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MARKETWATCH

Market Access For Biopharmaceuticals: New Challenges

Abstract

 
Biotechnology firms face new challenges as biologics account for an increasing share of product approvals and pipelines and their high costs are under scrutiny by regulators, employers, and consumers. Although the first generation of biologics often targeted niche markets with little impact on payers’ total costs, the current product wave addresses larger populations. To meet the needs of all stakeholders, manufacturers must adopt an evidence-based approach including three principles: demonstration of clinical and economic value, price evolution according to market conditions (from orphan diseases to large areas such as diabetes), and an early timetable integrating clinical and economic endpoints.

Several studies have supported a new "economics of progress" whereby the higher pharmacy costs of new therapies offset other medical costs. This structural shift has been shown to result in a decade-long reduction in hospital admissions and lengths-of-stay, but existing studies have not applied to biologics.²

The collision course between the growing dominance of biologics in pharmaceutical portfolios and payers’ constraints has led to measures such as step therapy, prior authorization, and tiered pharmacy benefits.³ Balancing patients’ access and biologics’ price could be addressed through an evidence-based strategy using scientific and pharmacoeconomic data to demonstrate, from the early stages of drug development, the clinical and economic value of a new therapy. This might help physicians in treatment approaches, improve product transparency for patients, and assist payers in making formulary decisions.

This paper builds on research I have conducted with Philip Kotler that analyzes biologic pricing strategies in major markets.⁴ Additional field research included forty-five in-depth interviews conducted in 2005–06, with approximately 70 percent in North America and 30 percent in Europe. About 60 percent of these interviews were conducted with senior biopharmaceutical executives; and 40 percent, with payer, provider, and consultancy experts. Many factual statements in this paper come from these sources, who consented to be interviewed on condition of anonymity.

Findings from this research indicated three principles of an effective and equitable pricing approach: (1) an evidence-based strategy that meets the needs of physicians, patients, and payers, with an expanded value proposition (products and added services such as clinical and reimbursement support) and partnerships extending to risk-sharing arrangements with payers; (2) price adaptation to specific product/market situations, rather than adoption of a standard pricing formula; and (3) a dual timetable that integrates clinical and pharmacoeconomic endpoints, from early clinical development to postlaunch surveillance.

Evidence-Based Strategy

Top Evidence-Based Strategy Price Adaptation To Product/... Dual Timetable: Clinical And... Policy Implications NOTES

 
Besides regulators, payers, and physicians, patients now increasingly require clinical and economic evidence, because they have Web-based access to trial data and also pay a rising share of drug costs. In this context of growing patient activism and payer scrutiny, companies face trade-offs between profitability and responsiveness to patients’ needs: Maximizing return on investment implies setting a launch premium for a high-value product and maintaining profit over time with new indications, formulations, delivery systems, and successor molecules. However, this has to be offset by the need to obtain reimbursement and to ensure access for the uninsured.

Gaining competitive advantage relies on speed to market to ensure first-in-class status, but the focus on drug safety could increase the duration of clinical trials. Building brand strength now depends not only on clinical differentiation but also on the demonstration of customer-specific value to physicians, patients, and payers.

Physicians’ needs: clinical support and outcomes-based value. Most biologics are infusion or injectible therapies, and up to 70 percent of them must be administered by a health care professional. This poses new challenges. Some specialties that have not traditionally administered drugs will now need to do so, many on a recurring basis for chronic conditions; this includes rheumatologists, dermatologists, and infectious disease specialists.

Pharmacogenomics (the use of genetic drug markers to predict drug response) could help moderate the total budget costs of targeted therapies by restricting them to specific genotypes. For instance, Genentech’s Herceptin (trastuzumab) was launched in 1988 in conjunction with diagnostic tests developed by partners Dako and later Vysis, and is restricted to patients with metastatic breast cancer with "overexpressing" (excess proteins on the cell surface) human epidermal growth factor receptor-2 protein (HER2-neu). For Herceptin reimbursement in the United Kingdom, the National Institute for Health and Clinical Excellence (NICE) deemed that it was cost-effective, despite a price of about $19,000 per year, since it would be prescribed only to prescreened patients.⁵ Proper use of these tests requires extensive physician education, and remaining barriers are payers’ historical reluctance to cover new diagnostic tests, as well as privacy issues for patients.

Patients’ focus: safety, transparency, and equity. The authorization in 1997 of direct-to-consumer advertising of prescription drugs in the United States led some manufacturers to adopt a consumer-goods approach to communications, especially in categories such as allergy. For products with little clinical differentiation, manufacturers used experience-based marketing with a focus on convenience (once-daily oral dosing) and image (celebrity endorsers). Current drug-advertising trends are leaning toward evidence-based marketing, spurred by an increased demand for drug safety. Consumers, physicians, and regulators have focused on safety after the recall of Merck’s Vioxx (rofecoxib) and concerns that it was overmarketed to the general public.

