Defining Innovation in Medicines: How to Transform Innovation into Value

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In June, OHE’s Jorge Mestre-Ferrandiz participated as a speaker at the Summer Course on the Evaluation of Medicines at the University of Alcalá in Spain. His presentation discussed the nature of innovation in general and the incremental nature of pharmaceutical innovation in particular. He summarised the approaches of key European countries to valuing innovation in medicines and explained how actions by payers can affect the rate and direction of innovation.

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Defining Innovation in Medicines: How to Transform Innovation into Value

  1. 1. Defining Innovation: How to Transform Innovation into Value Jorge Mestre-Ferrandiz Office of Health Economics 1 Summer Course on the Evaluation of Medicines University of Alcalá • Alcalá de Henares, Spain • 26 June 2013
  2. 2. Escuela de Verano – Evaluación del Medicamento • Characterising innovation in general and for medicines • How do payers define innovation for medicines? • Rewarding innovation – case studies • Final remarks Agenda 2
  3. 3. Escuela de Verano – Evaluación del Medicamento 3 Available for download at: www.ohe.org
  4. 4. Escuela de Verano – Evaluación del Medicamento Characterising innovation in general 4 Each element on its own is a necessary, but not sufficient, condition for an innovation The three elements are required Newness Improved attributes Willingness to pay Consumer is ultimate arbiter of value
  5. 5. Escuela de Verano – Evaluación del Medicamento Characterising innovation in general 5 Normal market conditions Pharmaceuticals End user - CONSUMER Decision maker - CONSUMER Payer - CONSUMER End user - PATIENT Decision maker - PRESCRIBER Payer – THIRD PARTY Principle still holds that an innovation is something that the ultimate consumer, the patient, finds more useful than what was available before
  6. 6. Escuela de Verano – Evaluación del Medicamento Characterising innovation in general 6 Innovation can be on a large or small scale Innovation is not ‘on or off’, ‘black or white’ Innovation is a matter of degree Innovation is not limited to a narrow range of aspects Innovation can include anything that people find useful Innovation is evolutionary, not duplicative
  7. 7. Escuela de Verano – Evaluación del Medicamento • Outcome can hardly be anticipated ex ante • Even after innovation is brought to market, still difficult to forecast • Eventual social & economic impact • Possible directions of technology changes • Experience effects important • Learning by doing – manufacturing process • Learning by using – improvements as a result of using new product Innovation is an uncertain activity 7 New technologies enter the market in primitive form Successive improvements derive significant economic benefit through experience processes
  8. 8. Escuela de Verano – Evaluación del Medicamento • Important to understand cumulative impact of many small improvements occurring over time • …“the total growth in productivity takes the form of a slow and often invisible accretion of individually small improvements in innovation”…(Rosenberg, 1982) Innovation is a cumulative activity – small steps are important too 8
  9. 9. Escuela de Verano – Evaluación del Medicamento Characterising innovation in pharmaceuticals 9 • Complex and multi-dimensional • Requires broad perspective Misleading to measure the degree of innovativeness of any one medicine with a single indicator: “Breakthrough vs. me-too” We run the risk of ignoring some, or all, of the advantages of follow-on products
  10. 10. Escuela de Verano – Evaluación del Medicamento • The attributes of innovation can be grouped under three general headings: • Health gains • Patients’ and carers’ convenience • Other societal gains, including cost savings Characterising innovation in pharmaceuticals 10
  11. 11. Escuela de Verano – Evaluación del Medicamento Potential attributes of an innovative pharmaceutical 11 Innovation Tackling new disease / indication Health outcomes •quality of life↑ •life duration ↑ Faster treatment Safety •side effects ↓ •tolerability↑ Interaction with other drugs Subpopulation treated Patients’ / carers’ convenience Productivity benefits Releasing other health care resources Releasing non- health care resources Source: Mestre-Ferrandiz et al., 2012. The Many Faces of Innovation
