Canadian Expert Patients in Health Technology Conference Nov 7 – 8, 2016: Day 2

1. An Economics Perspec.ve on
Drug Prices
Audrey
Laporte,
PhD
Ins4tute
of
Health
Policy
Management
and
Evalua4on
University
of
Toronto
and
Brian
S.
Ferguson,
PhD
Department
of
Economics
University
of
Guelph

2. Outline-­‐key ideas
q Drug
development
should
be
thought
of
as
investment
in
an
asset
q Investment
in
an
asset
will
only
take
place
if
the
stream
of
revenue
jus4fies
the
cost
of
the
investment
q General
issues
in
terms
of
defining
the
stream
of
revenue
from
drug
R&D
q What
are
the
issues
that
arise
in
the
case
of
small
market
drugs
if
we
want
to
ensure
that
research
will
be
done
into
rare
diseases?
2

3. q Of
100
drugs
that
make
it
to
trials
only
about
10
will
make
it
to
market:
3
All
indica4ons
(2013)
Phase
success
Phase
LOA
Phase
1
to
Phase
2
64.50%
10.40%
Phase
2
to
Phase
3
32.40%
16.20%
Phase
3
to
NDA/BLA
60.10%
50.00%
NDA/BLA
to
Approval
83.20%
83.20%
LOA
from
Phase
1
10.40%
From
Table
3
Hay
et
al.
(2014)

4. q Pfizer
tried
to
find
successor
to
Lipitor
its
blockbuster
drug
in
the
cholesterol
market.
q Tried
10
years
ago
to
develop
a
drug
that
built
up
the
good
cholesterol
and
had
to
shelve
it.
q More
recently,
tried
to
develop
a
drug
that
moved
the
bad
cholesterol
out
of
the
body
faster–had
planned
a
set
of
Phase
III
trials
on
17,000
pa4ents
–plans
for
which
were
recently
halted.
4

5. Tend to talk about ‘THE’ price of a drug
q Price
is
a
more
nuanced
concept
than
is
oaen
recognized.
q Important
dis4nc4on:
DEMAND
price,
the
SUPPLY
price
and
the
MARKET
price,
when
not
in
a
perfectly
compe44ve
market
context:
q DEMAND
price
represents
in
some
sense
the
value
of
the
drug
q SUPPLY
price
reflects
the
opportunity
cost
of
producing
the
drug
q MARKET
(actual)
price
will
in
most
cases
be
somewhere
in
between
5

6. Stream of payments from R&D capital investment
q Don’t
want
to
pay
above
the
DEMAND
price
q If
the
price
is
below
the
SUPPLY
price
the
drug
won’t
come
on
the
market
q Pricing
pharmaceu4cals
relates
to
crea4ng
a
stream
of
payment
based
on
the
products
that
come
out
of
investment
in
research
q Drugs
are
the
outcome
of
spending
on
research
capital
q Focus
here
on
the
supply
side
of
the
pricing
issue:
How
to
design
a
stream
of
payments
which
will
ensure
that
the
product
of
the
research
enterprise
actually
comes
on
the
market?
6

7. Crea.ng a payment stream
q Similar
to
the
one
the
federal
government
was
tackling
in
the
recent
fiscal
update
• Designing
an
infrastructure
bank
to
bring
public-­‐private
money
together
for
investment
in
physical
infrastructure
• Need
to
ensure
stream
of
returns
from
the
physical
infrastructure
which
is
sufficient
to
persuade
private
agents
including
pension
funds
to
invest
in
infrastructure
bank,
e.g.
road
tolls.
q For
a
large
market
drug
crea4ng
a
payment
stream
is
rela4vely
straighiorward
• The
cost
of
the
research
enterprise
will
be
spread
over
a
large
number
of
individual
pa4ents
during
the
post-­‐approval
patent
life
of
the
drug
7

8. Small market drugs
q For
small
market
(rare
disease)
drugs:
s4ll
need
to
design
a
payment
structure
which
will
make
it
ajrac4ve
for
drug
companies
to
invest
in
R&D
of
small
market
drugs
and
not
pay
above
the
demand
price.
q Costs
of
developing
small
market
drugs
can
be
expected
to
be
every
bit
as
high
as
the
cost
of
developing
large
market
drugs
q Given
the
same
post-­‐approval
patent
life
of
brand
name
drugs
in
which
to
recover
those
costs
–effec4vely
spreading
this
cost
over
a
smaller
popula4on
q Cost
per
pa4ent
for
will
thus
tend
to
be
higher.
8

9. Developer of small market (rare disease) drug
q Soricimed
Biopharma
Inc.,
Sackville
NB,
Mount
Allison
University-­‐in
process
of
developing
cancer
drug
derived
from
the
saliva
of
a
shrew.
q Just
been
granted
rare
disease
classifica4on
by
FDA
for
two
types
of
cancer—
pancrea4c
and
ovarian—only
gone
through
Phase
I
trials.
q Need
funding
for
Phase
II
&
Phase
III
trials—and
when
need
outside
funding
the
issues
are
more
clear
than
when
funding
for
Trial
Phases
has
to
come
from
retained
earnings.
q Company
CEO
noted
that
it
can
be
difficult
to
iden4fy
a
stream
of
revenue
that
can
be
expected
to
cover
the
$100
million
Phase
II
trial
to
cost.
9