Across major countries, consumers are now driven toward hard evidence by several other factors: Web-enabled access to scientific information and increased copayment burdens requiring price comparisons, brand proliferation, and confusion as well as interest in personalized medicine. Biotechnology firms have responded to these needs with interactive Web sites, complemented by call centers that are often more extensively staffed than sales forces are. In multiple sclerosis (MS), Biogen Idec’s unbranded Web site, MSactivesource.com, established relationships with more than 100,000 patients worldwide. However, surveys by Harris Interactive and the Boston Consulting Group show that consumers still prefer medical and academic sources and have generally little trust in industry sites. This discrepancy between consumers’ needs and commercial offerings could be alleviated by several approaches: increased focus on company-neutral data, links to medical sources and advocacy groups, and higher integration of disease-specific on- and offline education programs.⁶

Payers’ requirements: worldwide variations. Payers’ focus on clinical effectiveness in the United States and cost-effectiveness as well in some other countries poses challenges for manufacturers, given worldwide variations in health economics guidelines. Formalized guidelines were first issued by Australia in 1992 and later required by Canada, the Netherlands, Finland, and Portugal. Payer guidelines in other countries including the United States are still voluntary. The U.S. Academy of Managed Care Pharmacy (AMCP) established its Format for Formulary Submissions in 2000 and updated it five years later, but its implementation varies across health plans and manufacturers.

Formalized guidelines show consensus on issues such as target audience, societal perspectives, and treatment comparators (existing practice/most frequently used in the same therapeutic class). Informal guidelines differ from these in terms of perspective (societal or payer-centered) and valuation of costs (indirect, such as workdays lost, versus direct, such as pharmacy costs).

A common requirement is the demand for data on effectiveness rather than efficacy. Effectiveness data demonstrate that a new therapy works in normal clinical practice, whereas efficacy data focus on the impact on patients in a structured setting.⁷ This has a direct impact on the design and scope of clinical trials. Another common trend is a requirement for comparative performance. Even though many first-in-class biologics such as Genentech’s Avastin (bevacizumab), approved for metastatic colorectal cancer, have no direct comparator product, health agencies and payers might increasingly base approval or reimbursement on comparative efficacy relative to the current standard of care. Manufacturers that have traditionally designed trials comparing a new therapy to placebo are reluctant to consider head-to-head trials, given their unpredictability. However, third-party groups such as the National Cancer Institute (NCI), the broader National Institutes of Health (NIH), and the Centers for Medicare and Medicaid Services (CMS) have already run several major head-to-head cancer studies. In some underresearched disease areas, patient advocacy groups have begun a financing process for their own studies. Last but not least, biosimilar products, the biologic equivalent of generic drugs, are on the horizon and will force comparisons. Among growth hormones, the Sandoz division of Novartis has already launched its biosimilar Omnitrope in Australia, and other candidate classes include insulins and erythropoietins, with many products beyond patent expiration. These factors support the need for solid pharmacoeconomic dossiers across countries and for manufacturer-payer cooperation, including risk-sharing arrangements.

Outcome-based data can be especially compelling for biologics in competitive areas such as rheumatoid arthritis (RA). For its RA drug Humira (adalimumab), Abbott added to efficacy and safety data the mental health outcomes among patients on Humira versus Enbrel (etanercept) and Remicade (infliximab). The Abbott study reported the most positive mental outlook among patients taking Humira. The need to know the patient’s perspective about treatment effectiveness is reflected in the U.S. Food and Drug Administration (FDA) draft guidance on patient-reported outcomes. It covers concepts measured, from functional (physical and psychological) status to satisfaction with the therapy and adherence to treatment.⁸

Beyond pharmacoeconomic analyses, manufacturer-payer partnerships may go as far as risk-sharing arrangements. After NICE denied reimbursement in 2002 for entire drug classes treating MS, including beta-interferons and Teva’s Copaxone (glatiramer acetate), on the basis that they were not cost-effective, the manufacturers resecured access by assuming outcome-related risks. They agreed to reduce drug costs if a target treatment effect was not achieved.⁹ The effectiveness of this evidence-based strategy is shown by several case studies that also illustrate the adaptation of pricing to specific product/market situations, rather than the application of a standard formula.