  12. 12. Escuela de Verano – Evaluación del Medicamento • Tackling any new disease and/or indication • Health outcomes (gains) as compared to existing treatments, which may comprise one or both of quality of life and quantity of life, both for patients and carers • Faster health improvement, eg reductions in recovery time from weeks to days may be valuable to patients even if too small to be detected by traditional measures of outcome – quality-adjusted life years (QALYs) • Reduced side-effects and/or improved tolerability (which leads to better health gains for patients both directly and through better adherence) • Reduced negative interactions with other medicines • Possibility of better treatment for one or more different patient subpopulations, with the advantage that patients are less exposed to one-size-fits-all medicines => Health gains can arise either when a new medicine starts treating a new condition not hitherto prevented or treated effectively (ie first-in-class) or by offering some form of health gain versus existing treatments Health Gains 12
  13. 13. Escuela de Verano – Evaluación del Medicamento • Patients’ and carers’ experience of the process of healthcare and hence their satisfaction, independent of the final health outcomes • Examples: • new presentations or delivery methods for existing molecules—patches; oral treatments replacing intravenous • the opportunity for patients to treat themselves at home • special pharmaceutical presentations for children, the disadvantaged and those affected by inequalities in health and health care • Improved convenience may allow patients greater independence and dignity • Patients’ convenience is an aspect of innovation because it is something the end user would be willing to pay for, given the chance • Greater convenience is a desirable end in itself from the patient’s perspective and also should lead to better adherence and hence to further health gains. • Better adherence can also lead to cost reduction by avoiding waste Patients’/carers’ convenience 13
  14. 14. Escuela de Verano – Evaluación del Medicamento • ‘Releasing other healthcare resources’, ‘releasing other non-healthcare resources’, and ‘productivity benefits’ or benefits to the economy as a whole • Other resources can be freed as a result of the introduction of new medicines, now or in the future, through disease prevention and/or slower progression of the condition • When new medicines enable a change in the way that healthcare is provided to a group of patients, then other resources (including non-healthcare resources, such as social care) may be released • Example is when medicines reduce hospitalisation costs by reducing lengths of stay or eliminating the need for hospitalisation at all; medicines also may improve the cost-benefit ratio relative to existing treatment • Other non-healthcare resources could include reduced patient/carer out-of- pocket costs and costs falling on other jurisdictions, such as formal social care and the criminal justice system • New medicines can also lead to productivity gains as a result of patients or carers returning more rapidly to work or not missing work at all, increased productivity at work, or carers being able to lead a more independent life Other Societal Gains 14
  15. 15. Escuela de Verano – Evaluación del Medicamento • Need to introduce dynamic element • Experience effects important for pharmaceuticals – learning by using • Better use for original indication • Additional indications Post-launch effects 15 Experience gained after market approval Unexpected new therapeutic uses discovered mainly by chance Extension of therapeutic areas of use by application of known actions New formulations, new dosage forms or new forms of administration
  16. 16. Escuela de Verano – Evaluación del Medicamento • Significant proportion of sales for top selling medicines comes from secondary indications (Gelijns and Moskowitz, 2000; Pritchard et al., 2000) • Any exercise rating degree of innovation needs to recognise realities of post-marketing experience (Rosen and Beerman, 1999) Post-launch effects 16 Any definition of innovation for medicines needs an element of flexibility in order to capture the (un)expected medical benefits revealed through use once on the market
  17. 17. Escuela de Verano – Evaluación del Medicamento Examples - Antiepileptic drugs (AEDs) 17 New generation AEDs Health outcomes Increased long term effectiveness Increased QoL Safety Fewer side- effects Decreased risk of long-term damage Interaction with other drugs Decreased / no potential for clinically relevant DDIs Advantageous in polytherapy Subpopulation treated Elderly benefit from non- metabolised, non-enzyme- inducing AEDs Patients’ / carers’ convenience Improved adherence Patients’ / carers’ convenience Easier formulations for children, handicapped and emergency patients Releasing other healthcare resources Reduced cost per seizure Reduced cost per QALY Reduced healthcare utilisation costs Newest generation AEDs Health outcomes Effective Provision of broad spectrum efficacy Tackling new disease/ indications Greater efficacy in refractory epilepsy Useful in other non-epileptic CNS disorders Interaction with other drugs Decreased / no potential for clinically-relevant DDIs Advantageous in polytherapy Subpopulation treated Elderly benefit from non- metabolised, non-enzyme- inducing AEDs Patients’ / carers’ convenience Once-daily administrations Increasing drug adherence by better tolerability and more convenient application Additional benefits of the ‘newest-generation’ AEDs relative to earlier AEDs Additional benefits of the new-generation AEDs relative to first-generation AEDs Source: Mestre-Ferrandiz et al., 2012. The Many Faces of Innovation
