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Is Pharma Drug Pricing Being Disrupted?
The document discusses the complexities of pharmaceutical drug pricing in the U.S., highlighting unusual market dynamics, increasing healthcare expenditures, and examples of significant price hikes by pharmaceutical companies. It outlines that patient out-of-pocket costs have escalated due to a disconnect in payment structures, resulting in scrutiny over healthcare spending and pricing models. Potential methods for reducing prices include increased competition, regulatory changes, and greater pricing transparency, but the overall drug pricing landscape remains fraught with challenges.
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Is Pharma Drug Pricing Being Disrupted?
- 1. Is Pharma DrugPricing Being Disrupted? By Susan P. Gibson President & Founder Vivolor™ Therapeutics Inc June 18, 2019 IFAH Conference 2019 Las Vegas
- 2. Healthcare’s disjointed systemimpacts price and accountability All other purchases YOU Use it Decide Pay Healthcar e PAYER/EMPLOY ER Pays PHYSICIAN Decides PATIENT Uses it IFAH CONFERENCE 2019 2
- 3. Why is pharmadrug pricing in the news? • Unusual market dynamics (no supply and demand) • Increases in total healthcare spend • Increases in patient portion of spend • Potential ‘bad actors’ IFAH CONFERENCE 2019 3
- 4. Increase in totalUS health expenditures over time drove scrutiny Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data IFAH CONFERENCE 2019 4 34 times increase 1970 to 2015
- 5. Healthcare spending growthhas slowed, now on pace with economy Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data IFAH CONFERENCE 2019 5
- 6. Rx drugs are10% of US healthcare spend Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data 2017 data IFAH CONFERENCE 2019 6 25-50% of healthcare spend is waste! https://www.nationalreview.com/2017/10/us-health-care-half-our-spending-wasted/ https://www.propublica.org/article/a-prescription-for-reducing-wasted-health-care-
- 7. Systemic issues withhealthcare – don’t pay for quality outcomes PHYSICIAN OFFICE Pay to be ‘seen’ HOSPITAL Learn of charges 3 months later Rx DRUGS No price visibility IFAH CONFERENCE 2019 7
- 8. Out-of-pocket tiers increasepatient portion of pay for non-preferred/specialty drugs and over the years IFAH CONFERENCE 2019http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey- 8 Formulary Tier Description Average Co-pay or Co-insurance Tier 1 Generics $11 (19% co-insurance for 21% of members) Tier 2 or 3 Preferred Brands $33 (26% co-insurance for 45% of members) Tier 3 or 4 Non-preferred brands $59 (36% co-insurance for 49% of members) Tier 4 or 5 Specialty drugs Lifestyle drugs Medicare Part D > $660/mo (some available only through Specialty Pharmacy) $105 (31% co-insurance for 59%) OOP maximum may apply; fixed $ limit/Rx or /yr Patients feel Rx cost rise because OOP is off list price (doesn’t factor in discounts)
- 9. Patient out-of-pocket spendhas increased Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data IFAH CONFERENCE 2019 9 11 times increase in OOP 1970 to 2015
- 10. Healthcare premiums increasedsignificantly over time Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data IFAH CONFERENCE 2019http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey- 10 >50% increase in last 10 years
- 11. Quality drives costup Cost Innovation Treatment options Bright/talented HCPs Quality outcomes How to reduce costs and not have quality and outcomes suffer? IFAH CONFERENCE 2019 11
- 12. Biopharma development costsare staggering and increasing • Average cost of developing Rx drug that gains approval - $2.6B ($1.4B out-of-pocket + $1.2B time costs) in 2014 • 48 times increase 1979 to 2014 • Additional $312M post-approval development • Additional $2.9B lifecycle management 121. csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study; 2. csdd.tufts.edu/research/research_milestones Info from 10 pharma companies; 106 drugs 1995 to 2007 3. fdareview.org/approval_process.s 4. medicinenet.com/script/main/art.asp?articlekey=9877 IFAH CONFERENCE 2019 $54 $231 $802 $1,250 $2,600 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 1979 1991 2001 2007 2014 Development costs ($M)
