As pharma gets slammed for egregious pricing of life-saving medications and stories continue to make headlines – generic drug prices are actually falling.

That’s not to say that consumers aren’t still being saddled with high costs at the pharmacy, but a July 2019 paper by the National Bureau of Economic Research (NBER) that reviewed the pricing patterns of generic drugs suggests that other factors may be at play.

Although the U.S. generic prescription pharmaceutical market continues to drive overall prices downward, reductions in pharmacy price are not fully passed to patients, according to the NBER researchers.

One contributing factor to patients not reaping as much of the benefit of the generic price declines, the authors suggest, is the increase in cost-sharing: the practice of insurers offering plans that increasingly shift costs from insurers to consumers.

“Plan sponsors are opting for benefit designs that have consumers sharing a higher percentage of costs. The result is out-of-pocket costs falling less than overall generic drug prices,” said Deerfielder Vince Mellet. “Even so, the prices of generic drugs went down.”

To put these generic price increases into context, the investigators developed two price indices that capture prices of generic prescription drugs paid by consumers of private health insurance plans.

The first, direct out-of-pocket CPI, measures consumers’ direct out-of-pocket payments to the dispensing pharmacy. The second, total CPI, represents the total revenues received by the dispensing pharmacy – the consumers’ direct out-of-pocket payments, plus the amount paid to the pharmacy by the insurer on behalf of the customer.

Based on the analysis, the researchers found direct out-of-pocket CPI for generic prescription drugs declined by approximately 50 percent between 2007 and 2016, while the total CPI fell by nearly 80 percent over the same period. The investigators partly attribute the smaller reduction in the direct out-of-pocket CPI, compared to the total CPI, to consumers’ increasingly moving away from fixed copayment benefit plans to exclusively coinsurance or a mix of coinsurance and copayments.

While consumers are encountering more cost-sharing that shifts more of the drug cost burden on to them, the researchers report that, on balance in the U.S., consumers have still experienced significant price declines for generic drugs.

Given their findings, the investigators suggest that overall affordability is not the primary issue in the generic drug market and that this segment of the U.S. prescription market is not responsible for the reported growth in prices and spending for prescription drugs overall.

To get the full picture on prices in the U.S. generic prescription industry, the NBER researchers recommend taking a closer look at all components of the entire generic supply chain, from manufacturer, wholesaler, pharmaceutical benefit manager, insurer, to retailer.

To view the full paper, titled “The Price to Consumers of Generic Pharmaceuticals: Beyond the Headlines”, visit: https://www.nber.org/papers/w26120

© 2019 by Richard G. Frank, Andrew Hicks, and Ernst R. Berndt.

While we wait to see which Trump administration drug pricing proposals may stick, some states have started to play the hand they have been dealt and formulate near term solutions to impact drug affordability on a more local level. Here we will take a closer look at the “Netflix model” that not one, but two states have implemented to make hepatitis C virus (HCV) drugs more affordable for Medicaid programs. Under such a model, a flat fee is paid for unlimited supply of drug in a defined population. Given the fragmented nature of state health Medicaid programs, it is too early to say if these might become standard nationwide, but these early initiatives are worth following to see if they gain wider traction either in HCV or therapeutic areas.

Historical barriers to HCV treatment among Medicaid and incarcerated patient populations

Though extremely potent direct acting antivirals (DAA) have been approved in the US since 2013, treatment has been out of reach for many infected individuals on Medicaid or who are incarcerated simply due to cost in light of ~$80,000 list price per treatment regimen. There had been a logistical component for the incarcerated population, where infected individuals were not always in jail or prison long enough to be treated, but this has become less of an issue as treatment duration has come down as drug potency across viral genotypes has risen. These simplified treatment regimens have also cut down on the manpower needed to treat making treatment logistically and economically more feasible in prison health centers. While 340B pricing (a mechanism for access to lower cost drugs available to certain hospitals) has been a route to more affordable drug costs for incarcerated patients in some states, this is only in a select few that have a prison system integrated into a university hospital that is otherwise already eligible for 340B pricing.

Louisiana leads

The state of Louisiana has led the charge to establish a Netflix model for drugs in that state. Around the beginning of John Bel Edwards’ term as governor of Louisiana that started in 2016, the Louisiana Department of Health received letters from both the Centers for Medicare and Medicaid Services and health advocates that bemoaned the availability of HCV drug treatment to Medicaid patients in that state. In 2017, only 388 of the total 35,000 HCV patients that depend on the state for healthcare were treated with Sovaldi[1]. In June of that year, the Department of Health, under Rebekah Gee, reached out to Dr. Peter Bach and team at Memorial Sloan Kettering Cancer Center’s Drug Pricing Lab, a think tank focused on drug pricing and health insurance coverage. Bach and company’s analysis of Louisiana’s predicament found the state would need to spend an estimated $760 million to treat all Medicaid patients in the state, when assuming an $80,000 per patient price tag, the rough list price of DAAs. Though Louisiana’s Medicaid budget is roughly half the state budget overall, the $760 million figure is larger than what the state spends on K-12 education, Veterans Affairs, and Corrections combined. Further complicating the healthcare investment is that Louisiana is required to produce a balanced state budget each year. According to Gee, the state reached out to DAA manufacturers directly to inquire about discounted pricing but were unable to negotiate better pricing through that route[2].