Price Adaptation To Product/ Market Segments

Top Evidence-Based Strategy Price Adaptation To Product/... Dual Timetable: Clinical And... Policy Implications NOTES

 
Product cases illustrate the evolution of biologic pricing. It becomes more competitive as products evolve from first-in-class therapies for small populations and with no competition (Genzyme’s drug for type 1 Gaucher disease) to specialties with growing competition (beta interferons for MS) and to mature classes for large markets with intense competition (insulins for diabetes).

For payers, physicians, and patients concerned about high biologic prices, a positive trend is their evolution over time. Biologic pricing is not monolithic and changes over time according to different levels of marketplace competition and size of target population. On the one hand, an orphan disease therapy that is first in class and serves a high unmet need, such as Genzyme’s Cerezyme (imiglucerase), may obtain reimbursement for a high price, partly because it has a small impact on payers’ total budget costs. On the other hand, mature therapies addressing large populations in intensely competitive areas are priced much more flexibly. For example, in diabetes, standard insulin has largely commoditized and is subject to discounting across countries (Exhibit 1).

This raises important issues about equity, which have been addressed by several approaches. The utilitarian approach of "bringing the greatest good to the greatest number" would restrict the availability of orphan drugs, which is not a practicable solution for patients with life-threatening diseases. An alternative approach, the "rule of rescue," offers a commitment to patients who need highly specialized treatments, even when resources are constrained.¹⁰ Accordingly, Genzyme was generally able to obtain reimbursement: There was no alternative treatment, and the drug had little impact on total budget costs, because of the small population treated. In addition, Genzyme launched several patient-access programs for the uninsured. About one-tenth of treated patients now obtain the drug at no cost. Genzyme also worked with patients by supporting advocacy groups. In the United States, the Genzyme treatment support group (GTS) includes case management specialists who help patients with insurance dossiers.

However, patient opinion is mixed. While the National Gaucher Foundation reports that the GTS is effective, the National Organization for Rare Disorders, a coalition of about 130 voluntary health agencies, raises objections to Cerezyme’s price.¹¹ Whereas Cerezyme can be produced in a more cost-effective manner than its preceding molecule, Ceredase (alglucerase), this has not led to a price reduction. Genzyme counters that manufacturing remains complex and requires long cycles.¹²

Cerezyme remains without direct competition. Actelion’s Zavesca (miglustat) was approved in the United States and EU, but its indication is for type 1 Gaucher disease where enzyme replacement therapy is not suitable. However, it can be taken orally and carries a much lower price. Genzyme itself is developing a possible oral successor molecule to Cerezyme.¹³ Because other companies now target orphan diseases, this new competition is likely to exert further pressure on price.

Erythropoietins: growing competition/niche markets. More typical of first-generation biologics are the erythropoietins, now marketed by several companies, with patents that have started to expire; they are prime candidates for potential biosimilar competitors. This category is under both price and competitive pressure. Launched in 1989 in the United States for the treatment of anemia in the dialysis market, Amgen’s Epogen (epoetin alfa) was licensed to Johnson and Johnson as Procrit for another indication (chemotherapy-induced anemia). Competitors include other erythropoietins such as Roche’s Neorecormon and Chugai’s Epogin. Although they are specialist products, they address large populations. In cancer alone, the prevalence is four to six million patients in North America and Western Europe, and 42 percent of these are candidates for chemotherapy.¹⁴ Dialysis also has a substantial market.

Price trends reflect both of these competitive and market situations. Medicare reimbursement for Epogen in dialysis was reduced from $10 to $9.76 per 1,000 units in 2004–05.¹⁵ Amgen launched Epogen’s successor molecule, Aranesp (darbepoetin), in 2001 to provide a convenience advantage (half-life three times longer and less frequent dosing) and to broaden its market from dialysis to chemotherapy, where it competes against Procrit.

The planned conversion of part of Epogen’s patient base to Aranesp was effective: While Epogen’s worldwide sales were still $2.5 billion in 2005, Aranesp had grown from $1.5 billion in 2003 to nearly $3.3 billion in 2005. However, the CMS denied a price premium for Aranesp and limited it to the same level as Procrit under the hospital outpatient prospective payment system 2003 final rule.¹⁶ Although the outpatient setting accounted for only about 10 percent of Aranesp revenue, the underlying principle of "functional equivalence" could affect other product classes.¹⁷

