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Changing Market Access White Paper Acg

  1. 1. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 Current / Future 1984 -Payors as customers -Focus on Economic Value -Hatch Waxman Act -Emergence of Generics Industry 1970--80s -Dominance of Branded Companies -No incentives for Generics ANANTH CHANGING MARKET ACCESS CONSULTING STRATEGIES IN PHARMACEUTICAL GROUP INDUSTRY: A PREVIEW August 2010 | Rajaram Iyer Ananth Consulting Group (ACG) 1
  2. 2. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 Contents 1. Executive Summary ..................................................................................................... 3 2. Introduction / Background .......................................................................................... 3 3. Market Evolution: Transition Phase — Post 1984 ..................................................... 4 4. Current Scenario — 2000 Onwards ............................................................................ 5 5. Outlook and Conclusions ............................................................................................ 7 6. References ................................................................................................................... 8 Ananth Consulting Group (ACG) 2
  3. 3. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 1. Executive Summary Market access strategies in pharmaceutical industry have changed a lot in last 2-3 decades. During the 1970s and 1980s, branded pharmaceutical companies were very powerful and used to get reimbursed for all their drugs. Entry of generic drugs was very difficult; and physicians did not have a lot of choices. In 1984, Hatch Waxman law was passed and generic entry became relatively easy. Entry of generics through Hatch Waxman was the first major step towards cost containment. Payers started putting pressure on physicians to prescribe more generics and less branded drugs. Branded drug manufacturers started campaigning against generic drugs and generic companies fought their way, supported by political will and strong cost rationale. 1980s also saw the upcoming of biologics industry. Oncology was an area which witnessed launch of a number of biologics which started a new trend of high priced therapeutics for niche indications, underserved by small molecules. During this time science also advanced and lot of new treatment modalities entered the markets which were very high priced. Due to the increasing cost and marginal benefits of newer therapies, payers started controlling the amount they paid for various treatments. Payers initially started by tightening their formulary status, providing incentives for generic prescription and increasing the co-pay for branded drugs. Later on they started newer ways of controlling costs such as pay-for-performance, price capping, price sharing, outcome-based pricing, etc. Clearly the power has been shifting steadily away from pharmaceutical companies and into the hands of payers. Payers have, and are trying innovative ways to reduce costs and the over burden. At the same time, pharmaceutical companies are also trying to respond to these changes and it will be interesting to see how the landscape evolves in future. This article reviews various market access strategies being adopted by payers and pharmaceutical companies in the new world of pharmaceutical marketing. 2. Introduction / Background Prior to 1984, branded pharmaceutical companies dominated the scenario. Entry of generic drugs was very difficult as they had to conduct full clinical trials to demonstrate both safety and efficacy to obtain approval. This acted as a big barrier for generic drug entry, as there was no commercial 1 incentive to spend big money on conducting clinical trials for generic approval. As a result, branded pharmaceutical companies enjoyed monopoly and controlled the market even after patent expiry. Due to this monopoly of branded companies, payers had no choice but to reimburse for branded drugs. They use to reimburse without a lot of restrictions or pre-conditions. As payers had no cost containment measures, so the overall healthcare Ananth Consulting Group (ACG) 3
  4. 4. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 expenditure started to rise. During this period, pharmaceutical companies were very powerful and other stakeholders (patients, physicians and payers) had limited say in the overall healthcare scenario. 3. Market Evolution: Transition Phase — Post 1984 2 Increasing healthcare cost and reimbursement of high priced prescription drugs forced payers and government to closely monitor and control the overall healthcare expenditure. Both, the payers and government started to think of cost containment and as a result many legislatures were introduced between 1984 and 1990, specially directed towards reducing the overall healthcare cost.  Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act): Implemented 1,3 in 1984, this act made the entry of generic drugs easy as it allowed generics to enter the market by just showing bioequivalence to the innovator drug. This act also gave incentives to branded drugs by way of various exclusivities. This was a landmark act in the US history as it created a whole new industry around generic drugs.  4 Drug formularies were introduced in managed care . Drug formulary is a list of all the drugs (branded and generics) classified in various tiers based on which reimbursement and co-pay levels are decided by the payer. Formularies were used by the payers as a tool to encourage use of generics and discourage higher priced drugs.  Prescription Drug Marketing Act was introduced in 1988, limiting the sampling activities by 5 pharmaceutical companies . 6 Hatch Waxman Act had a huge impact on the pharmaceutical industry , as it fundamentally changed the way industry operated. The Act allowed entry of generic drugs just by showing bioequivalence to the innovator drug; which increased the generic competition and changed the structure of the market. Lot of generic companies flourished and started launching generics for almost all the molecule at a substantially lower price point. Impact of this act is evident from the generic penetration: In 1985, generic substitution was 22%, while in 1994 it reached 42% and in 2004 it was close to 60% and this 7 is set to grow . On witnessing competition from generics, branded companies started trying multiple things to keep up 8 the market share, such as providing discounts, launching aggressive DTC campaigns , etc.; however these measures have not been very successful in controlling the generic penetration. Ananth Consulting Group (ACG) 4