Louisiana then looked to emulate an approach taken by Australia for “lump sum remuneration” which that country instituted in 2015. Authorities negotiated a five-year arrangement for ~1bn Australian dollars for an unlimited volume of DAAs from suppliers. Australia has calculated they have been able to treat an additional 93,413 patients than initially projected without such an agreement[3].

Bach, along with Louisiana Senator Bill Cassidy and Mark Trusheim of MIT’s NEWDIGS, a drug pricing think tank, embraced the Australian effort and adapted a model for Louisiana’s use. Under the subscription model, Louisiana would commit to an annual capped spend in exchange for universal drug access for a specific patient population over a fixed period. Of note, Louisiana anticipated it might need a waiver from CMS to implement such a model, but learned it would instead be able to utilize aspects of the supplemental rebate program for Medicaid and the 340B program for the corrections population.

RFI to implementation

A request for information (RFI) was put forth in August 2018, which elicited comments from 13 stakeholders including providers, payers, and industry[4]. By January 2019, the state issued a request to choose a partner[5], followed by a March 2019 announcement that AbbVie, Merck, and Gilead Sciences, via its Asegua Therapeutics subsidiary, had submitted responses[6]. By the end of that month it had selected Gilead/Asegua, with expectations to have a contract in place by June 1 and an implementation date of July 1 this year[7].

All in all, this seems to be a fairly impressive three-year timeline from idea to execution. Shortly after the Louisiana news, the state of Washington announced it had selected AbbVie as the winning bidder of a similar subscription model effort that state is moving forward[8].

Other state initiatives to watch

Three states have gotten approval for State Plan Amendments (SPA) that enable Alternative Payment Models specifically for Medicaid prescription drugs in the form of outcome-based contracts with biopharma manufacturers. The SPAs allow for negotiated contracts for drug-specific outcomes measures around parameters such as adherence (patients taking medication on the frequency as prescribed, rather than skipping or missing doses) or reduced hospitalizations (drug regimens having kept patients out of the hospital). Michigan, Oklahoma, and Colorado’s efforts are all at various stages – Oklahoma’s initial one-year contract is scheduled to end in July 2019, with three separate contracts concluding soon after. Colorado and Michigan do not yet have contracts in place[9].

Surprise billing is another area where states are making headway. Surprise billing occurs in situations where a patient sees an out-of-network (OON) provider or facility, and his/her insurance only picks up a portion of tab given the OON status, leaving the patient with the remainder, known as balance billing. As of January 2019, nine states had enacted comprehensive protections, with another 16 having enacted some partial protections[10] against OON providers in emergency departments or in-network hospitals. The momentum has helped lead to proposals at the federal level, with multiple proposals already made in the current congressional session[11]. We await future initiatives at both the local and federal level.

[1]   https://www.npr.org/2018/07/19/630378124/louisianas-new-approach-to-treating-hepatitis-c

^[2]   https://www.healthaffairs.org/do/10.1377/hblog20190327.603623/full/

^[3]   https://www.nejm.org/doi/full/10.1056/NEJMp1813728

^[4]   http://ldh.la.gov/index.cfm/newsroom/detail/4749

[5]   http://ldh.la.gov/index.cfm/newsroom/detail/5020

[6]   http://ldh.la.gov/index.cfm/newsroom/detail/5072

[7]   http://ldh.la.gov/index.cfm/newsroom/detail/5097

[8]   https://www.hca.wa.gov/about-hca/health-care-authority-announces-abbvie-us-llc-apparently-successful-bidder-hepatitis-c

[9]   https://nashp.org/a-new-state-tool-to-manage-drug-costs-experts-share-insights-into-outcome-based-contracts-for-medicaid-pharmacy-claims/

[10]  https://www.commonwealthfund.org/blog/2019/state-efforts-protect-consumers-balance-billing

[11]  https://nashp.org/states-lead-on-surprise-medical-billing-protections-congress-poised-to-follow-2/

In a past issue of this newsletter (September 2017) we took a broad look at the salient issues pertaining to the realm of biosimilars, including regulatory, legal, and commercial aspects of the debate. We refer readers here for an initial grounding if needed.  In the intervening time period, new developments have played out that highlight the significant barriers to commercial uptake that exist for these products.

Briefly, biosimilars are to biologics as branded drugs are to generics. However, both biologic drugs and biosimilars are by and large exceedingly more difficult to manufacture and thus bring to market as the production process is critical to the potency and release quality of these drugs within parameters established by the innovator product.  There are only yet 15 biosimilars approved in the US, and only five are actually commercially available, with the remainder being still blocked from the market due to patent exclusivity.  Contrast this to Europe, where 40 biosimilar products are approved.   

The cost of production for these products is not nearly at the level of generics. Take insulin, for example.  Insulin has a somewhat hybrid role in the US, as the first formulations were approved before the biologics approval pathway existed in the US, so its “biosimilars” are approved under what is known as the 505(b)2 pathway in the US, as opposed to the 351(k) pathway used by products whose innovator products are a true biologic (as determined by approval pathway). The market would seem ripe for a Lantus biosimilar, as the product has greater than $4bn in annual sales. Eli Lilly already has a biosimilar to Lantus on the US market, called Basaglar, which is annualizing greater than $600m through its first six quarters into launch.

