Structure of Managed CareDepartments Before 2000 Managed Markets GPOs/National MCOs/PBM HospitalsRegional MCOs/PBMs Payer ContractingGovernment Affairs Product Pricing
Structure of Managed Markets Today Managed Public Markets Policy GPOs/ National MCOs/PBM Hospitals Regional Payer MCOs/PBMs Marketing Trade & Payer Contracting Distribution Product Pricing HEOR Business Development
Questions to address…• What Current Market Factors Are Impacting Price/Positioning?• What Constitutes A “Value Proposition”?• How Will The PPACA Legislation Affect Payer Strategy?
10 Mega Trends1. M & A Continues – Merck/Schering Plough – Pfizer/Wyeth – Roche/Genentech – Astellas/OSI – Celgene/Abraxis – Sanofi/Genzyme – Pfizer/King Pharma – Teva/Cephalon – Johnson & Johnson/Synthes – Takeda/Nycomed
10 Mega Trends2. Rise in Risk Evaluation & Mitigation Strategy 75 in 2010 vs. 21 YTD in 2011 (April)3. The Impending “Patent Cliff” 100 Billion by 20164. Estimated Specialty Drug Pipeline 600 Molecules5. “Designer Therapies” Biomarkers Specific Patient Populations6. Biosimilars More questions than answers Exclusivity, pricing structure, etc.
10 Mega Trends7. Co-Pay Mitigation Programs On the Rise & Under Fire8. Outcomes-based or Risk Share Contracting Cigna & EMD Serono MS Contract9. Patient Protection & Affordable Care Act (PPACA) New Costs to Industry started in 201110. Accountable Care Organizations Scope & Relevance?
How do manufacturers priceproducts? Offensive! Too High Too Low $$ Lost
Gov’t Intervention – Precedent? UPDATE 2-KV Pharma cuts price of Pressure mounts on KV premature birth drug Pharmaceutical to lower drug costIs KV Pharmaceutical A Fri Apr 1, 2011 2:13pm EDT * Cuts injection prices 55 pct BY JIM DOYLE • firstname.lastname@example.org > 314-340-8372 STLtoday.com | Posted: * Will offer supplemental rebates along with list priceFlat-Out Evil Company? Wednesday, March 30, 2011 12:10 am | However, industry groups expressed disappointment with the of criticism, KV Pharmaceutical Co. officials Trying to fend off an onslaught price cut, saying it was not enough to bridge the gap between met Tuesday with national medical advocates bent on persuading the the branded drug and similar versions compounded by specialty to reduce its $1,500 price tag for a prenatal Bridgeton-based drug marketer pharmacies. drug.Check out the lead of this story inhas faced The medical director of the March of Dimes and top officials of the The company, which the Pittsburgh Post-Gazette drug strong opposition since theabout a drug that is March Of Dimes Ends Relationship With KV pricegoing from costing $10price of Makena by nearly 55 was announced, cut the list a dose to $1,500: American Academy of Pediatrics and the American College of percent to $690 per injection. PharmaThe revelation this weekfor each pregnancy remains about $7,000Gynecologists were among those who conferred "The cost that the cost of aObstetricians andto popular drug comparedhelp prevent preterm labor thegoing to godrug," Silverman // April 1st, representatives to with $300 for is compounded up 100 times its By Ed said Washington privately inGeorge Saade,with KV2011 // 11:06 am discuss the pricing ofcurrent price has stunned pregnant for Maternal-Fetaldoctors and that doctors have prescribed in recent years to president of the Society women, their Medicine, a drug Makena, an injectable nonprofit group of obstetricians and gynecologists. prevent pre-term births.pharmacists in Western Pennsylvania. ”I’m ready to which extended late into the afternoon, occurred days after have a "Makena has not been shown Despite effective or safer than to The meeting, decision today by KV Pharma to lower the be more theheart attack,” Janice Watkins, a Pittsburgh resident who is the available compounded drug." price of its Makena drug forHowse threatened in a March55 letter March of Dimes President Jennifer premature births by 23pregnant and has been group Americas Healthto severknown as 17P, with the drug company unless KVs marketing Industry taking the generic Insurance Plans, which had drug its partnership ties U.S. Food and Drugpercent - tofrom significantly reduces the list price of Makena, among Administration to $690 (see this), the March of Dimes has urged the learned of the price increase Corp., hersaid Thursday after she arm, Ther-Rx provide clearer guidance on the availability of the cheaper compounded drugs, donated $1 million to the March of Dimes in endedthings. The company corporate relationship in which the other a decade-long hasdoctor’s office. “I’m nervous price cut "a modesthave to go home called Fridays now because I step." drugmaker contributed some $1 million to help support the past decade.and call my insurance company to see if they’ll cover me.” but The drug had been available for $10-$20 per injection, The Food and Drug Administration on Feb. 4 awarded KV Pharmaceutical reportedly rose to $1,500 after the Missouri-based companys as a neo-natal family intensive various activities, such to sell the drug, which up to this time has version was granted orphan status. exclusive marketing rights the [ID:nL3E7EI28M] care program. health, March The nonprofit organization for pregnancy and by chemical compounding pharmacies for about $15 per been offered baby of Dimes, ended its current contract withKV wants to mark up its FDA-approved version about 100 times injection. K-V and called K-Vs handling of the Makena launch and the list which "highly mean a full course of treatment would run between that price, price would unsatisfactory and unacceptable."$25,000 and $30,000.
