Panel D: CORD 2018 Fall Conference Nov 8: Day 1

1. Key problems for pricing • What guidance do companies have, if price exceeds standard cost- effectiveness threshold? • When clinical trial data is inadequate, is there a role for pay for performance?

2. A price negotiation strategy G. Kent Fellows, Daniel J. Dutton and Aidan Hollis. “Making Sure Orphan Drugs don’t get Left Behind” University of Calgary School of Public Policy Communiqué 10:6, August 2018. Fellows, GK, and A. Hollis, “Funding innovation for treatment for rare diseases: adopting a cost- based yardstick approach.” Orphanet Journal of Rare Diseases 2013, 8:180. Hollis, Aidan, “Drugs for Rare Diseases: Paying for Innovation” in Health Services Restructuring in Canada: New Evidence and New Directions, Charles Beach (ed.) McGill-Queen's University Press, 2006, pp. 155-177. Is price justified by the cost of supply?

3. 1. Yardstick pricing • Price is set according to estimated cost of production plus the industry average cost of product development and other required fixed costs. • Eg: cost of production may be $5,000 per patient per year, specific to product • Average cost of product development: Assume US$2bn • Amortized cost per year over 10 years of exclusivity is about $300m per year • Canada’s income share among OECD countries is 3% • So Canada’s share of the $300m is $9m per year • With 100 patients in Canada, this implies about US$90,000 (C$120,000) per patient per year is reasonable compensation for the company’s development costs. • With 500 patients in Canada, C$24,000 per patient is enough to pay for development costs è total price closer to $30,000 per patient per year

4. 2. More use of pay for performance • Many patients who have tried a high-priced drug express a conviction that it worked for them. • Patient LZ in recent G&M article: “her health has improved dramatically since she started taking Orkambi two years ago” • But the provinces tend to rely on clinical trial results, which do not fully capture individual results, especially because the natural history of disease is poorly understood and the trials are small. • We need to have more willingness to try drugs for individuals with rare diseases, and to make continuing insurance coverage dependent on successful outcomes. https://www.theglobeandmail.com/canada/article-committee-recommends-against-funding-250000-a-year-orkambi-cystic/

5. GLOBAL PHARMACEUTICAL PRICING FACTORS Dylan Lamb-Palmer, PDCI Market Access 1

6. Factors influencing manufacturer’s price setting 2 Domestic Price Controls & Reimbursement Policies Intl. Price Comparisons Global Pricing Bands /Price Floors Local Patient Population (Incidence/ Prevalence) Return on Investment / R&D Local Market Forces / Competition Patents / Product Life Launch Sequencing Price Domestic International Corporate

7. Product Life of a Pharmaceutical Research & Development Commercialization Patent Expiry Investment Return Safety Dosing Efficacy / Approval HTA/PricingReimbursement Generics Pre-Clinical PhaseI PhaseII PhaseIII Registration Breakeven Revenues Costs Adapted from valuationlab.com 3 Domestic Price Controls & Reimbursement Policies Parallel Trade / Intl. Price Comparisons Global Pricing Bands /Price Floors Local Patient Population (Incidence/ Prevalence) Return on Investment / R&D Local Market Forces / Competition Production, Sales & Marketing Costs Patents / Product Life Price Domestic Internatio nal / IP Corporate

8. Launch Sequencing • Factors influencing launch decisions: – Price – Market Size – Investments Required – Time to Market Access – Tax rates – External Price Referencing – Domestic R&D 9 Source: Cutting Edge Information, 2016

9. External Price Referencing 5

11. Spending on High Cost Medicines 7 2017 Total Spending on High Cost Drugs $10K+: $6,300M $50K+: $750M

12. DRD Experience with pCPA 8 5% 18% 26% 40% 32% 29% 30% 24% 19% 10% 13% 10% 15% 13% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% DRD Oncology Other < 3 months < 6 months < 9 months < 12 months 12+ months Average pCPA negotiation length: Drugs for Rare Diseases – 6 months Oncology – 6 months Other Drugs – 7 months Failed Negotiations: Drugs for Rare Diseases – 6/20 Oncology – 1/38

13. A New Approach To The Access And Funding For Rare Disease Medications And Treatment

14. Formation and Participants • The plan we propose will require collaboration between all stakeholders who have historically not worked well together and will require all parties to be willing to give something up to create an approach that would be in everyone’s best interest in the long-term. • Utilize the talents and experience of the experts in the field of each, and all, rare disorders in all the stakeholders who deal in this area. Such a regime would be solely focused on the patients.