Merck, through a collaboration with Samsung Bioepis had a tentatively approved biosimilar to Lantus from July 2017. However, a filing by Samsung Bioepis in October 2018 indicated Merck had cancelled development and commercialization contracts for the product. One analyst report cited the decision to pull out as being due to a review of the market environment and production costs of insulin biosimilars.  If a biosimilar as relatively “simple” as insulin can be difficult to manufacture at scale with attractive margins, then this certainly cannot bode well for more complex protein products to do the same. With Merck’s exit, only Mylan, in collaboration with Biocon, is developing another Lantus biosimilar. While district court litigation is ongoing, a launch for Mylan and Biocon’s product is expected in the 2020-2021 timeframe.

Similarly, Momenta recently announced it would be cutting its biosimilar efforts altogether, and simultaneously cutting half its staff while it refocuses on its non-biosimilar pipeline.

It’s a (rebate) trap

FDA Commissioner Scott Gottlieb further shed light on another major commercial obstacle for biosimilars, dubbed the rebate trap, in a March 2018 speech at the America’s Health Insurance Plans National Health Policy Conference[1]. The deep discounts offered on certain branded specialty drugs (often biologic), in the form of rebates and other payment or contractual mechanisms, in many instances can be upwards of 40% to attain preferred formulary positions from pharmacy benefit managers (PBMs) and health insurers. Often these negotiated discounts are volume-based, so the greater the utilization over competitive products, the greater the spread from the wholesale acquisition cost (WAC) to the net price to the plan, with PBMs and health insurers earning a percentage of the spread. Launched biosimilar products have generally been introduced to the market with roughly 15-20% discounts to the WAC of originator products, and thus are unable to displace the originator product. Biosimilars get stuck in a catch-22 situation, where they lack enough patient share for plans to consider moving them to a better formulary position but are hindered from getting more meaningful market share while they sit on a lower formulary tier. PBMs remain financially incentivized to limit the uptake of biosimilars to maintain the flow of rebate payments on originator products. Simply further discounting the biosimilar so that the WAC is on par with the net price of the originator is easier said than done for reasons noted earlier, namely that these drugs have turned out to be much costlier to develop and manufacturer than earlier predictions.

PBMs are attempting to move past the bad press they have received around the rebate trap and the general practice of collecting rebates. Express Scripts recently announced the launch of its Flex Formulary, which will consider authorized generics of branded drugs for inclusion on the formulary, in either a preferred or non-preferred position, and, importantly, discontinue coverage of the branded product. This could foreseeably open the door to more biosimilar adoption on this formulary.  The first products added to the Flex Formulary were Epclusa and Harvoni, two hepatitis C drugs made by Gilead Sciences. 

Humira in the hotseat

Gottlieb has gone so far as to suggest a competitive bidding scheme for biologics would be ideal[2], which is more akin to the experience in the EU. For example, Remicade sales have fallen over two-thirds in the three years since the introduction of its first biosimilar in the EU. Another closely watched drug is Humira, the world’s top-selling drug, as four biosimilars have just launched in the EU. One analyst report has said AbbVie, the maker of Humira, has won its first tender in Europe by offering an 80% discount off the price prior to the launch of biosimilars[3]. The deep discounting shows the extent to which the company is willing to go to hold onto market share.

Humira biosimilars in the US are still a pipedream, protected by a patent thicket the company has created with additional patents on formulations changes and extending life as new indications are approved. AbbVie has forged confidential legal settlements with several biosimilar makers, that will keep biosimilar copies of Humira at bay until 2023. In the meantime, AbbVie and Amgen are likely to continue to find themselves under increased scrutiny over the practice of repeated price increases for their top-selling drugs. A recent article cited nearly a 140% overall price increase for both of those drugs since January 2013[4]. Without biosimilar competition, and assuming continued price increases on par with recent history, both drug makers could see themselves in the hot seat in the court of public opinion.

[1] https://www.fda.gov/NewsEvents/Speeches/ucm599833.htm

[2] https://www.fda.gov/NewsEvents/Speeches/ucm613452.htm

[3] https://www.statnews.com/pharmalot/2018/11/01/abbvie-humira-biosimilars-prices/

[4] https://www.statnews.com/2018/11/14/humira-abbvie-amgen-enbrel-price-hikes-biosimilars/

In the case of another historic first in the world of healthcare, this summer saw the first US and EU regulatory approvals for an RNA interference (RNAi) therapeutic, in the form of Alnylam’s Onpattro (patisiran). The drug, given as an infusion, was approved to treat polyneuropathy of hereditary transthyretin-mediated amyloidosis (hATTR) in adult patients. A rare and often fatal disease, hAATR is characterized by the buildup of abnormal amyloid protein in peripheral nerves, the heart, and other organs. Up until this approval, the American College of Cardiology’s recommendations for treatment were merely supportive care and clinical trials, pointing to the level of unmet need for this patient population[1].

Still, it has been anything but smooth sailing for Onpattro, nor for the field of RNA-based medicines.  Like gene therapy, it has seen an earlier wave of enthusiasm come crashing down in the wake of technical challenges and safety issues. While Onpattro will not be a panacea to all the known issues, it is important to note where and how it has succeeded where others have failed and to understand what it means for other candidates in the pipeline. 

How it works

To understand how RNAi works, transport yourself to your high school biology class where you learned about the “central dogma” theory that explains the relationship between DNA, RNA and proteins – that DNA in the nucleus forms genes which are the template for transcription to RNA, which in turn is the template for translation to proteins. Those proteins then serve as a central player in most biological systems. In individuals without hAATR, the liver produces the TTR protein, used to transport vitamin A and a thyroid-binding protein in the body. Patients with hATTR have a mutation in the gene for TTR, which leads to the creation of a defective and unstable TTR protein. Onpattro binds to the mutated mRNA sequence that causes the defective protein, and cuts out that sequence, effectively halting the production of the misfolded and defective protein[2]. Of note, this approach targets the upstream cause of the defect, and not simply the downstream symptoms that are the manifestation of the defect.