  18. 18. Escuela de Verano – Evaluación del Medicamento Examples - Chronic myeloid leukaemia 18 Imatinib - CML Health outcomes Survival rates QoL Safety Lower withdrawals Releasing other healthcare resources Cost effective Imatinib – improvements relative to alpha-interferons for the treatment of newly-diagnosed CML patients GTKIs – Improvements relative to standard of care for the treatment of imatinib-resistant/intolerant CML 2GTKIs Health outcomes Disease modifying Safety Lower toxicity than many alternatives Subpopulation treated Imatinib failures Releasing other healthcare resources Reduced burden on bone marrow stem cell transplant Source: Mestre-Ferrandiz et al., 2012. The Many Faces of Innovation
  19. 19. Escuela de Verano – Evaluación del Medicamento Examples – Colorectal cancer 19 Benefits derived from capecitabine, irinotecan and oxaliplatin relative to 5-FU/FA for the treatment of colorectal cancer Capecitabine Irinotecan Oxaliplatin Health outcomes Improved survival Improved PFS Safety Different side- effect profiles Subpopulation treated Patients with metastases confined to liver Patients’ / carers’ convenience Oral therapy Releasing other healthcare resources Cost savings Additional benefits from cetuximab, bevacizumab and panitumumab relative to previous treatments, for colorectal cancer Cetuximab Bevacizumab Panitumumab Health outcomes Improved survival Improved PFS Safety For patients intolerant to irinotecan Subpopulation treated Patients with EGFR-expressing, KRAS wild type Source: Mestre-Ferrandiz et al., 2012. The Many Faces of Innovation
  20. 20. Escuela de Verano – Evaluación del Medicamento Value of follow-on products 20 Price competition • Follow on drugs launched at discount vs. first in class • Price increases limited by number of follow- on products • But degree of competition also depends on price freedom – the higher the flexibility, the tougher the competition R&D spillovers • Spillovers between R&D programmes within the pharmaceutical companies • Externalities between pharmaceutical companies – spillovers outside companies R&D competition • Pharmaceutical R&D is not a winner-takes- all race – first-in-class not necessarily best in class • Pharmaceutical R&D is simultaneous – cannot distinguish between R&D for first-in-class and follow-on • Periods of marketing exclusivity decreasing over time
  21. 21. Escuela de Verano – Evaluación del Medicamento • Characterising innovation in general and for medicines • How do payers define innovation for medicines? • Rewarding innovation – case studies • Final remarks Agenda 21
  22. 22. Escuela de Verano – Evaluación del Medicamento National systems vary greatly in complexity and detail, particularly when account is taken of how the concepts are applied in practice over time to decisions on access, reimbursement and pricing over the market life cycle. In summary, there are three basic situations: 1. Countries that use relative effectiveness based on clinical expert opinion + budget impact 2. Countries that use cost-effectiveness with budget impact integrated in as ‘thresholds’ in some cases 3. Countries that largely appear to have no formal models or processes and where budget impact limits are applied indiscriminately to all products Payers’ definitions of innovation 22
  23. 23. Escuela de Verano – Evaluación del Medicamento High level summary 23 SWITZERLAND MEXICO CZECH R. ◊ HUNGARY ◊ SLOVAK R ◊ POLAND SPAIN, ITALY PORTUGAL, GREECE AUSTRIA GERMANY UK NETHERLANDS, SWEDEN, DENMARK, IRELAND USA JAPAN TURKEY CANADA AUSTRALIA NZ BELGIUM FRANCE EU Cost Effectiveness KOREA TAIWAN Clinical RE Budget Impact Source: OHE internal analysis
  24. 24. Escuela de Verano – Evaluación del Medicamento France 24 1. The “Medical Value” (Service Médical Rendu - SMR) rating is based on the following factors: • efficacy/tolerance • severity of the disease • existence of therapeutic alternatives • place in the therapeutic strategy (first line, second line, etc.); and • public health impact SMR Disease Severe Non- severe Major or important 35% 65% Modest or low 65% 65% Insufficient 100% 100% Relationship between SMR rating, severity of disease and patient co-payment rate