Multiple sclerosis: several competitors/specialty market. Like the erythropoietins, MS therapies address a specialist market and show even more competition. Although efficacy and tolerability remain the differentiation criteria for payers, criteria for patients include the convenience of delivery systems. There are well over one million MS patients worldwide, including about 460,000 in the United States and another 433,000 in Europe, which represents a major burden for payers.¹⁸ The first of the beta interferons, Schering’s Betaseron, was launched in the United States in 1993 as an orphan drug. Despite this, Biogen Idec’s Avonex (interferon beta 1a) was launched in 1996 and also granted orphan drug status on the basis of clinical evidence (superior side-effect profile). Serono’s Rebif, launched in 2002, was then able to gain, in turn, orphan drug status through the EVIDENCE study showing superior efficacy.¹⁹

Another MS therapy, Copaxone (glatiramer acetate), was launched by Teva in 1997. The later launch of Rebif at a premium of 20 percent or more introduced significant price differentials, although these were partly reduced by rebates. By 2006, the annual average wholesale price (AWP) per patient ranged from about $19,000 for Avonex to $23,000 for Rebif. Payers are still reluctant to aggressively manage the category because it has a limited impact on total budget costs and especially because the global physician and patient MS community shows a high level of activism. Avonex still led the category in 2005. It reached worldwide sales of $1.5 billion in 2005, versus $1.27 billion for Rebif and $1.07 billion for Betaseron.²⁰

Competition continues on two fronts: clinical evidence and convenience. In 2005, Serono initiated the head-to-head REGARD trial of Rebif versus Copaxone, and it has also cladribine, the first oral disease-modifying treatment, in Phase III trials. With relatively small bases of differentiation, this category might be more actively managed by payers in the coming years.

Insulins: strong competition/large market. A harbinger of future pricing patterns may be the oldest class of biologics, the insulins, dating back to the 1920s and, in their recombinant form, to the Genentech/Lilly launch of Humulin in 1982. In the United States alone, nearly twenty-one million people are diabetics.²¹ This disease presents a triple challenge for physicians, patients, and payers. For physicians, good outcomes depend on patients’ adherence to treatment, which is highly variable because of the burden of multiple daily injections. Physicians therefore support products such as long-acting analogs, which have the dual advantage of clinical evidence (better glucose control) and convenience (fewer injections).

The Sanofi-Aventis analog, Lantus (insulin glargine), has captured as much as 50 percent of the basal insulin market since its German launch in 2000. Like Lantus, Novo Nordisk’s rival product, Levemir (insulin detemir), seeks differentiation through head-to-head studies showing more efficacy than standard basal insulins in controlling blood glucose levels.²²

Patients themselves drive product differentiation through the convenience of injectors versus syringes. Novo Nordisk was able to maintain a competitive position versus Lilly with a lead in delivery systems. Its Novopen injector was first launched in 1985, and its successor, Novopen 3, introduced in 1992, gained more than two million users worldwide. Payers are able to obtain substantial discounting for standard insulin, which has increasingly commoditized, but they face difficulties in cost comparison, since the amount of medication used varies dramatically between patients. An added obstacle to a cost-effectiveness comparison is patients’ and physicians’ reluctance to switch therapies if stabilization has been achieved.

Dual Timetable: Clinical And Economic Development

Top Evidence-Based Strategy Price Adaptation To Product/... Dual Timetable: Clinical And... Policy Implications NOTES

 
A value-based pricing strategy for biologics starts early in the development process and integrates clinical and economic endpoints at each stage to complete later documentation for payers (Exhibit 2). As early as the preclinical stage, to decide on the development of a compound, the level of unmet medical need is defined through medical thought leaders, and comparators are identified. Even a first-in-class product will be compared by payers to the existing standard of care. If the comparator has a narrow dosing range and high administration frequency, the new product can be monitored in Phase I trials to determine whether the dose range can be optimized. If so, this can be integrated into Phase II trials.

Policy Implications

Top Evidence-Based Strategy Price Adaptation To Product/... Dual Timetable: Clinical And... Policy Implications NOTES

 
The collision course between the rising importance of biologics in drug portfolios, their larger target populations, and their high prices is leading to the absolute necessity of demonstrating both clinical and economic value. Comparative studies could be carried out in the future within the framework of an independent "pharmacoeconomic research institute," as first proposed by Uwe Reinhardt.²⁴

As patients’ global activism increases, it will drive manufacturers’ partnerships with patient advocacy groups, regarding disease awareness, diagnosis, as well as clinical and reimbursement support. Emerging solutions to biologic cost challenges include three main trends: integration of clinical and economic value analyses during drug development; maturation of many biologic classes driving more price competition; and increased collaboration among manufacturers, payers, and patient groups to support better evidence in clinical trials, pharmacoeconomic dossiers, diagnosis, and treatment protocols worldwide.