Location, location, location

RNAi does not simply work by targeting the mutated mRNA of interest – it must additionally be specifically targeted to the tissue(s) of interest, which is the tougher nut to crack. The liver, the target organ of interest in hATTR, happens to be better suited for targeted drug delivery given its unique vasculature – notably that it has both the hepatic artery and hepatic vein, allowing it to effectively double dip on whatever has been infused into the blood stream, compared to other organs. It will be more challenging to deliver RNAi to other organs, which thus far has been a challenge to do at therapeutically appropriate levels. 

Onpattro is encased in a lipid nanoparticle to help carry the drug to the liver and enter the cell.  The lipid nanoparticle disrupts the cell membrane to allow Onpattro in to the cell, and thus can trigger an immune response, so patients must prophylactically take a steroid, acetaminophen, and antihistamines. There is thus also the need to find delivery vehicles that are slightly more sophisticated to obviate any immune responses.

How did we get here?

Pharma entered the RNAi fray in the early 2000s with some big dollar risk-taking in a hot field that would go on to earn a Nobel prize for its scientific discoverers, only to encounter future obstacles. Novartis and Roche paid their way into accessing Alnylam’s platform in 2005 and 2007, respectively. Merck paid $1.1bn to acquire Sirna Therapeutics, Alnylam’s main competitor at the time. Prior to that transaction, Sirna had a research deal with GlaxoSmithKline as well.  Early attempts in ophthalmology and other liver targeted attempts encountered issues with RNA degrading before reaching its target, and thus required extremely high dosing to show any efficacy. Novartis and Roche parted ways with Alnylam in 2010, and Merck eventually sold Sirna IP to Alnylam in early 2014 at a massive discount to its earlier purchase. In the interim, Alnylam soldiered on with some restructuring and a deal with Sanofi dating back to 2012 that helped keep it afloat[3].

Looking ahead

Alnylam has said the list price for one year of treatment in the US is $450,000 and has at least one value based agreement, with Harvard Pilgrim Health Care.  It plans to officially launch Onpattro later this year and will face competition in the US from Ionis and Akcea’s also newly approved Tegsedi (inotersen), and possibly also Pfizer’s Vyndaqel (tafamidis) before the end of this year.

Alynlam and others are pursuing experimental RNAi treatments in other indications, including acute hepatic porphyrias, cardiovascular disease, hepatitis B, alpha-1 antitrypsin deficiency, primary hyperoxaluria, delayed graft function, and alcohol use disorder[4]. Notably, several of these are also liver-targeted indications with various delivery methods to help with targeting.

[1]   http://blogs.sciencemag.org/pipeline/archives/2017/09/20/alnylam-breaks-through

[2]   https://www.fda.gov/Drugs/NewsEvents/ucm615953.htm

[3]   http://cienp.org.br/wp-content/uploads/2018/03/Alnylam-prepares-to-land-first-RNAi-drug-approval.pdf

[4]   https://www.wsj.com/articles/fda-approves-first-drug-based-on-gene-silencing-research-1533923359

Objectives

To quantify the approval, denial, and withdrawal rates and identify any predictors of success or failure for all new technology add-on payment (NTAP) applications from FY 2003 to FY 2018 in the United States.

Methods

The Center for Medicare and Medicaid (CMS) releases inpatient payment methodology rulemaking annually in the Federal Register, including details of NTAP submissions. The proposed and final rulemaking documents were analyzed to quantify the approval, denial, and withdrawal rates of all applications and determine primary reasons for denial or withdrawal from FY 2003 to FY 2018. Raw data were coded to further examine any predictors of application success such as product type, therapeutic category, manufacturer type, reapplication status, and proposed rule determination.

Results

There were 95 NTAP applications submitted over the last 15 fiscal years. Approximately 30%, 25%, and 45% of applications were approved, withdrawn prior to final rule, or denied, respectively. Inability to meet the “newness criteria” developed by CMS was the primary reason for denied and withdrawn applications. Product type, therapeutic category, and reapplication status have minor to significant impact on the approval rate of an application. However, manufacturer type and proposed rule determination have little to no impact on application outcome.

Conclusions

While there are a few factors that may positively influence the outcome of a NTAP application, the approval rates for the program are low overall. Without additional reimbursement from the NTAP program, inpatient hospitals may be deterred from adopting innovative therapies because of financial burdens. CMS and manufacturers should strive to find a better consensus for a framework that adequately incentivizes the utilization of new technologies for Medicare beneficiaries.

As of January 1^st of this year, the rate-setting scheme for nation-wide payment rates from the Centers for Medicare & Medicaid Services (CMS) has been rejiggered in an attempt at allowing CMS to benefit from the type of rate contracting that private payers have long been able to do. While CMS has historically set rates for laboratory tests, with private payers then typically using that price as a starting point for negotiation, the new system, as established by the Protecting Access to Medicare Act of 2014 (PAMA), flips the roles of the two, and instead uses the private-payer rates to set Medicare pricing. PAMA is one attempt to cut CMS in on the action and allow it to benefit from free-market based negotiations that private payers do as a natural course of business. 