  25. 25. Escuela de Verano – Evaluación del Medicamento France (II) 25 Price of new drugs determined by the level of therapeutic improvement relative to existing treatments is assessed using the ASMR (Amélioration du Service Médical Rendu) I Major therapeutic progress II Significant progress in terms of therapeutic efficacy and / or reduction in side effects III Modest progress in terms of therapeutic efficacy and / or reduction in side effects IV Minor progress in terms of efficacy / usefulness (improved compliance, value added formulation, improved pharmacokinetic properties e.g. reduced risk of interactions) V No therapeutic progress ASMR rating High Low
  26. 26. Escuela de Verano – Evaluación del Medicamento • Criteria in Early Benefit Assessment of New Pharmaceuticals : • Sustained and great improvement ^ (cure, major increase in survival time, long-term freedom from serious symptoms, extensive avoidance of serious side effects) • Marked improvement ^ (perceptible alleviation of the disease, moderate increase in survival time, alleviation of serious symptoms, relevant avoidance of serious adverse effects, important avoidance of other adverse effects) • Moderate and not only marginal improvement ^ (reduction in non-serious symptoms, relevant avoidance of side effects) Key: ^in the therapy-relevant benefit, which has not previously been achieved versus the appropriate comparator Germany (AMNOG, 2011) 26 Pricing negotiations
  27. 27. Escuela de Verano – Evaluación del Medicamento • Health Technology Assessment (HTA) is the prime basis for admission to the reimbursement system for new products • The law sets forth the criteria which must be fulfilled if a medicine should be reimbursed. Those criteria consist mainly of three principles: • The human value principle: care should be given with respect for the equality of all human beings • The solidarity principle: those in greatest need take precedence in medical care • The cost-effectiveness principle: the cost for using a medicine should be reasonable and fair from a medical, humanitarian and social-economic perspective • No explicit cost-effectiveness threshold Sweden 27
  28. 28. Escuela de Verano – Evaluación del Medicamento 1. VBP will replace the current Pharmaceutical Price Regulation Scheme (PPRS) in the UK from 1st January 2014 • VBP has not been formally implemented and therefore the practical application of its principles has not been stated yet • The Government will set a cost-effectiveness threshold structure that applies weights to the different benefits provided by new medicines that reflect the value of a new drug 2. VBP operationalisation might imply: • Identifying the health gain and other attributes of the technology that are deemed to be of value • Some means of measuring and valuing those attributes for each particular medicine • A way of aggregating the relevant benefits and costs • A decision rule to convert the overall measure of value into a maximum price the health care system would be willing to pay UK 28
  29. 29. Escuela de Verano – Evaluación del Medicamento 3. The Government has established whichattributes of a medicine it believes deliver value to society • Improving health across the NHS • Tackling diseases where there is greater “burden of illness” (BoI) • Demonstrating greater therapeutic innovation and improvement (TII) compared with other products • Demonstrating wider societal benefits (WSBs) 4. Criteria to measure the value of each element will be decided by the Government • The value of health gains will most probably still be measured by QALYs • BoI might be weighted by the severity of the disease • TII might reflect different dimensions, e.g. unmet need, rarity • WSBs might include the savings to the indirect costs of care borne by patients and their caregivers UK (II) 29
  30. 30. Escuela de Verano – Evaluación del Medicamento • In Germany and France the emphasis of the recent reforms is centred around the evidence requirements and, in particular, the use of comparators and head-to-head trials. • In the UK, however, VBP is about the weighting given to the evidence and the social value of a drug; for instance, does a drug fulfil an unmet need or is there a high burden of illness associated with this particular disease? • Overall there is an increasing emphasis on proving innovation and/or an additional health benefit in order to get a high(er) price (relative to comparators) • Evidence requirements are stricter 30 Some Common Themes
  31. 31. Escuela de Verano – Evaluación del Medicamento • Characterising innovation in general and for medicines • How do payers define innovation for medicines? • Rewarding innovation – case studies • Final remarks Agenda 31
