefit design.

“In Medicare Part D, we had at the time, at 2005 and 2006, [when] Mark McClellan and others built a very elegant design that was very appropriate for the drugs that were in the marketplace then, like Zocor, Nexium, and Lipitor,” Renick says. “There were only a very small number of oncology drugs and a handful of these highly specialized drugs for rare and orphan diseases. It largely worked, but now we’re seeing how we need to revisit that in a major way.”

According to Peter Pitts, former associate FDA Commissioner and president and co-founder of the Center for Medicine in the Public Interest, with politicians and the media focusing on the predatory practices of Martin Shkreli for the past 18 months, the true problem has been masked. “If a drug is raised 40 percent in price over the next three years, that is true, but it’s not the whole picture, because there are significant variables that come into play,” Pitts says.

Renick and Pitts both point to the complexity of the supply chain and the role PBMs have played in shaping drug pricing practices.

“The supply chain has become way too complex in the past 10 to 15 years,” Renick says. “We end up with a net negative value because of the participation of so many parties, ranging from wholesalers to PBMs to even pharmacies in that mix. I think everyone is in favor of much more transparency with respect to the supply chain. I think it’s very telling when the CFOs of wholesalers come out in quarterly earnings reports and declare that they’re going to have depressed earnings as a result of a less price increase. So you’ve got a significant player who is saying very publicly that they depend on drugs going up in price in order for their business model to be viable. That shouldn’t be the case. Then the public feels that there’s a coordinated effort to have price increases because it satisfies a lot of participants in the supply chain.”

Pitts asserts no one really pays the list price for any medication. “Before a tablet or a vial of a medicine leaves the manufacturing plant, it goes to a PBM or tertiary wholesaler and it’s already been cut 40 or 50 percent because of negotiations,” he told Med Ad News. “There are always going to be anecdotal examples. But basically for all intents and purposes, no patient pays the list price. Most people either pay their co-pay or they patient assistance. When people say ‘My drugs are too expensive,’ what they generally mean is, ‘My co-pay is too expensive.’ And that is a legitimate concern. And any type of assessment has to take into consideration is that this is a whole ecosystem. If you’re only talking about the price of the medicine that’s listed by the company in its press release, it’s true but meaningless. Nobody pays it.”

PBMs “are a big problem because they do not have fiduciary responsibility to their clients,” Pitts says. “When you don’t have fiduciary responsibility, and these are public companies, and the No. 1 job of any CEO at a public company is to increase their stock value. So why would you pass savings along to the consumer when you can pocket them and raise your stock price? You have the dichotomy of what is best for my stock price and what is best for healthcare in America. And those two things are right now in direct conflict with each other.”

Some of the more hotly criticized price increases have been those for insulin, and manufacturers blame PBMs. “Lilly was talking a few years ago about the price increases for their insulin, and this again came up during Alex Azar’s confirmation hearing [for HHS Secretary] too,” Pitts says. “The reason why Lilly raised its price was because they were forced to give steeper discounts to the PBMs. So Lilly raises the price and actually makes less money on the product.”

The solution, at least initially, is far greater transparency in how the pricing system works, Pitts told Med Ad News. “Now the problem with that is companies complain about PBMs, PBMs complain about pharmaceutical companies, but they are locked in this death grip and they can’t exist without each other. Pharmaceutical companies will call me and complain about that they’re losing money, but when a reporter calls me and says can you give the name of someone at a pharmaceutical company to talk with, no one is going to talk. It’s pricing omerta. If you break the silence, you’re going to wind up worse than Jimmy Hoffa underneath Giants Stadium.”

The National Academies of Sciences recommends in its report that manufacturers and insurance plans disclose net prices received and paid, including all discounts and rebates, at a National Drug Code level on a quarterly basis; that this collected information be obtained, curated, and publicly reported; and that analyses of these data be conducted and relevant congressional committees informed,; and the data examined to identify and act upon any anti-competitive practices in the market.

Additionally, biopharmaceutical companies should be required to submit an annual public report stating list prices; rebates and discounts to payers, including changes; and the average net price of each drug sold in the United States. “All net drug price increases that exceed the growth in the consumer price index for the previous year should be reported to the relevant congressional committees,” the report states.

Pitts believes that “there should be some type of a government institution that is not NICE, that is not an HTA body, that is a place where all this information resides, where you have senior government officials who can look at it and know what’s going on, and act on actual data.