- 13. Biopharma development isthe riskiest business there is Time to market – 8-19 years1 6 yrs in 1970s; 13.5 yrs in 2000’s3 Clinical success rates falling 13 1. fdareview.org/approval_process.s 2. medicinenet.com/script/main/art.asp?articlekey=9877 3. ipwatchdog.com/2014/10/19/the-high- cost-of-making-pharmaceuticals Make it to phase 1 Of phase 1 make it to market Overall 30% 8% 2%1 5 of 5000 1 0.02%2 IFAH CONFERENCE 2019 When failed drugs are taken into account, average development cost per molecule is $4.2B4
- 14. Pharma development iscomplex and risky with a maze of politics IP risk Policy risk State policies IFAH CONFERENCE 2019 14
- 15. Pharma pricing potential‘bad actors’ No or Questionable Value Added • QuestCor Acthar Gel - 2012 price increase $1.65k to $23k (14x) on 60-year-old drug. QuestCor acquired for $5.6B • K-V Pharma Makena – Launch price $1,500/dose on prepared formulation of compounded drug (~$15/dose) to reduce risk of premature birth. After FTC hearings initiated, K-V cut price 60% and sued FDA. Stock dropped, bankrupted, convicted of felonies, shut down by FDA • Turing Pharma (Martin Shkreli) Daraprim - Raised price $13.50 to $750/pill (55x) on 62-year-old acquired anti-parasitic. Martin, former hedge fund manager, raised Thiola price 20x and Chenodal 5x. Convicted felon (7 yrs prison & $7.4M fines) • Valeant - Wave of negative publicity over steep price increases for older medicines prompted Federal investigations • Isuprel price tripled. Nitropress price 6-fold increase (recently acquired). Average neuro drug price increases 30%/year • Business model featured price hikes while slashing R&D spend of acquired companies • Mylan EpiPen - Price increases from $57 in 2007 to $500 in 2016 (10x in 10 years). Paid lower rebate because classified as generic (epinephrine) in 2017. Company paid $465M fine but estimated cost to US $1.3B Value Added • Gilead Sovaldi - Launched 2014 for Hepatitis C (3.2M Hep C patients in US). 90% cure rate. $84k/treatment course ($1k/pill) IFAH CONFERENCE 2019 15 www.reuters.com/article/2015/10/20/us-valeant-pharms-result-idUSKCN0SD11720151020 www.reuters.com/article/2015/10/15/valeant-pharms-subpoena-idUSL1N12F0LV20151015 www.firstwordpharma.com/node/1324044#axzz3pE64MnmJ Bloomberg News January 7, 2014; K-V Pharmaceuticals Suit Over Makena Drug Revived by Court The New York Times April 7, 2014; Mallinckrodt Pharmaceuticals to Buy Questcor for $5.6B
- 16. Pharma has somereally high priced products IFAH CONFERENCE 2019 https://gazettereview.com/2018/07/top-10-expensive-prescription-drugs/ 16 Top 10 Most Expensive Rx Drugs Price Per Year 1. Gylbera (gene therapy) $1M 2. Ravicti $794k 3. Spinraza $750k 4. Actimmune $628k 5. Lumizyme $626k 6. Carbaglu $585 7. Daraprim $540k 8. Soliris $537k 9. Cinryze $530k 10. Chenodal $511k
- 17. Possible methods ofreducing pharma prices• Increased competition • Reduced exclusivity terms for earlier generic entry • Speed development of new therapies (double edged) • FDA guidance Oct 2017 to expedite approval of generics • Reduce expenses • Reduced regulations which reduces development expense • Reduced DOJ claims for off-label promotion (GSK $3B, Pfizer $2.3B, J&J $2.2B, Abbott $1.5B, Lilly $1.4B) • Government regulations • Pricing visibility • Government agency sets price or cap price (no free market) • One payer system • Payer management • Pharmacy management • Public pressure IFAH CONFERENCE 2019 17 https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical_settlements
- 18. Loss of sharepost-exclusivity is dramatic and approaches 10% by year end across indications Source: Wolters Kluwers IFAH CONFERENCE 2019 18 M0 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 COMTAN 100% 67% 31% 28% 26% 23% 22% 18% 16% 15% 13% 12% 10% ZEMPLAR 100% 60% 35% 32% 29% 25% MIRAPEX 100% 69% 44% 38% 35% 33% 31% 27% 24% 19% 22% 10% 8% TEMODAR 100% 86% 49% 39% 35% 26% 11% 10% Average 100% 70% 40% 34% 31% 27% 21% 18% 20% 17% 18% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% %BrandShareofTotalRevenuePost Generic
- 19. Complexity of moleculedoes impact share loss post-exclusivity even for small molecules Source: Wolters Kluwers IFAH CONFERENCE 2019 19 T0 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 Lg Mol 100% 75% 51% 49% 45% 41% 40% 38% 36% 37% 36% 35% 32% IV Sm Mol 100% 87% 62% 49% 40% 38% 22% 24% 22% 17% 20% 22% 15% Oral Sm Mol 100% 86% 45% 35% 31% 26% 22% 17% 16% 15% 14% 11% 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