Despite the four-year lead time from the passage of PAMA to implementation of the rule (which was even one year later than it was supposed to be, by statute), there were still surprises once the final rates were released, and perhaps more importantly, leaves questions about what the new status quo could and/or should be with respect to the elaborate choreography of rate setting, negotiating, and contracting. 

Under PAMA, labs are required to report to CMS the private payer rates they pay for particular tests. CMS then determines a weighted median amount by test in order to set the new prices. This is not a one-time submission – labs will be required to continue submitting payment data in future years. However, rates cannot be reduced by more than 10% each year for the first few years, and no more than a 15% reduction in the following few years, as a means of setting a floor on pricing expectations to protect labs. CMS has by and large been excluded from negotiating with manufacturers of all kinds on cost, and instead has had to accept list prices across the board.

One of the biggest criticisms around the implementation of PAMA is the criteria used to determine exactly which labs are meant to submit their data to CMS. One estimate has only 34% of the lab market represented, with two major labs representing 80% of the volume used to calculate the rates[1]. Labs are required to report their data if over 50% of their revenues are from Medicare, though, with a bit of handwaving, manages to leave hospital-based labs out of those required to report. Once the hospital lab costs are taken altogether with all other costs of the hospital, including lucrative inpatient stays for privately insured patients, they end up falling under that 50% threshold. It has been suspected hospital labs have been paid somewhat higher than commercial labs (the Quest Diagnostics and LabCorp’s of the world), so leaving hospital labs out of the mix has a downward effect on the median price calculation.

It is also worth noting PAMA regulations do come with some teeth: steep monetary fines can be levied against any lab that is required to report but does not. Though because criticism has more been around erroneously leaving some labs out rather than incorrectly bringing too many labs into the fold, it is not likely these types of fines will often come into play. There is a minimum expenditure threshold for labs of $12,500 of Medicare revenues from the clinical lab fee schedule (CLFS) as well, and so probably correctly does not include those outlier labs with low overall total Medicare payment dollars. The CLFS is the nationally set standard for what Medicare will pay for outpatient clinical lab services.

All of these changes work out to pretty significant dollars – CMS pays about $7bn per year for clinical lab tests. In fiscal year 2018, CMS expects savings close to $400m dollars, and up to $1.7bn and $3.9bn in savings over the next 5 and 10 years, respectively[2]. The top 20 codes with the greatest reductions in payment rates all saw cuts greater than 59%, with one code payment rate even cut 99.99%.

Still, some tests saw significant increases in their payment rates. The top 20 largest increases for certain codes range from a 150% increase all the way up to a 750% increase (looking at you, “urine screen for bacteria”!)[3].

There are still some implications to PAMA that have fully yet to be felt. Notably, the Medicare CLFS rates were often seen as the starting point for contracting negotiations between labs and payers, and likely arriving at a lower rate than the CLFS fee schedule for private payers – i.e., payment rates defined broadly as a 20% haircut from CLFS rates. Large private payers like the Blue Cross Blue Shield plans have been known to recalibrate their negotiated rates every 3-5 years off the CLFS.  But if private payers are looking for a discounted rate off the CLFS fee schedule, and then labs subsequently submit those rates to CMS for the PAMA recalibration of CLFS rates, it quickly becomes a race to the bottom in terms of dollars flowing to labs.

The American Clinical Laboratory Association (ACLA), a large trade group representing labs, has even gone so far to file a lawsuit challenging the PAMA reimbursement rates[4]. As of the time of writing, this suit is still ongoing and has yet to be resolved or a judgement issued. The intricate choreography of negotiating and rate setting between private payers, labs, and CMS will also clearly need to be re-thought. This early on, nothing is probably yet off the table, and does open some opportunity for new and creative schemes to come into play in an arena where we and others will continue to watch.

[1] https://www.xifin.com/news/press-releases/2017/xifin-highlights-flaws-cms-2018-draft-pama-pricing

[2] https://www.genomeweb.com/molecular-diagnostics/cms-holding-market-based-payment-labs-until-2018-tweaks-criteria-labs

[3] https://www.xifin.com/resources/blog/201803/understanding-pama-changes-and-managing-its-effects

[4] http://www.acla.com/cms-ignored-congressional-intent-in-implementing-new-clinical-lab-payment-system-under-pama-acla-charges-in-suit/

The FDA is on track for another record setting year of new drug approvals.  Below we recap some significant approvals from the past year, spanning therapeutics, medical devices, and digital tools.

2017 has been a landmark year that has seen the approval of two new immunotherapies known as chimeric antigen receptor T-cell (CAR-T) therapies, which are gene edited immune cells designed to recognize and attack certain cancers delivered in a one-time infusion. Much has been said about these products, and more still will be said as it is expected that these products get approvals in new indications, as well as the first-time approvals of other CAR-T products. Given the sophisticated science and novelty behind CAR-T, they are often mentioned in the same breath as gene therapy products. In some instances this may be merited, while in others it may sell CAR-T short relative to the slate of already approved gene therapies. Here, we will highlight key aspects of CAR-T, some lingering questions following these initial approvals, and points of differentiation from other gene therapy products.