“Maybe some branch of CMS. CMS is a payer and knows what type of discounts it’s getting and that’s public after a fashion,” he says. “So why shouldn’t there be a broader understanding of what’s happening in the marketplace, so we can actually start thinking of a solution based on actual real data.”

According to Renick, it’s essential to separate the price of a drug and how it gets established through the lens of value, and the issue of affordability and patient access not only to drugs but treatments such as Kymriah and Luxturna, which are not drugs in a traditional sense.

“When it comes to things such as CAR-T, the innovators just happen to be drug companies but these are not really drugs in the traditional sense, they’re really more like a surgical type intervention,” he says. “It’s much more like a drawn-out medical procedure than obviously taking a pill. But because it has that label, we tend to view it differently.

“We pay for transplants every day in this country, many of hundreds of thousands of dollars for a one-time event, typically a solid organ transplant, that have a very high likelihood of failing. So where are all the articles on that? Those will dwarf anything we spend on Kymriah or any of those newer drugs given the number of the potential treatment population. It’s so distorted, we’re not even having an honest conversation about it. Instead of comparing this to some drug treatment of old, why aren’t we comparing this to other similar types of near-term, high cost interventions such as solid organ transplants and look at it through that lens? Forget the fact that Novartis is the company that owns it, or whatever company that is, we need to disassociate the ownership with the intervention and think about it through the lens of how do we treat other procedural interventions that frequently are very, very high cost.”

One of the biggest problems is that benefit designs are based on what was cutting-edge medical technology 15 to 20 years ago. “Are [benefit designs] really capable of handling this wave of innovation that the market is seeing?” Renick says. “I think the answer is no, but we tend to be very slow in healthcare to innovation.”


U.S. just entering the value discussion

The U.S. market, dominated by private payers, is finally coming to grips with the issues that other countries with universal health care have been wrestling with for about two decades now.

“We very deliberately de-link the approval of drugs with the payment of drugs, when it comes to FDA and CMS,” Renick says. “When we think about price and value, when it comes to the U.S., something that’s needed are more HTA [health technology assessment]-style direct and indirect comparison, which are happening outside of the U.S.

Many countries use very sophisticated meta-analysis to compare treatment options to see which one offers the most value. “That is only not done at the government level in the U.S., it’s not really done at the private payer level,” Renick says. “We certainly would advocate for much more of that to be done and embraced and evaluated in a transparent fashion in the U.S. even if it’s in the private sector.”

According to Pitts, the discussion happening in the United States now is akin to the discussions that the UK’s NICE was having many years ago, in how to go beyond just the price of the medicine.

“NICE had a program that it originally called risk-sharing,” Pitts says. “Originally it was for Iressa, the lung cancer drug. NICE negotiated with the company, ‘We will reimburse this drug, at this price, if it works. But we will work together to see what success looks like. If it works, we’ll reimburse it, and if it doesn’t, you pay us back.’” This program is now called expanded access.

Originally, NICE was relying primarily on a measure called QALY – quality-adjusted life year, a generic measure of disease burden, including both the quality and the quantity of life lived. One QALY equates to one year in perfect health.

“Sir Michael Rawlins, who at the time was chairman of NICE, what he said was the reason why they used the QALY is because [the UK} simply can’t afford to reimburse all these medicines,” Pitts says. “He was extremely honest as to why NICE existed. It was there for financial restraints. He said that this type of analysis wasn’t science, it was just best guessing.”

With the expanded access program, the UK moved away from the QALY to a more value-based reimbursement proposition, Pitts says. QALY is still used, but as one of many variables NICE looks at

The United States does have the Institute for Clinical and Economic Review, or ICER, which was launched in 2006 as an academic research project by Dr. Steven Pearson at Harvard Medical School. ICER reviews new drugs and treatments, looking at how well they work for patients, how much better they are than existing treatments, how much money they could save and how much it would cost to treat everyone who needs them.

But Pitts asserts that ICER remains hyper-focused on using QALY as an assessment, and also doing its assessments based on the list price of a drug – which is not really the price anyone pays. “The whole thing that ‘drugs are too expensive’ needs to be understood in a much broader context, and shame on ICER for being stuck in using the quote on quote list price of a product,” Pitts says.

According to Jaime Thompson, VP and general manager, Real World Evidence, IQVIA, “softer markers” other than price or direct therapeutic benefit are already being used by assessment bodies to figure out the value of a medicine.

“However, it is not a universal valuation,” Thompson told Med Ad News.