  32. 32. Escuela de Verano – Evaluación del Medicamento • This study reviews appraisals of breast cancer and colorectal cancer medicines carried out by HTA agencies in a selection of industrialised countries • Aims: identify key drivers of decisions and to understand the similarities and differences in the requirements of different agencies • Breast cancer and colorectal cancer represent two of the most prevalent types of cancer in industrialized countries, with a relative abundance of publicly available data relating to pharmaceutical advances in these diseases Rewarding innovation 32
  33. 33. Escuela de Verano – Evaluación del Medicamento • Examination of reimbursement decisions made in Australia, Canada, England and Wales, France and Scotland for: • 9 medicines for breast cancer (40 decisions) • 8 drugs for colorectal cancer (36 decisions Case Studies: Defining and Rewarding Incremental Innovation in Breast and Colorectal Cancer Positive Restricted Negative Breast (n=39) 62% 17% 21% Colorectal (n=38) 42% 13% 45% • Well established reimbursement systems with similar goals • But often reach different conclusions about the value of a particular medicine • Explained by differences in their approach to assessment 33
  34. 34. Escuela de Verano – Evaluación del Medicamento Use of surrogate endpoints Patient voice Comparator issues Dealing with uncertainty and available evidence Issues Discussion Four broad areas where differences of approach to assessment appear to have led to differences in decisions about whether to fund a particular medicine 34
  35. 35. Escuela de Verano – Evaluación del Medicamento • Characterising innovation in general and for medicines • How do payers define innovation for medicines? • Rewarding innovation – case studies • Final remarks Agenda 35
  36. 36. Escuela de Verano – Evaluación del Medicamento 1. Innovation in pharmaceuticals, or indeed any other area, should not be described as binary—it is a matter of degree 2. The ultimate arbiters of the innovativeness of a new product (in the absence of externalities) are the users. For medicines, the ‘users’ include patients who take the medicines, payers who bear the financial costs, prescribers who decide which medicine is used, and carers who offer support to patients => Thus, innovation in medicines should be treated as a multidimensional concept: a new medicine may be more or less innovative along any one or more of the dimensions 3. Pharmaceutical R&D is a risky process with uncertain outcomes. Consequently (dis-)incentives for innovation can be expected to affect all magnitudes and dimensions of innovation inextricably Final remarks 36
  37. 37. Escuela de Verano – Evaluación del Medicamento 4. The full assessment of innovation of medicines is only possible well after launch because many valuable therapeutic benefits are not appreciated until long after launch. This means that if these drugs are not launched or not used, many of these additional benefits will not be realised 5. The published literature shows that dynamic R&D competition between organisations drives greater R&D efficiency and productivity as well as the potential for price competition when the result is that more than one molecule is launched within a therapeutic area. For companies, dynamic competition drives their R&D process and decision-making. For payers, price competition can generate savings. Overall, dynamic efficiency reduces the time patients must wait to get access to new technologies and yields differentiated medicines, enabling better matching to different patients’ needs Final remarks 37
  38. 38. Escuela de Verano – Evaluación del Medicamento 6. Differences in key considerations across HTA agencies can sometimes mean that they reach different recommendations when assessing the same products 7. Any policy that does not recognise all aspects of value as well as the costs to the payers, and that has the potential to increase the uncertainty of future earnings if a company fails to launch the first-in-class medicine, might end up discouraging potential worthwhile R&D investment 8. Pricing and reimbursement or health technology assessment (HTA) regulation that ignores or subverts the previous concluding points risks stifling socially-valuable innovation Final remarks 38
  39. 39. Escuela de Verano – Evaluación del Medicamento To enquire about additional information and analyses, please contact Dr. Jorge Mestre-Ferrandiz at jmestre-ferrandiz@ohe.org To keep up with the latest news and research, subscribe to our blog, OHE News Follow us on Twitter @OHENews, LinkedIn and SlideShare Office of Health Economics (OHE) Southside, 7th Floor 105 Victoria Street London SW1E 6QT United Kingdom +44 20 7747 8850 www.ohe.org OHE’s publications may be downloaded free of charge for registered users of its website. ©2013 OHE 39

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