Kymriah was the first CAR-T product approved in the US this year for certain acute lymphoblastic leukemias, and Yescarta was subsequently approved for certain large B-cell lymphomas. In both cases, eligible patients have already failed multiple lines of chemotherapy and even failed bone marrow transplantations (BMT) for their blood cancers. CAR-T has been shown to take patients who were otherwise nearly on death’s doorstep and given some what appear to be fairly durable remissions. The upper bound of this range is still unknown simply because trial patients continue to be followed out in real time. In the case of Kymriah, roughly half of patients in clinical trials had a previous BMT, while 8% had two or more BMTs. With standard of care, these patients would otherwise have a median survival of roughly four to seven months, versus some patients out over 14 months post CAR-T treatment and still being followed. These late line ALL patients have had a near doubling of complete responses (disease remission) of roughly 83% versus roughly 20-40% depending on standard of care chemotherapy. Other patients, while they may initially have a good response to CAR-T but subsequently relapse, have gone on to a repeat CAR-T treatment in clinical trials, or possibly BMT. However, the interim CAR-T treatment is thought to improve post-BMT prognosis for some of these patients.

Institutional Complexity

The technical skillset required to administer these therapies limits the universe of locations to a select number of specialized cancer treatment centers, typically the centers of excellence that have historically performed the more difficult BMTs. Most of these centers, who also participated in the registrational trials, issued press releases in the hours and days following the approvals of these products noting their involvement in clinical trials and plans to offer commercially, as a testament to the medical community’s excitement for them. There is also a competitive advantage for these types of centers to be proficient in the delivery of CAR-T, as more products and indications are expected to follow, as mentioned above. It will likely only be incrementally more difficult to offer additional CAR-T options as compared to the initial legwork of preparing to offer CAR-T.  This complexity is due to several factors: patients are already very sick before they arrive for treatment, and that a multi-specialty team needs to be assembled to deal with any side effects that may arise. The timing and severity of these side effects, most notably cytokine release syndrome (CRS), is somewhat variable, occurring anywhere from days to weeks post-infusion. 

Though the administration of CAR-T is a simple infusion, many centers are choosing to administer in the inpatient setting rather than outpatient, as then there is some internal control over the availability of medical or neurological intensive care unit beds if and when CRS occurs. CRS is a result of the CAR-T cells destroying the patient’s cancer burden, with that destruction causing a release of cytokines. The release of cytokines in general does not produce such a severe side effect, but rather the volume of cytokines the body needs to deal with as a result of the CAR-T doing its job so well. Some patients need to be placed into a medically induced coma depending on the severity of CRS. While a difficult side effect, it is somewhat of a catch-22 as it is a sign that the CAR-T is working appropriately. 

There is an expectation that over time, the administration will migrate outpatient as we gain a better understanding of pre-treatment parameters that may influence the likelihood of severe CRS, and patients can be triaged for in or outpatient administration as appropriate.

Other Logistical Concerns

Novartis, the maker of Kymriah, announced a price of $475,000 upon approval, leading many to speculate that this was effectively the price of a cure for any CAR-T product, in any indication. However, Novartis also said it plans to pursue indication-based pricing for Kymriah, such that future approvals for the drug in other indications, with larger or smaller patient populations, could come with lower or higher prices, accordingly. Further, the Swiss pharmaceutical  company said it has a collaboration in place with the Centers for Medicare and Medicaid Services (CMS) where CMS would only have to pay for Kymriah in patients who responded by the end of the first month after the one-time treatment.

As of yet, there are scant details on the CMS arrangement which some have criticized to be more optics than substance. There are several issues at play: that the one month outcomes point is less relevant than a three month clinical endpoint; concerns that what amounts to giving Kymriah away for free to patients who do not respond at one month would trigger anti-kickback concerns related to the Medicaid best price rule (whereby state Medicaid plans are supposed to have the least expensive drug prices compared to other government and commercial payers – so if a patient gets Kymriah for free because he/she did not respond, Medicaid patients are no longer getting the best price); and logistics of how to navigate indication-based pricing in the current infrastructure, whereby drugs are typically given a single billing code, applicable to all indications. Currently, both products are generally relegated to using unclassified billing codes, and the normal cycle and processes for new billing and procedure codes can take several years.

Subsequent press reports^[1] have noted that Novartis has said it will be able to navigate these issues under the auspices of CMS’ Center for Medicare and Medicaid Innovation (CMMI). The CAR-T specific demonstration project under CMMI will supposedly provide for subsequent distinct billing codes that are indication specific once follow-on indications are approved.  Still, details of any such arrangement have not yet been released by CMS. The small patient population for the currently approved indication, less than 600 incident cases per year, should obviate the best-price concerns given that any unique payer is unlikely to see multiple claims in the same quarter.

Some two months after Kymriah’s approval came the approval for Yescarta. Though its owner, Gilead Sciences, had paid $12 billion dollars earlier this year to acquire Kite Pharma, the original maker, it priced Yescarta at $373,000, coming in notably lower than expectations. No outcomes-based contracts have been specified for now. 

Despite the high price tags and lack of clarity on the outcomes agreement, there does seem to be some resolve from both providers and payers to push ahead, though it is early days and still slow going. A recent news article reported only 5 patients have yet been treated with Yescarta as of mid-December, citing predominantly reimbursement issues from Medicare and Medicaid as being the rate-limiting factor^[2]. Still, CAR-T treatment centers have had to assume a certain amount of financial risk just to become equipped to administer CAR-T, before even commercially treating a single patient, and there is still some willingness to take on risk with the first few patients if it means ironing out the process with different payers. 

