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May 7, 2014

Big Biopharma, Payers Split on Drug Costs, Trial Data

  • Big biopharma and payers are sharply at odds over the priority industry should give to cutting drug costs, with payers increasingly wary of the industry and its data, a report released today by EY reveals.

    To regain the trust of payers, mature biopharmas will need to change how they engage with payers, by moving beyond simple, drug-by-drug negotiations on access and price to developing more strategic longer-term relationships that address payers’ biggest challenges without sacrificing industry needs, EY concluded in the latest edition of its annual Progressions report series, Progressions: Navigating the payer landscape.

    Not surprisingly, the widest gap between big biopharma and payers centers around drug costs: 88% of payers strongly or somewhat agreed that "drug prices are a major driver of health care cost increases,” compared with just 42% of industry respondents. Industry says the gap reflects a lack of trust by payers and the public compared to a generation ago; Merck & Co. was Fortune’s most admired company from 1987–1993.

    “The lack of trust hurts them [industry] a lot in discussions with all the stakeholders, and it prevents them from doing, sometimes, the right thing,” Patrick Flochel, EY's global pharmaceutical leader, told GEN. “They need to talk with payers and governments about what it is they need to do to restore that trust, without abandoning everything. And then, six-figure prices might become defensible, because there’ll be more clarity. [Stakeholders] will say there’s a good reason why it costs $100,000 rather than all sorts of things that they say now. Trust needs to be restored.”

    Payers and some politicians have chafed as companies have defended six-figure prices for some of the newest drugs. In March, three top Democrats in the Republican-majority House of Representatives complained publicly about Gilead Sciences’ chronic Hepatitis C virus (HCV) treatment Sovaldi (sofosbuvir), citing the company’s charging $84,000 per 12-week treatment—a cost that could double when Sovaldi is combined with other drugs. The Democrats requested Gilead Sciences CEO John C. Martin, Ph.D., give them “a briefing” on the pricing of Sovaldi.

    Gilead has instead defended Sovaldi’s cost by noting it is lower than the cost of complications associated with hepatitis C treatment, such as liver damage or liver failure. However, Germany’s drug-value advisory agency, the German Institute for Quality and Efficiency in Health Care (IQWiG), said May 2 it could not quantify Sovaldi’s benefit compared with peginterferon alfa and ribavirin in treating HCV patients with genotype 2, and had no data on the benefit in HCV patients with genotypes 1 and 3 to 6. IQWiG’s recommendation goes to the Federal Joint Committee, whose ruling on Sovaldi’s benefit will precede talks between Gilead and officials on drug pricing.

    Progressions presents results from a survey of 30 U.S. payers and 30 European payers in which they detailed their current and future needs and preferences. Also surveyed by EY were 18 global pharmaceutical companies, which were asked how well they understood payers' needs and attitudes.

    According to the report, payers are interested in reimbursement solutions that look across disease franchises, span the cycle of care, and are unbiased between the products of different manufacturers.

    “There’s going to be a shift in high-cost diseases toward treatment rather than medication itself. That’s a huge change for the industry,” Flochel said. “There’s clearly a movement toward including more than just a pill in the reimbursement scheme, whether it’s looking at it as part of a combination treatment for a disease, or including patient behavior aspects, or including other devices that help improve the outcome by helping the patient manage their illness better.”

  • Comparative vs. Placebo Data

    Another difference between big biopharma and payers is on the types of data each views as most relevant. Payers told EY they increasingly want comparative trial data that compares drug candidates to existing treatments or standard-of-care, while industry insisted the data it uses most for demonstrating value comes from trials vs. placebo.

    Comparative data, when measured at all, has usually come during later clinical phases. This has started to change, especially in Europe, where the U.K. like Germany has a regulatory body that bases reimbursement decisions for new drugs on comparisons to existing products. Late last month, the U.K. National Institute for Health and Care Excellence (NICE) issued draft guidance rejecting Roche’s breast cancer drug Kadcyla (trastuzumab emtansine) because its benefits did not in its view outweigh its per-patient cost of £90,831 (about $154,000) per course of treatment.

    “If companies have not included that in earlier stages of clinical trials, it means they need to do more trials to demonstrate the value compared to a comparator. That’s why we believe that it will come earlier, so that they don’t waste money and time on those trials,” Flochel said.

    Flochel said that payers and government will play equally key roles in bringing more transparency to healthcare, for different reasons. Transparency will likely benefit patients and payers by letting them contain costs by comparing among healthcare providers.

    But the extra transparency will raise issues for biopharmas, Flochel added, since they too will be challenged to provide more cost data while seeking to protect their commercial interests. Governments and payers, in turn, will scrutinize that data to make reimbursement decisions based on cost plus a margin that may be smaller than what companies seek.

    “We could even imagine that in certain countries or certain categories of drugs, we would move toward a system that is almost like research or defense contracts,” Flochel said. U.S. Navy Naval Air Systems Command, for example, allows both fixed-price and costs-plus-fee contracts with fees set at 6% (architectural and engineering), 10% (production and services) or 15% (R&D).

    According to Progressions, 78% of payers agreed that “boosting drug adherence is a critical component of lowering health care costs” and 57% agreed that “pharmaceutical companies have data that is vital for measuring and improving outcomes." Those findings offer hope for finding common ground with big biopharma, Flochel said. But fewer than half of payers (43%) agreed that pharma data was sufficiently credible for measuring and improving outcomes.

    “Everybody loses with them not being part of enough initiatives alongside government and other private and public entities. We know that healthcare, to become smarter and more sustainable and make less mistakes, needs a collaborative environment,” Flochel said. “It’s very difficult to collaborate when people don’t trust each other.”


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