Real world evidence – or RWE – “is utilized broadly by diverse stakeholders to convey the value of treatments, and some stakeholders hold softer markets like quality of life in higher regard than others,” Thompson says. “I believe physicians already consider QoL [quality of life] and like measures when making treatment recommendations.”
The question then becomes if regulatory authorities will consider quality of life when they consider a drug for approval. “I think they do when they approve follow-on drugs,” Thompson says.

But will U.S. payers consider quality of life and other softer factors when evaluating a drug for a formulary? At present, they do not. But Thompson believes that they will “when it impacts what employers are willing to spend. And the unwritten question here is how will this change occur – it needs advocacy from patient organizations and medical societies. The more metrics such as QoL are quantifiable and built into provider workflow, the better the industry will be able to consider the relevance of those outcomes.”

Renick believes that bearing risk will also force changes. “As various entities start to bear more risk, they become better decision makers,” he says. “The counterbalance is if you bear risk, you can’t withhold or be too restrictive or it backfires the other way. The quality programs in the marketplace now are much better than they once were, because they rely on two things: a reduction in cost and an improvement in quality. In the past we had things that kind of masqueraded as quality programs but they were really cost-control programs and you didn’t necessarily see a corresponding improvement in quality.”

To prove the value of their products with payers and patients, manufacturers have to “continue to develop more thoughtful evidence,” Renick says. “And by ‘thoughtful’ it means [the evidence] addresses the value drivers of different constituencies.

“If it’s for health systems, for example, they need to have a large in-patient operation where they’re working on quality programs, looking at rates of admission and you have to determine if your medical innovation is going to improve that. To continue to bring forward meaningful data that validates the value of that drug, particularly against other treatment options. And to be very transparent and very collaborative.”

Most of Precision for Value’s clients are manufacturers. According to Renick, the company encourages its clients to engage very early with stakeholders when it comes to designing clinical trials to include real-world evidence markers.

“What does a Phase III trial need to include from an endpoint standpoint so that the value of the drug can actually be substantiated with those different stakeholders?” he says. “And patients gets largely left out of this unfortunately. We put a lot more emphasis on having patient input into the value framework discussion at large because we feel that is frequently overlooked. So manufacturers can continue to collaborate with the stakeholders across the continuum to understand what is perceived as high value so that when the drug eventually comes to market, it just doesn’t become approved, it becomes reimbursable by the different parties who make those determinations.”

These types of discussions happen all the time outside the United States, Renick says, “and we work with manufacturers and stakeholders together very early in the process to say that when we come to you in three years seeking a new drug approval, we want to have an agreed-upon approach for our registration trials that will satisfy those questions.”
Renick and Thompson say this approach is currently happening in the United States.

“Of course it takes time, if you’re only going to do this in the last couple of years you’re not going to see the results for another two to three years, depending on the type of trial you’re running,” Renick notes. “Certainly [there is] more collaboration, earlier collaboration and lots more transparency in that process.”

And Thompson says this approach often is not uniquely applied to a single medicine, but instead to an overall protocol. “If you look at organizations like the Cleveland Clinic, they are partnering to understand the value of the intervention, and to cascade standards accordingly,” she says. “I believe the CODE initiative within Europe is a good example of collaborative inspection of the value of treatment, and one that can be replicated within the U.S. The challenge for the U.S. will always be the diverse nature of our multi-payer, multi-provider system. So it just takes a little more work.”

As the concept of value-based contracting continues to expand, the pharmaceutical industry needs to enable mechanisms for measuring effectiveness, Thompson says.
In the United Kingdom NICE has worked out some agreements with manufacturers that if a particular drug does not work for a patient, the company reimburses the payment or comes to some other arrangement, perhaps a credit towards a future product. However, Thompson does not believe the same type of agreement would be made with a U.S. payer for a patient. “I don’t see it ever extending to being applied to a unique patient, but having general outcomes standards that impact reimbursement rates is here,” she says.


The debate about immunotherapies

Just as the launch of Gilead’s Sovaldi kicked off a conversation about what was the ultimate benefit of the drug compared with its pricing, the new immunotherapies that have been coming to the market have been inspiring a similar debate. Kymriah currently is the first CAR-T therapy but others are expected to enter the market. Assessment bodies in Europe are focusing on PD-1 inhibitors such as Merck’s Keytruda, Roche’s Tecentriq, and Bristol-Myers Squibb’s Opdivo.