- 20. Many generics enterwhen the brand sales were large IFAH CONFERENCE 2019 20 1.8 1.9 3 2.22.3 3.3 3.6 3.6 4.4 6.8 7.2 7.5 6 8.7 11.3 9.5 0 2 4 6 8 10 12 1995-1998 1999-2003 2004-2008 2009-2011 #ofGenericEntrants Year of First Generic Entry Sales <$100MM $100 ≤ Sales < $200 MM $250MM ≤ Sales < $1 B $1B ≤ Sales Notes: Average number of generic entrants within 1 year of first generic entry: new molecular entities.. IMS Health data on all new drugs with initial generic entry in the period 1995 through September 2012. Source:
- 21. Government efforts tocurb pharma pricing IFAH CONFERENCE 2019 http://www.eiu.com/industry/article/336730817/administrations-drug-price-proposals-are- underwhelming/2018-05-16 https://www.ft.com/content/b3cf320e-550d-11e7-80b6-9bfa4c1f83d2 https://www.barrons.com/articles/how-investors-can-play-the-pharma-sector-51549069201 Trumps American Patients First (50 proposals May 11, 2019) Included Not included Drug ads required to mention price Medicare won’t negotiate directly with pharma Pressure other countries to raise their prices to pay R&D Doesn’t allow imports from X-US countries New negotiating tools for Medicare Pharma still sets launch prices Medicare pay different amounts for different indications Price freezes Free generics to low income Medicare No total government takeover of healthcare Ban pharmacy gag clauses so pharmacist tells best deal Required tool Medicare Part D coverage options & OOP costs Replace kickback with discounts to patients Transparency – put patient in control 21
- 22. Government options forcurbing pharma pricing Additional options discussed: • Eliminate generic “pay-for-delay” deals • Medicare Part B middleman buys and negotiates with pharma. Govt pays based on average sale price X-US. • Eliminate “protected classes” in Medicare Part D (HIV and cancer must be covered by insurance) • Exclude drugs whose prices increase above the rate of inflation Note: ICER (Institute for Clinical and Economic Review) reports of clinical benefit vs pricing as watchdog appear to be beneficial IFAH CONFERENCE 2019 http://www.eiu.com/industry/article/336730817/administrations-drug-price-proposals-are- underwhelming/2018-05-16 https://www.ft.com/content/b3cf320e-550d-11e7-80b6-9bfa4c1f83d2 https://www.barrons.com/articles/how-investors-can-play-the-pharma-sector-51549069201 https://seekingalpha.com/article/3847036-drug-pricing-u-s-pressure-multiple-fronts-time-stay-away- 22
- 23. HHS wants lowerdrug list prices IFAH CONFERENCE 2019 23 Alex Azar, HHS Secretary promised to "call out“ brand-name manufacturers that do not provide samples to producers of generics
- 24. Payor pressures ondrug pricing • Deny coverage. More closed formularies over time • Contracting for discounts (rarely share the discounts) • Requiring generics (86% of all Rx’s filled in US are generic). Extrapolate indications • Report MD generic use rates and discuss with MDs who are out of range • Prior authorizations, step therapy and higher co-pays to manage brand use • Wait to add newly approved drugs to formulary • Unofficially “cover only on appeal” IFAH CONFERENCE 2019 https://seekingalpha.com/article/3847036-drug-pricing-u-s-pressure-multiple-fronts-time-stay-away- innovator-pharma 24 Results: Average rebates from pharma are growing Consolidation of payers increases their negotiating power
- 25. Pharmacy & PBMmanagement of drug costs • Retail pharmacy chains are incented to dispense generics for larger margins • Reports compare regional stores on % generics dispensed • Pharmacies don’t stock many brands. If patient insists, special order takes 2-3 days and has higher co-pay • PBMs also push for more generics, but often keep a large cut of the savings between brand and generic IFAH CONFERENCE 2019 25 PBM = Pharmacy Benefit Manager. Administer Rx
- 26. Pharma commitment toaddress drug pricing • Abbvie, Allergan, Novo Nordisk and Sanofi have pledged to limit annual price increases Value-based deals • Aetna and Merck value-based deal for Januvia and Janumet for diabetes – rebate if drug doesn’t achieve goals • Cigna and Novartis value-based deal for Entresto for heart failure • Discussion between Cigna and Amgen, Sanofi, Regeneron for cholesterol drug • Spark Therapeutics agreed to charge payers based on IFAH CONFERENCE 2019 https://www.ft.com/content/b3cf320e-550d-11e7-80b6-9bfa4c1f83d2 https://www.barrons.com/articles/how-investors-can-play-the-pharma-sector-51549069201 26
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- 28. Conclusions • Pharma pricingis higher visibility • Pressures continue from government, payers, employers, pharmacies, patients • Public outcry is having an effect • There aren’t many easy answers and time will tell IFAH CONFERENCE 2019 28