10. Rare drug designa.on-­‐market exclusivity
q Since
1983
FDA
gran4ng
rare
drug
designa4on
to
drugs
mee4ng
certain
criteria.
q Guarantees
period
of
market
exclusivity
q S4ll
4es
the
ROI
to
a
fixed
4me
period
and
to
a
small
popula4on.
q Odds
are
s4ll
need
to
set
a
high
price
per
pill
on
the
drug.
q When
market
exclusivity
ends-­‐
generic
compe4tors
may
be
less
likely
to
enter
keeping
prices
higher
for
longer
since
the
market
may
be
too
small.
q May
increase
the
return
to
the
drug
developer
but
is
uncertain
and
has
a
longer
term
poten4ally
larger
impact
on
the
budget
of
the
drug
funding/insurance
program.
10

11. q Case
of
Soricimed—get
7
years
of
market
exclusivity
from
FDA–only
get
the
exclusivity
aaer
Phase
II
and
III
trials
and
then
is
only
beneficial
if
drug
is
actually
approved.
q Use
7
years
of
guaranteed
market
exclusivity
to
go
to
market
to
persuade
investors
to
fund
them
-­‐s4ll
an
uncertain
return.
q Moreover
even
with
7
years
exclusivity
s4ll
need
to
recover
investment
costs
from
small
markets—so
s4ll
probably
looking
at
a
high
cost
per
pa4ent/pill
for
their
drug.
11

12. Priority Review Vouchers
q US
priority
review
vouchers:
granted
to
drugs
for
rare
diseases
without
guaranteeing
approval
but
do
move
a
drug
developed
by
the
holder
of
a
voucher
to
the
top
of
the
list
for
FDA
review.
q Has
the
effect
of
possibly
adding,
condi4onal
on
approval—a
couple
of
years
of
post-­‐approval
patent
life.
q Not
much
different
from
the
guaranteed
market
exclusivity
approach
if
the
voucher
were
only
applicable
to
the
rare
disease
drug.
q However,
priority
review
vouchers
while
they
are
granted
to
companies
working
on
orphan
drugs
are
saleable.
12

13. q Priority
review
vouchers
are
regularly
sold
by
the
company
which
in
the
first
instance
receives
them
for
a
rare
disease
drug
to
companies
hoping
to
move
large
market
drugs
through
the
FDA
approval
process
faster.
q Now
the
price
that
the
voucher
sells
for
will
be
4ed
not
to
the
size
of
the
market
for
the
orphan
drug
but
rather
to
the
size
of
an
unrelated
large
market
drug.
q The
implica4on
is
that
the
reward
for
producing
an
orphan
drug
can
now
exceed
the
value
of
the
small
market
without
the
need
to
extend
the
period
of
market
exclusivity
beyond
a
normal
patent
life.
13

14. Resource pooling across jurisdic.ons
q A
drug
which
is
a
small
market
drug
in
one
country
will
tend
to
be
small
market
drug
in
a
number
of
countries.
q Interna4onal
coordina4on
aimed
at
in
effect
pooling
a
number
of
small
markets
together
might
be
desirable.
q Coordina4on
mechanisms–for
example
Health
Canada
has
as
part
of
its
draa
proposals
suggested
recognizing
a
rare
drug
designa4on
from
certain
other
jurisdic4ons.
q It
might
be
the
case
that
for
these
drugs
we
may
also
have
to
move
to
a
common
interna4onal
review
process.
14

15. Personalized Medicine
q Policy
point
of
view:
this
isn’t
just
an
issue
of
what
we
currently
regard
as
small
market.
q Personalized
medicine
may
force
re-­‐evalua4on
of
what
currently
regard
as
large
market
diseases
q Actually
more
like
aggregates
of
small
markets
if
likelihood
of
a
drug
working
depends
on
individual
pa4ents’
gene4c
structure.
q
Currently
return
to
developing
drugs
tends
to
be
spread
over
a
large
number
of
pa4ents
but
not
uncommon
that
a
drug
only
works
on
a
sub-­‐set
of
the
pa4ents.
15

16. q Risk-­‐sharing:
payment
4ed
to
ability
to
demonstrate
a
degree
of
success
in
trea4ng
pa4ents.
q If
promise
of
personalized
medicine
realized,
may
be
less
risk
to
share
because
can
tell
in
advance
who
will
benefit
from
treatment
with
a
par4cular
drug.
q Effec4vely
iden4fying
such
a
drug
as
a
small
market
q Since
market
defined
not
as
everyone
with
the
condi4on
but
as
everyone
with
the
condi4on
whose
individual
gene4c
make-­‐up
means
that
the
drug
will
work
on
them.
q As
reduce
uncertainty
by
iden4fying
who
will
benefit
from
a
par4cular
drug
may
also
move
towards
defining
more
heath
condi4ons
as
being
rare.
16

17. q Ironically,
the
more
precisely
we
can
define
disease,
the
more
we
will
subdivide
large
market
diseases
and
the
more
rare
diseases
we
will
have.
q
We
need
to
sort
out
the
pricing
rules,
taking
account
of
both
demand
and
supply
factors
before
that
happens.
17

18.
Thank
you!