IQWiG, the independent authority in Germany that evaluates new drugs and plays a key role in what price health services pay for them, has looked into new immunotherapy drugs for the treatment of bladder cancer as part of its so-called early benefit assessment.

The body has criticized a lack of data directly comparing drugs in a promising new class of cancer immunotherapy, saying physicians could be overwhelmed or misled by the available information. It concluded there were some signs that patients who could not be helped by previous courses of standard chemotherapy could benefit considerably from Keytruda and Tecentriq, but said physicians needed head-to-head drug trials to pick the best treatment option.

“The procedure of the early benefit assessment does unfortunately not allow a comparison of new drugs against each other,” IQWiG Director Jürgen Windeler said in a statement.

“Such a measure appears to be almost indispensable in the case of urothelial (bladder) carcinoma: We now have three drugs for the same therapeutic indication, but are unable to reasonably relate the assessment results to each other.”

IQWiG says regulations should be changed so that companies are required to conduct such studies as IQWiG does not have the mandate to do so.

Tim Turnham, VP of MK&A and former executive director of the Melanoma Research Foundation, told Med Ad News that trying to calculate the cost and benefit of these new cancer immunotherapies is never straightforward.

“First, patients on immuno-oncology therapy often have treatment holidays,” he says. “During this time costs drop considerably. When economists calculate the cost of I/O therapy this is often not taken into consideration.

“Second, data is very clear that the benefits of I/O often extend far beyond the span during which they are administered. Costs, then, need to be measured as $/month of PFS or $/month of OS. In this situation the calculation becomes more favorable. We do not yet know exactly how favorable because third, some people have complete eradication of disease and may, in fact, be cured.”

Whether these drugs actually achieve a cure is unknown because they have no been around long enough, Turnham says. “We do know that the OS curve has a ‘tail’ and many patients who started with Yervoy on clinical trials are still alive, now over a decade later,” he comments. “Calculating the $/month of OS is not really possible until we see how long these people live.”

In metastatic melanoma, the first breakthough was with the CTLA-4 inhibitors such as Yervoy, and the question of price came up. “When I was interviewed at that time, saying what about the price of this, my comment was, ‘It’s a little bit disingenuous to talk about price when you have nothing that would save the lives of patients with metastatic melanoma and now you have something that does. So let this play out a little bit more,’” Turnham states. “And so we have seen this play out a little bit more, and we have seen it play out in interesting ways in that the PD-1 inhibitors work better than the CTLA-4 inhibitors, in most cases, but it also turns out that combinations work better than monotherapies. So now we have an expensive drug and are adding another expensive drug on top of it.”

In establishing the true price versus value of these drugs, there are several factors that need to be considered, Turnham told Med Ad News.

“How long to these drugs need to be given? We’re just really beginning to figure that out,” Turnham says. “But we do know that people needed to stop therapy because of toxicity. Sometimes they have durable responses regardless of stopping therapy. And sometimes they have a late-blooming response that shows three to six months later, in some cases, just after one infusion. Now we know the likelihood of responses goes up with more infusions, but how do you determine value when you don’t even know how much drug somebody needs to get?

“And if you look at the combinations, you have increased costs but you have increased responses. The CTLA-4 monotherapy in melanoma has response rates of about 12 to 14 percent; the PD-1 in melanoma has a response rate of about 40 percent; you put the two of them together and the response rates are 60 percent. So does it make more sense to spend more money and carve out another 20 percent of the patient population who are going to have a response and live longer and possibly have a durable response? So that has to be brought into the equation.

The other component to the equation is quality of life.

“The most important perspective in a value framework is the patient’s perspective but it’s complicated so often we’re not going to include it,” Turnham says. “Which is a real cop-out, we’ve got to do better than that. It’s not just quality of life, but patients’ personal values have to weigh into this conversation. Some people might be willing to deal with a really horrible quality of life if it gives them enough time to watch their child go into first grade. Another person might say, ‘I’d rather have three really great months than to have a year where I’m dealing with all kinds of hellacious things.’ We do know that these immunotherapy drugs the immune system is a big powerful thing, that’s why these drugs work; but it also can lead to problems. The personal value, the personal quality of life, the personal decisions, need to be brought into this equation somehow.”

Ad Right Top


Extensive pharmaceutical business and marketing intelligence. For back issues, please contact

June 2019 Focus: Payer access, biotech/biopharma, DTC, rare diseases, and more!


Ad Right Bottom