  5. 5. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 9 Entry of generics gave a big lever in payers‟ hand for cost control . Hatch Waxman Act was the lynchpin for payers to start imposing cost containment measures; and since then they have grown in strength and have introduced several measures for cost control. Overall, payers have tightened their grip on the healthcare system and are now a big influencer. This was the time when power shift started happening and payers became more influential. 4. Current Scenario — 2000 Onwards During late 1990s and early 2000, when generics were flourishing and giving tough competition to 10 branded drugs, biologics (therapeutics based on protein or peptides) entered the treatment scene . 10 A lot of biologics were launched specially for diseases where small molecules were not very effective (for instance Oncology and Inflammatory Diseases). As biologics are difficult to manufacture, store and administer, drug companies started pricing them at a hefty premium. Payers, though initially reluctant, started reimbursing for biologics-based therapy; primarily because of they were the only good treatment option for patients with certain disease conditions. Biologics became the new buzzword and a lot of companies started working on biologics and launched therapies for various diseases. Some of the biologics were clearly differentiated while some had very marginal or no 11 benefit . In addition to Biologics, last decade also saw launch of some very specialized drugs, which were highly priced. Launch of biologics and other specialized drugs increased the overall spend on drugs and payers again stared to look for measures to either reduce the cost or share the risk as every drug is not guaranteed to work on every patient. An interesting observation during this time was that payers were not only looking at price discounts but also wanted pharmaceutical companies to share the risk. Market access strategies for pharmaceuticals have changed substantially in the last 2 decade and now, in addition to physicians‟, payers have also become a big customer segment for pharmaceutical companies. Additionally, regulatory bodies are also becoming stricter and demanding additional clinical studies to conclusively demonstrate efficacy and safety of the product. Payers are using lot of tools to control the overall cost and are putting lot of restrictions in reimbursing drugs. Some of them are discussed below: Ananth Consulting Group (ACG) 5
  6. 6. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 Pay-for-performance Pricing: This involves an arrangement between the pharmaceutical company and the payer, wherein reimbursement is made on the basis of the performance of the drug for individual patients. Europe has led the charge in implementing pay-for-performance initiatives. Two big examples in this space are:  Agreement between UK‟s NHS and Johnson & Johnson for an Oncology drug – Velcade. Under this agreement termed “Velcade Response Scheme”, NHS will pay only if the Velcade 12 treatment shows desired response measured by the reduction in tumor size .  Agreement between UK‟s NICE and Novartis for an eye drug – Lucentis. Under this agreement, Novartis has agreed to cover the cost of treatment if more than 14 injections are 13 required for Lucentis i.e. patients will get free Lucentis if they need more than 14 injections . In the US also, payers are focusing on implementing pay-for-performance measures. Private 14 insurance companies particularly Aetna and Cigna have lot of such partnerships with various hospitals. In Aug 2006, Aetna launched a national pay-for-performance program under which it 15 incentivizes physicians who improve the quality of care and reduce the overall treatment cost . Improving the quality of care means focusing on prevention, early detection and treatment that reduces or avoids high long term treatment costs. CIGNA HealthCare also has multiple such partnerships wherein they reward physicians and hospitals for improving the treatment outcome and reducing the treatment cost. Step Edit Therapy: This tool has been in use for quite some time now and is quite powerful to reduce costs. Step Edit means that one needs to use a particular drug (generally cheaper/generics version) first before another drug (generally expensive branded drugs) can be authorized for use. Another drug is authorized only when the earlier drug(s) has not been effective. Step Edit is popular in places where a lot of generics are available. Many payers in the US use this for various therapies, especially for biologics-based therapies.  16 Blue Cross of Idaho has a Step Edit on Byetta-a new medication for diabetes. Based on the guidelines, Byetta is placed in third tier and it is only authorized when patients have taken at least two other agents (out of Sulphonylurea, Biguanides, Thiazolidinedione, combination agent) or 1 combination drug.  17 Harvard Pilgrim Health Care has a Step Edit on Vyotorin (combination of Zetia and Simvastatin), wherein patients are encouraged to maximize the statin dose before adding Zetia (Ezetimibe) to their regimen. Price Capping: This tool involves capping the price for various drugs for a particular treatment. Using this tool, payers fix the upper limit of reimbursement for a drug for a particular treatment.  18 Genentech capped the total cost of treatment with Avastin for both the approved indication at $ 55,000/year for people below a certain income level.  Amgen capped a patient‟s annual co-payment for panitumumab (Vectibix) at 5% of the 19 patient‟s adjusted gross income Ananth Consulting Group (ACG) 6