15. Formation and Participants • Collaborative organization of all stakeholders in providing treatment, paying, patients, and manufacturers of medicines and other devices for rare disorders. • Jointly funded by the private payers (employers/employees), government and business. • Established initially only for drugs for rare disorders. • Funding is not all new money but utilizes funds currently spent through other means. • Manufacturers would contribute, through providing some guarantee of efficacy for each patient through tests of effectiveness, funding initial treatment plans and patient assistance programs. • As funds are accumulated, surpluses developed over actuarily required target funding and margin, could be used to fund R&D for medications for rare disorders.

16. Structure • The Plan would be administered by a Board made up of stakeholders impacted by treatment, distribution, and payment of medications for rare disorders. Members could include: • Pubic Payers, Provincial/Territorial government representative • Health Canada • Private payers’ representative e.g. Canadian Life and Health Insurance Association (CLHIA) • Patients’ representative e.g. Canadian Organization for Rare Diseases (CORD) • Employers’ representative e.g. Chamber of Commerce either the provincial bodies collectively (e.g. Chamber Insurance Corporation) or the National Association. • Prescriber’s representative e.g. Canadian Medical Association (CMA) • Dispensers’ representative e.g. Canadian Pharmacists Association (CPA)

17. Structure The Board would have an advisory committee that would include manufacturers, regulators, actuarial support and an investment arm, that would provide advice on procedures, new medicines and the true efficacy of these therapies, aid in negotiations for pricing, etc. • Patented Medicine Prices Review Board (PMPRB) • Canadian Agency for Drugs and Technologies in Health (CADTH), Institut national d’excellence en santé et en services sociaux (INNESS) • Innovative Medicines Canada (IMC), Biotech Canada, Canadian Generic Pharmaceutical Association (CGPA) • Investment eg. CPP Investment Board (using the economies of scale and a proven record of sound investment, could manage funds received if agreed to by them.) • Actuaries and Accountants as required • Other professionals required to help in the determination of criteria for receiving treatment, access, on/off requirements and efficacy of a drug etc. paid for by this regime.

18. Innovation We need to think, act and work differently if we want a better outcome that in essence uses the cumulative expertise of prescribers, patient organizations, payers, manufacturers and others, to the ultimate outcome we are all focused on: THE PATIENT

19. A New Approach To The Access And Funding For Rare Disease Medications And Treatment

20. Formation and Participants • The plan we propose will require collaboration between all stakeholders who have historically not worked well together and will require all parties to be willing to give something up to create an approach that would be in everyone’s best interest in the long-term. • Utilize the talents and experience of the experts in the field of each, and all, rare disorders in all the stakeholders who deal in this area. Such a regime would be solely focused on the patients.

21. Formation and Participants • Collaborative organization of all stakeholders in providing treatment, paying, patients, and manufacturers of medicines and other devices for rare disorders. • Jointly funded by the private payers (employers/employees), government and business. • Established initially only for drugs for rare disorders. • Funding is not all new money but utilizes funds currently spent through other means. • Manufacturers would contribute, through providing some guarantee of efficacy for each patient through tests of effectiveness, funding initial treatment plans and patient assistance programs. • As funds are accumulated, surpluses developed over actuarily required target funding and margin, could be used to fund R&D for medications for rare disorders.

22. Structure • The Plan would be administered by a Board made up of stakeholders impacted by treatment, distribution, and payment of medications for rare disorders. Members could include: • Pubic Payers, Provincial/Territorial government representative • Health Canada • Private payers’ representative e.g. Canadian Life and Health Insurance Association (CLHIA) • Patients’ representative e.g. Canadian Organization for Rare Diseases (CORD) • Employers’ representative e.g. Chamber of Commerce either the provincial bodies collectively (e.g. Chamber Insurance Corporation) or the National Association. • Prescriber’s representative e.g. Canadian Medical Association (CMA) • Dispensers’ representative e.g. Canadian Pharmacists Association (CPA)

23. Structure The Board would have an advisory committee that would include manufacturers, regulators, actuarial support and an investment arm, that would provide advice on procedures, new medicines and the true efficacy of these therapies, aid in negotiations for pricing, etc. • Patented Medicine Prices Review Board (PMPRB) • Canadian Agency for Drugs and Technologies in Health (CADTH), Institut national d’excellence en santé et en services sociaux (INNESS) • Innovative Medicines Canada (IMC), Biotech Canada, Canadian Generic Pharmaceutical Association (CGPA) • Investment eg. CPP Investment Board (using the economies of scale and a proven record of sound investment, could manage funds received if agreed to by them.) • Actuaries and Accountants as required • Other professionals required to help in the determination of criteria for receiving treatment, access, on/off requirements and efficacy of a drug etc. paid for by this regime.