Editor's Notes

 
Françoise Simon (fsimon946{at}aol.com) is a professor at the School of Public Health and Business School, Columbia University, in New York City. Her most recent book, with Philip Kotler, is Building Global Biobrands: Taking Biotechnology to Market (Free Press, 2003).

NOTES

Top Evidence-Based Strategy Price Adaptation To Product/... Dual Timetable: Clinical And... Policy Implications NOTES

 

1. E. Licking et al., "Reviewing 2005 and Previewing 2006: The Top Stories," In Vivo (January 2006): 45–52; and IMS Health, IMS Market Prognosis 2005 (Fairfield, Conn.: IMS Health, 2005).
2. Tufts Center for the Study of Drug Development, Outlook 2001 (Boston: Tufts University, 2001), as reported in J.D. Kleinke, "The Price of Progress: Prescription Drugs in the Health Care Market," Health Affairs 20, no. 5 (2001): 43–60[Abstract/Free Full Text]. See also F.R. Lichtenberg, "Are the Benefits of Newer Drugs Worth Their Cost? Evidence from the 1996 MEPS," Health Affairs 20, no. 5 (2001): 241–251.[Abstract/Free Full Text]
3. J.D. Kleinke, "Access versus Excess: Value-based Cost Sharing for Prescription Drugs," Health Affairs 23 (2004): 34–47 (published online 8 December 2004); 10.1377/hlthaff.23.1.34).[Abstract/Free Full Text]
4. F. Simon and P. Kotler, Building Global Biobrands: Taking Biotechnology to Market (New York: Free Press, 2003); see chapters "Balancing Access and Price," 207–228; and "Biopricing Strategies," 229–255.
5. J.A. Vernon et al., "Economic and Developmental Considerations for Pharmacogenomic Technology," PharmacoEconomics 24, no. 4 (2006): 335–343[CrossRef][Web of Science][Medline]. See also A. Salvado et al., "Biotechnology and Managed Care," Journal of Managed Care Pharmacy 6, no. 5 (2000): 410–414.
6. Simon and Kotler, Building Global Biobrands, 106–108, 257–263.
7. J. Hjelmgren, F. Berggren, and F. Andersson, "Health Economic Guidelines—Similarities, Differences, and Some Implications," Valuein Health 4, no. 3 (2001): 225–250[CrossRef]. See also M.F. van Oostenbruggen et al., "Penny and Pound Wise: Pharmacoeconomics from a Governmental Perspective," PharmacoEconomics 23, no. 3 (2005): 219–226[CrossRef][Web of Science][Medline]; and Academy of Managed Care Pharmacy, "The AMCP Format for Formulary Submissions, Version 2.1," Journal of Managed Care Pharmacy 11, no. 5, Supp. S-b (2005), http://www.amcp.org/data/jmcp/formatsupp.pdf (accessed 28 June 2006).
8. Food and Drug Administration, "Guidance for Industry: Patient-reported Outcomes Measures," Draft Guidance, February 2006, http://www.fda.gov/OHRMS/DOCKETS/98fr/06d-0044-gdl0001.pdf (accessed 16 June 2006).
9. M. Lubkeman et al., "How Biopharma Can Flourish in a Deteriorating Environment," In Vivo (January 2006): 60–67.
10. D. Hughes, "Rationing of Drugs for Rare Diseases," PharmacoEconomics 24, no. 4 (2006): 315–316.[CrossRef][Web of Science][Medline]
11. S. Calabro, " The Price of Success," Pharmaceutical Executive (March 2006): 65–80.
12. Ibid.
13. Ibid.
14. Amgen, Amgen Annual Report (Thousand Oaks, Calif.: Amgen, 2005); and "What’s a Drug Worth to Medicare?" MedAdNews 22, no. 12 (2003):
15. Ibid.
16. Ibid.
17. Ibid.
18. R. Bonte-Friedheim et al., "The Multiple Sclerosis Wars," Citigroup/Smith Barney Report (New York and London: Citigroup/Smith Barney, 1 December 2004); Biogen Idec, Financial Reports (Cambridge, Mass.: Biogen, 2005); and Schering AG (Berlin: Schering, 2005).
19. Ibid.
20. Ibid.
21. H. Dawson, "Promoting Me-Too Biologicals: Portfolio versus Single Product Approach," In Vivo (September 2004): 83–85; and N. D’Amore, "Non-Injectable Insulin Approved," MedAdNews 25, no. 3 (2006): 78.
22. Ibid.
23. Simon and Kotler, Building Global Biobrands, 232–239.
24. U.E. Reinhardt, "Perspectives on the Pharmaceutical Industry," Health Affairs 20, no. 5 (2001): 136–149.[Abstract/Free Full Text]

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