Gov’t Intervention – Precedent?May 25, 2011, 5:16 PM ETLawmakers Aren’t LaughingAbout Avanir’s Price forBy Katherine Hobson Avanir: Congress Gripes About Drug PriceLawmakers are inquiring aboutAdam price tag of By the Feuerstein 05/25/11 - 09:43 AM EDTNuedexta from Avanir Pharmaceuticals. D.C. (TheStreet) --Avanir WASHINGTON. Pharmaceuticals(AVNR) has been asked to justify theThat drug is for a condition called pseudobulbar pricing of its newly launched drug Nuedexta by fouraffect — severe involuntary, members of Congress. inappropriateemotional outbursts, i.e. uncontrollable weepingor hysterical laughing. The problem is associated Committee on Aging, chaired The U.S. Senate Special by Wisconsin Democratic Sen. Herb Kohl, sent a letterwith neurological diseases including Lou Gehrig’s to Avanir Wednesday in which it expresses concerndisease, MS, Alzheimer’s disease and traumaticof Nuedexta, a drug used to treat about the high pricebrain injury… pseudobulbar affect, a neurological condition that causes involuntary emotional outbursts. Avanir shares fell 6% to $4.35 in early Wednesday trading.
Andrew Witty (CEO of GlaxoSmithKline PLC) comment in a press conference - Annual Meeting of the European Federation of Pharmaceutical Industries and Association.The GSK chief - claimed that new, innovative approaches to drug pricing, such asthe value-based-pricing model being designed in the U.K, are appearing as aresult of industrys having convinced E.U member states that slashing thepharmaceutical budget is no longer a reasonable way to control health careexpendituresSource: NICE Will Have Key Role in Value-Based Pricing Under U.K HealthcareReforms,The Pink Sheet” DAILY, May 11, 2011. "I think that the fact that you are seeing more drugs being approved by cost-effectiveness agencies such as Englands National Institute of Health and Clinical Excellence[NICE] demonstrates to us that pharmaceutical companies are much more flexible then they have ever been in the past to create win-win pricing solutions. Companies are prepared to take more risks in putting the price for their reward at stake against the performance of the medicine.”
Inelasticity of Price Points Thresholds may be evident when the price goes above $400 and $700 WAC per month. 2%4th tier 9% 21% 32% 32% 32% 86%3rd tier 79% 79% 56% 56% 56%2nd tier 12% 12% 12% 12% 12% $200 $400 $600 $700 $900 $1,083
Step 1: Determine the perceived value of the product• Clinical advance (dosing, delivery, etc.)• Improved Safety• Improved Efficacy• Unmet Medical Need
Two Approaches to Pharmaceconomic Modeling• Establish Predictability of Cost Outlay – Budget Impact Analysis • Market Share Changes • Drug Volume/Market Penetration• Provide Evidence for Potential Cost Offsets – Pharmacoeconomic Analysis • Cost Minimization • Cost Effectiveness • Cost Utility • Cost Benefit
Step 2: Consider Market Factors• Traditional Customers Changing Structure• Impact of Market Access – Tier Placement = Market Share?• Distribution Models – Wholesaler PPD and FFS rates on rise – SPPs becoming more aggressive
3. They Expand Into New Lines of Business Traditional Classes of Trade Becoming Blurred… Wholesaler MCO PBM WholesalerRetail Retail PBM Specialty Pharmacy PBM MCO PBM Specialty Pharmacy
Is Tier Placement a Function ofMarket Share Success?90%80%70%60%50%40%30%20%10%0% Product A Product B Product C 2nd Tier Access Mkt Share
Focus on Net Revenue vs. Access At All Costs 20% 21% 15% 15% 10% 5% 5% 0% Tier 2 Tier 3 Tier 4Gross $210.00 $150.00 $50.00Rebates $52.50 $0.00 $0.00Net $157.50 $150.00 $50.00
Focus on Net Revenue vs. Access At All Costs 20% 20% 15% 16% 10% 5% 5% 0% Tier 2 Tier 3 Tier 4Gross $200.00 $160.00 $50.00Rebates $50.00 $0.00 $0.00Net $150.00 $160.00 $50.00