Comparison to Gene Therapy

The early bumps for CAR-T may leave some people keen to portend a similar fate for CAR-T as compared to some of the early gene therapy approvals in Europe, though this would not do CAR-T justice. There have been two European gene therapy approvals – Glybera, manufactured by UniQure, first approved in the EU in 2012 for an ultra-rare genetic disorder called lipoprotein lipase deficiency, and Strimvelis, for a rare autoimmune deficiency, developed by GlaxoSmithKline and approved in 2016.  Neither of these products has fared well.  In fact, in October UniQure announced that it would not renew the therapy’s market authorization, and Glaxo has put Strimvelis up for sale after only a single digit number of patients were treated.

There are several factors which might determine whether or not these highly novel therapies are commercially successful.  These include price tag, number of potential patients, ability for patients to access the treatment, and the degree of unmet need the therapy addresses. In Europe, it might be easy to point to high price tags as the reason for the gene therapy failures, with list prices of $1 million and $600,000, respectively, particularly as the EU system is far less tolerant of high drug prices. However, this was countered in part by innovative approaches, such as the money back guarantee for Strimvelis if the drug lacked efficacy. But it is also clear these weren’t perfect drugs. Glybera, for instance was only tested in 27 patients and failed to demonstrate lasting effects. In contrast, the CAR-T clinical data is comparatively much more robust, and there are more than 30 treatment centers certified to administer these products at present in only the first few months post-approval.

Against that backdrop, with two US CAR-T approvals, and two European gene therapy approvals under our belts, the first gene therapy in the US was just approved – Luxturna, an ophthalmic gene therapy.

While Spark has not yet announced pricing for Luxturna, its CEO has previously said publicly that economic modeling studies would support a price tag over $1 million. An analysis done by MIT Technology Review would seem to closely corroborate that number^[3]. By plotting the incident patient populations and prices of the four approved CAR-T and gene therapy products, and knowing the incident patient population for Luxturna of fewer than 30 patients per year, it interpolated a price around $900,000, effectively coming in between Glybera and Strimvelis, but on the opposite end of the spectrum from the CAR-T products. Spark has indicated it plans to announce pricing details in January, at which point we may get better clarity on whether Luxturna’s launch will look more like that of the EU gene therapies or the US CAR-T products.

[1] https://pink.pharmaintelligence.informa.com/PS121853/CART-IndicationBased-Pricing-May-Be-Evaluated-In-Medicare-Demo

[2] https://www.bloomberg.com/news/articles/2017-12-14/cancer-patients-with-little-time-left-wait-for-gilead-s-new-drug

[3] https://www.technologyreview.com/s/609197/tracking-the-cost-of-gene-therapy/

Having just discussed some of the important approvals from 2017, we wanted to dive deeper into other therapeutic areas, and also cover new device and digital health approvals. Below, we recap other significant approvals from this year.

Pharma sales representatives (reps) are one of the most integral components to a manufacturer’s commercialization plan. They have long been the voice in determining and shaping the adoption curve of a new drug. However, the “good ol days” are in the rearview mirror for reps as there have been efforts to curb dollars and gifts that reps can shower upon physicians and their staffs, as well as both fewer and lower quality touch points with the decision makers with purchasing power and/or authority on drug choice, particularly when there are multiple options in the same therapeutic category. Here, we will try to put the role of the rep in context and provide some perspective, conceptually, on where the sales model may migrate in the future, and what issues will need to be addressed.

Companies spend significant amounts of time, energy and resources dedicated to planning and building out the sales force optimization plan. Specifically, the commercial team oversees multiple teams to plan the success of the sales rep. Activities that contribute to this success include:

• Market research to quantify the opportunity and understand the behaviors and triggers of doctors to prescribe:
  • Identify potential points of push back from doctors
  • Segmentation of doctor mindsets that can drive training of the sales reps – i.e. identifying high vs low likelihood to prescribe and pyschological drivers that sales reps can use to trigger prescription activation
• Sales training to ensure the rep is knowledgeable and help drive rep performance
• Analytic teams analyze physician productivity to ensure reps are calling on doctors that will yield the greatest return:
  • Spending time with doctors who are loyalists to the therapeutic class and/or may have affinity to a certain type of therapy within a therapeutic area
  • Identify high density geographic areas that may require heavy sales force deployment
• Sales leadership teams develop:
  • Incentive compensation plans (performance-based plans above base salaries) to further drive excellence
  • Determine call planning strategies (who to target, and at what frequency)
  • Ensure operational effectiveness and execution is in line with overall strategy
• Managed care teams drive appropriate reimbursement coverage and facilitate sales training around reimbursement-centric adoption strategies:
  • How to combat doctors wary of reimbursement issues
  • Selling the value of the drug in relation to reimbursement coverage
  • Help the doctor navigate the prescription journey from their office to the pharmacy counter for their patients

In the past, the sales rep had many tools at their disposal to engage and sell their products to physicians:

• Dinner meetings
• Grand Rounds (sponsored lecture series in the hospital setting)
• Lunch and learns
• Golf outings
• Literature leave behinds
• Sampling

The rep had the ability to access the majority of not just physicians, but importantly those with autonomy and decision-making authority, and the nature of the detail (industry lingo for reps providing doctors with the details of a drug, including approved scientific information, benefits, adverse events, etc) evolved around the clinical efficacy and utility of the product. Reps were trained on the mechanism of action of their product as well as competitors, all the key clinical data in the therapeutic area, and how to convey their product’s differentiation. This last part is significant as training also focused on breaking down clinical studies, with successful reps well-trained in how to handle any objections raised by doctors around use of their product (ideally identified ahead of time by the manufacturer’s market research), and able to rattle off why one product may have a better p-value (measure of statistical significance used in clinical trials) or better efficacy at symptom resolution, among other product features.