  7. 7. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 Outcome-based Pricing: Pharmaceutical companies are now going for outcome-based risk sharing deals with payers. One example is an outcome based agreement devised between Janssen-Cilag and NICE, in the UK. Initially, NICE determined that a drug, Velcade, was not cost-effective; so the company proposed that they be allowed to treat eligible patients for four months and get paid if certain outcomes are met. According to the agreement, if the drug achieved a specific response, patients would continue the therapy at the NHS‟s expense; otherwise company will reimburse the NHS for its expenses. Some of the other outcome-based pricing deals include:  In line with cost sharing, Merck has signed a deal with Cigna where Merck's two anti-diabetic 20 drugs, Januvia and Janumet will be paid according to their performance .  Cigna is also trying to strike a deal with statin manufacturers, where manufacturers will pay for the treatment cost, if the person suffers from heart attack despite taking statins on a 21 regular basis . 5. Outlook and Conclusions Market access strategies have changed drastically in the last 2-3 decades, from a physician focused to more of payer focused. In the last decade, payers have emerged really strong and have become a key customer segment for pharmaceutical companies. They have introduced a lot of cost containment measures and have tried various options to control costs. This trend is likely to continue in future. In future, pharmaceutical companies will start involving payers and regulators during drug development itself, so that they have a chance to comment on the study design and also change it, if necessary. This trend has already started and there are instances which support this:  In June 2008, GlaxoSmithKline invited healthcare officials from UK, France, Spain and Italy to examine their candidate molecules under-development. The initiative was carried out to gather feedback on the molecules to be prioritized and data required for the molecule to be 22 approved by the healthcare agencies .  In Dec 2007, Novartis struck a deal with the National Institute for Health and Clinical Excellence (NICE). Under the deal, design of a Phase III clinical trial was evaluated by NICE and the agency shared with the company the sort of information they will require to reimburse 23 the medicine . Involving payers early in the process will be good for pharmaceutical companies, as they will clearly know what payers would expect once the drug is launched. In addition to safety and efficacy, overall economic value of the molecule will become important and most companies will start focusing on this. Ananth Consulting Group (ACG) 7
  8. 8. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 6. References 1 Jeremiah Helm, The Patent End Game: Evaluating Generic Entry into a Blockbuster Pharmaceutical 2 Market in the Absence of FDA Incentives, 14 Mich. Telecomm. Tech. L. Rev. 175 (2007), available at 3 Robert N. Frumkin, Health Insurance Trends in Cost Control and Coverage, Monthly Labor Review, Vol. 109, 1986 4 Wendy H. Schacht and John R. Thomas, Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984("The Hatch-Waxman Act"), CRS (CongressionalResearchService) Report for Congress, updated Jan 10, 2005 5 Report titled „History in the making‟ by Academy of Managed Care Pharmacy 6 “Managed Care and a Changing Pharmaceutical Industry”, Micheal P. Roland, Health Affairs, 1990 Research and Development in the Pharmaceutical Industry, The Congress of the United States, Congressional Budget Office, Oct 2006 7 Report titled „Celebrating the Past Defining the Future‟ by GpHA (Generic Pharmaceutical Association) 8 Nielsen Monitor-Plus: U.S. advertising spend reports 9 Report titled “A Primer: Generic Drugs, Patents and the Pharmaceutical Marketplace” by The National Institute for Health Care Management Research and Educational Foundation 10 BLA approvals from USFDA website 11 Tito Fojo, Christine Grady. How Much Is Life Worth: Cetuximab, Non–Small Cell Lung Cancer, and the $440 Billion Question. JNCI Journal of the National Cancer Institute 2009 101(15):1044-1048 [Pubmed Abstract] 12 NICE website; details available at 13 Reuters new article available at 14 Report titled “Prospering in a Pay-for-Performance World” by Cisco 15 Press release by Aetna 16 Custom Formulary 2010 by Blue Cross Blue Shieldof Michigan and Blue Care Network 17,255222&_dad=portal&_schema=PORTAL 18 Genentech: Newsroom: Press Releases: News Release February 22, 2008 19 New York Times article published on September 28, 2006 20 “Merck leads the way to U.S. cost-sharing”, Fierce Pharma, April 23, 2009 Ananth Consulting Group (ACG) 8
  9. 9. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 21 Paul Jones and Jan Malek. Prospering in a Pay-for-Performance World. A point of view paper by Cisco 22 “Glaxo Seeks Guidance From Health Systems”, The Wall Street Journal, July 7, 2008 23 “Novartis in UK trials deal”, Market Watch, Dec 17, 2007 All the Brand Name/Trade Name/Drug Name mentioned in this document are property of their respective owners. Acknowledgement: I would like to thank Mr. Saurabh Gupta for his inputs during the production of this document. Ananth Consulting Group (ACG) 9
  10. 10. Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010 About Us: Ananth Consulting Group (ACG) is an emerging business consulting firm providing answers to business problems of global pharmaceutical and life sciences companies. We provide a whole spectrum of custom market research and competitive intelligence support services, which enables you to make informed decisions. Contact Details: Rajaram Iyer President – ACG D 305 Parsvnath Prestige Sector 93A, Noida 201304 UP, India Tel: +91 – 98187 23030 E-mail: Website: Ananth Consulting Group (ACG) 10