The Supply Chain Has Become Multi-Layered Prisons Chain Drug Store Warehousing Retail Mail Order Pharmacy ChainManufacturer Distribution Centers Food/Mass Merch Drug Store Independent Drug Store HHC Full Line Health Care Professional Patient Wholesalers Long Term Care Acute Care Hospital Pharmacy HMO Specialty Government Distributors Physician Clinic SPP Mail Medical Groups VA & DoD
Consolidation Brings Pricing Disadvantages McKesson Drug CompanyD&K Healthcare ResourcesMedis Health & Pharmaceutical ServiceV.F. Grace, Inc. McKesson Drug CompanyFoxMeyer CorporationHarris Wholesale Cardinal CardinalF. Dohmen & Co.Par MedBindley Western Drug Company AmeriSource BergenTennessee Wholesale DrugAlabama Wholesale DrugSuperior Wholesale Drug Morris + Dickson Co. Ltd.Kendall DrugJ.E. Gould & Co.Behrens, Inc.Humiston-Kneeling Kinray Inc.Whitmire Distribution Corp.Solomons Company Inc.Chapman Drug Co. D&K Wholesale Drug Inc. AmeriSource BergenBergen Brunswig Drug Co. H.D. Smith Wholesale Drug Co.Trent Drugs Ltd.Alco Health Services Corp.C.D. Smith Healthcare Inc.General Drug Company Smith Drug Co.James Brudnick Company Inc.Walker Drug CompanyAlbers, Inc. Walsh DohmenColeman, Meadows, Pate Drug Co.Skyland Medical Supply, Inc.Gulf DistributionNewbro Drug Company F. DohmenEagle Drugs Inc.J.M. BlancoDr. T.C. Smith CompanyDurr Drug Company, Inc. 0 200 400 600 800 1,000 1,200Owens and Minor Inc.South Bend Drug Co. Sales $ Millions
Designer Therapies/Biomarkers Medicare, SelectHealth Create Coverage Policy for Test to Identify Tumor Origin With health plan spend in oncology care accelerating, more payers are taking steps in managing this therapeutic category to make sure that the right patient gets the right drug at the right time. But getting the right drug can be a problem when it’s not clear exactly what kind of cancer is causing tumors. Recognizing this, Medicare and SelectHealth, the health insurance unit of Intermountain Healthcare, recently created coverage policies for Pathwork Diagnostics, Inc.’s Pathwork Tissue of Origin Test.
Healthcare Reform Highlights• Increase in Federally Mandated Rebates 15.1% to 23.1% – Medicaid Eligibility expanded• Medicare Part D Donut Hole 50% share• PHS Program participation will expand Federal Ceiling Price legislation• Accountable Care Organizations
Medical Loss Ratio (MLR)• Under the Affordable Care Act (ACA), insurers are required to disclose the amount of premium dollars on care and coverage• Small health plans required to have an 80% MLR• Large health plans required to have an 85% MLR • Definition of plan based on number enrolled consumers• In 2012, Insurers that do not meet requirements will provide rebates to consumers (based on 2011 data) – 2012 rebates paid to consumers in 2013 MEETING NAME HERE
Questions to address…• What Current Market Factors Are Impacting Price/Positioning? – Rise in Specialty Products – Pharma Embracing Reimbursement Strategy• What Constitutes A “Value Proposition”? – Predictability for 1st in class products – Cost Offset for all products• How Will The PPACA Legislation Affect Payer Strategy? – Government is THE PAYER – Outcomes vs. Rebates
Questions (cont.)• How will payers determine what is considered a specialty product?• Why do some payers put specialty products in the 2nd tier while others do not?• How will government intervention (PPACA) affect formulary contracting?• How will pharma manufacturers produce innovative products if the investment is above the market potential?• How will a manufacturer make Business Development decisions in light of the evolving payer landscape?