24. Innovation We need to think, act and work differently if we want a better outcome that in essence uses the cumulative expertise of prescribers, patient organizations, payers, manufacturers and others, to the ultimate outcome we are all focused on: THE PATIENT

26. Key problems for pricing • What guidance do companies have, if price exceeds standard cost- effectiveness threshold? • When clinical trial data is inadequate, is there a role for pay for performance?

27. A price negotiation strategy G. Kent Fellows, Daniel J. Dutton and Aidan Hollis. “Making Sure Orphan Drugs don’t get Left Behind” University of Calgary School of Public Policy Communiqué 10:6, August 2018. Fellows, GK, and A. Hollis, “Funding innovation for treatment for rare diseases: adopting a cost- based yardstick approach.” Orphanet Journal of Rare Diseases 2013, 8:180. Hollis, Aidan, “Drugs for Rare Diseases: Paying for Innovation” in Health Services Restructuring in Canada: New Evidence and New Directions, Charles Beach (ed.) McGill-Queen's University Press, 2006, pp. 155-177. Is price justified by the cost of supply?

28. 1. Yardstick pricing • Price is set according to estimated cost of production plus the industry average cost of product development and other required fixed costs. • Eg: cost of production may be $5,000 per patient per year, specific to product • Average cost of product development: Assume US$2bn • Amortized cost per year over 10 years of exclusivity is about $300m per year • Canada’s income share among OECD countries is 3% • So Canada’s share of the $300m is $9m per year • With 100 patients in Canada, this implies about US$90,000 (C$120,000) per patient per year is reasonable compensation for the company’s development costs. • With 500 patients in Canada, C$24,000 per patient is enough to pay for development costs è total price closer to $30,000 per patient per year

29. 2. More use of pay for performance • Many patients who have tried a high-priced drug express a conviction that it worked for them. • Patient LZ in recent G&M article: “her health has improved dramatically since she started taking Orkambi two years ago” • But the provinces tend to rely on clinical trial results, which do not fully capture individual results, especially because the natural history of disease is poorly understood and the trials are small. • We need to have more willingness to try drugs for individuals with rare diseases, and to make continuing insurance coverage dependent on successful outcomes. https://www.theglobeandmail.com/canada/article-committee-recommends-against-funding-250000-a-year-orkambi-cystic/

31. GLOBAL PHARMACEUTICAL PRICING FACTORS Dylan Lamb-Palmer, PDCI Market Access 13

32. Factors influencing manufacturer’s price setting 14 Domestic Price Controls & Reimbursement Policies Intl. Price Comparisons Global Pricing Bands /Price Floors Local Patient Population (Incidence/ Prevalence) Return on Investment / R&D Local Market Forces / Competition Patents / Product Life Launch Sequencing Price Domestic International Corporate

33. Product Life of a Pharmaceutical Research & Development Commercialization Patent Expiry Investment Return Safety Dosing Efficacy / Approval HTA/PricingReimbursement Generics Pre-Clinical PhaseI PhaseII PhaseIII Registration Breakeven Revenues Costs Adapted from valuationlab.com 15 Domestic Price Controls & Reimbursement Policies Parallel Trade / Intl. Price Comparisons Global Pricing Bands /Price Floors Local Patient Population (Incidence/ Prevalence) Return on Investment / R&D Local Market Forces / Competition Production, Sales & Marketing Costs Patents / Product Life Price Domestic Internatio nal / IP Corporate

34. Launch Sequencing • Factors influencing launch decisions: – Price – Market Size – Investments Required – Time to Market Access – Tax rates – External Price Referencing – Domestic R&D 9 Source: Cutting Edge Information, 2016

35. External Price Referencing 17

37. Spending on High Cost Medicines 19 2017 Total Spending on High Cost Drugs $10K+: $6,300M $50K+: $750M

38. DRD Experience with pCPA 20 5% 18% 26% 40% 32% 29% 30% 24% 19% 10% 13% 10% 15% 13% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% DRD Oncology Other < 3 months < 6 months < 9 months < 12 months 12+ months Average pCPA negotiation length: Drugs for Rare Diseases – 6 months Oncology – 6 months Other Drugs – 7 months Failed Negotiations: Drugs for Rare Diseases – 6/20 Oncology – 1/38

Panel D: CORD 2018 Fall Conference Nov 8: Day 1

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Panel D: CORD 2018 Fall Conference Nov 8: Day 1