Simplified schematic of common commercial team structure

Level and types of rep-doctor interaction have changed

Reps historically had an environment that was for the most part without many restrictions, which is increasingly no longer the case. The ability of the sales rep to develop a relationship with doctors they called upon was easy and simple due to the tools at their disposal. However, over the past two decades, there have been considerable changes in both the ability to access and the types of activities the reps can use to engage with doctors. These changes have come about in an effort to clamp down on what has been viewed as inappropriate influence over docs by industry reps.

Any payments made to physicians by drug and device companies must be reported under the Physician Payment Sunshine Act, signed into law in 2010 along with the Affordable Care Act, and the data is made public by the Centers for Medicare and Medicaid. While these payments can be as seemingly benign as research grants, it can also include things like travel and accommodations around medical conferences and scientific or advisory board meetings, food and beverage, and consulting fees. Details on the types of payments are included in the public data set. Now the public can see if physicians are receiving what might be perceived as healthy sums of money, which whether innocently or not, can be perceived as doctors being “in the pocket” of big pharma, and a potential PR concern for their institutions.

Physician access has been on the decline due to consolidation of independent physicians into heath systems

Most academic medical centers do not allow reps to call on their physicians on site, though there may still be some level of doctor-rep interaction if the doctor maintains an off-campus practice location. One industry report from ZS Associates found that 56% of physicians in the US have either restricted or severely restricted who can visit them, with some specialties even more restrictive. Integrated delivery networks (IDNs), systems where the provider network is also the payer, and group practices, are also increasingly locking out reps. Further, physicians’ prescribing autonomy in IDNs and group practices is not the same as in an independent practice, with decisions around drug purchase and utilization instead made by higher level management.

This trend is likely to continue as cost pressures have made it more and more difficult for independent physician practices to remain financially viable. Independent physician practices have been on the decline since 2000, according to a 2016 analysis by inVentiv Health Consulting. While 57% of physicians were independent in 2000, this decreased to 37% in 2013 and was expected to continue sliding to 33% by the end of 2016.

The sales call has migrated from a pure clinical sell to addressing reimbursement

When reps are still able to get interactions with doctors, the nature of the sales call has shifted from a clinical sell to putting the rep more in the role of a reimbursement navigator. Price never came up as a major topic of the sales detail, whereas now it may be the primary focus of the conversation, as it is often easier for a doctor to simply pick the drug that is cheapest for their patient – “is it covered by insurance and how much will the patient need to pay?” The use of co-pay cards, which reps can drop at the physician office to reduce financial burden for patients (discussed in a past issue of this newsletter), was largely unheard of until more recent years. Still, co-pay cards are not a panacea, and doctors remain skeptical of the overall utility of these cards. Patients often encounter issues at the pharmacy when they try to use these cards, and may ultimately abandon any attempts to get the drug they were prescribed in the first place. These co-pay cards are off-limits to Medicare patients by law (but fair game for those with private insurance), and so might only benefit a fraction of the doctor’s patients.

Put this all together, and reps now have less time to discuss more complicated topics like reimbursement during their detail. The question now to ponder is how will the rep model evolve with the environmental dynamics at play. Specialty reps in the device sector that are required to train docs in the surgical area will continue their business as usual, but there will be a need to evolve the model overall in many sectors.

There is probably not a one size fits all strategy, and that current strategies in the therapeutics sector need to be adjusted to address some of the key challenges outlined below.

• The model needs to pivot from a single point of contact between rep and doctor to one where the sales team has a multi-touch point strategy to various customers in the ecosystem.
  • Customer will be cross functional, including buyers and influencers, not just the physician:
    • Administrators
    • Business/purchasing mangers
    • Chief medical officers
    • CFOs
• The ability to both articulate what constitutes value for patients, doctors, and their institutions, and to create a more holistic approach that drives value throughout all key customers will inform overarching strategy.
  • What services, tools, and business offerings can the commercial team offer to doctors and institutions to drive pull through and adoption of their products?
  • How to generate a more ambitious patient-centric approach?
• Realignment of commercial organizations and build out of the talent pool in key functionalities and responsibilities will take on added significance.
  • Need to create cross-functional business operational teams vs. more independent/siloed groups
    • Re-calibration of the managed markets and sales force groups to more of an account management team that can foster relationships with all key stake holders
    • Ability to trouble shoot and bring customized approaches to physician groups
  • More sophisticated sales rep that can work with a cross functional team and have stronger business acumen:
    • Upgrade to drive toward more sophisticated approach to independent docs
    • Move away from reliance on business-to-business like model that some pharma companies have started to adopt (while acknowledging there are some specific areas where this may still have utility)

Hypothetical schematic for business management-centric approach to commercial organization

Where are we in the continuum with the shift to a more holistic approach? Our observation is that manufacturers acknowledge and discuss that we are at a tipping point, with some having piloted various more integrated approaches to drive behavioral change. Some of these pilot approaches have yielded positive returns but we have not yet seen a full migration over to a new model. What we do believe, however, is that the environmental factors at play will eventually force a significant change for all pharma.