High costs of new drugs

Carin A. Uyl-de Groot, PhD

Professor of health technology assessment

iBMG/iMTA, Erasmus University Rotterdam

Uyl@bmg.eur.nl

Thanks to Maureen Rutten and Marc Koopmanschap

Content• Introduction

• Chronology of drug innovation

• The life cycle of a drug

• Pricing of new drugs

• Challenges facing several stakeholders

• Reimbursement

2

Cancer

http://www.youtube.com/watch?v=LEpTTolebqo

Examples prices of new drugs

Pompe disease: Myozyme:

- Cost: Euro 500,000

- Outcome: difficult to assess

- ICER: around 1 mln

Melanoma: Vemurafenib:

- Progression free survival: 5.3 vs 1.6 months mnt months

- Cost: 8.471 euro per monthMelanoma: Ipilimumab:

- 10-20% patients benefit

- Cost: € 84.000,- per patient

- Budget impact: €20-40 mln

5

6

System objectivesSystem objectives

Quality of care

Quality of care

Sustainability

Sustainability

EquityEquity

Policy goals in health care Policy goals in health care

Goal: Ensuring affordable and equitable access for (all) patients to effective medicinces in a sustainable manner

Policy goals, criteria and HTA aligned?

Goal Policy criterion in HTA?

Quality of care Health gain Cure Yes (QALYs)Care ???

Sustainability Budget impact Yes (cost/BI)

Equity “disease severity”(“need indicator”)

Yes, good enough?

Trade off Q vs S Cost-effectiveness Yes (ICER)

Cost-effectiveness vs drug reimbursement

• many EU countries: CE a formal reimbursement criterium,

BUT: no country (except UK) has strict & transparant threshold

(range) for acceptable cost per QALY

NL 2005-11: only 30% (=19/63) of drugs with positive 1B decisions

had pharmacoeconomic evidence!! (Franken et al 2012)

• Many exemptions: 24 orphan drugs, 7 HIV drugs

(Scotland stricter on PE evidence)

• 4 “insufficiently founded” evaluations got a positive decision

HEALTH CARE EDUCATION

ROADS

SECURITY

HOUSING

ENVIRONMENT

DEFENSE

DEVELOPMENT AIDEMPLOYMENT

INTEREST

10

Development drug expenditure (in mln), 2002-2009

Expensive drugsOther drugs

Question: Why are the prices of new drugs high?

• Development process

• Succes rate

• Uptake of innovation

• Reimbursement

11

Discovery

Exploratory Development

Full Development

Registration

Large Amounts ofCandidate Medicine

Synthesized

Project Teamand Plans

Synthesisof Compounds

EarlySafety

Studies

CandidateFormulations

Developed

ExtensiveSafety

Studies

Screening

Studies in HealthyVolunteers Phase I

Candidate Medicine Tested in3-10,000 Patients (Phase III)

Studies in 100-300Patients (Phase II)

Clinical DataAnalysis

Pfizer -- http://www.pfizer.co.uk/pfizer_uk/navigation/research_frame.htm

and Medical Devices and Technologies

Development phase: a long and winding road to registration

12

Development phaseFrom discovery to patient

Patent a

pplicati

on

1 medicinal product

Acute

toxicity

Pharmac

ology

Chronic

toxicity

Phase I

clinica

l trial

s

Phase I

IPhas

e III

Regist

ration an

d tran

spare

ncy

Price

Reimburse

ment

Pharmac

ovigila

nce

0 5 years 10 years 15 years 20 years Patent expiry

10 years of research

2 to 3 years of administrative

proceduresSource: “Recherche & Vie”, LIM (AGIM)

13

Life cycle of a drug

Time →

↑Sales

development introduction growth maturity decline

14

Ellery and Hansen, Pharmaceutical Lifecycle management, Wiley 2012

Development phase: clinical trials (phase 1 to 3) in humans

€

€€

15

Development phaseDiscovery and development of a successful drug

1514131211109876543210

YEARS

INTRODUCTION/REGISTRATION

DEVELOPMENT

BASICRESEARCH

POST-MARKETING SURVEILLANCE Phase IV

CLINICAL TEST (HUMANS) Phase I to III

PRECLINICAL TEST (ANIMALS)

SYNTHESIS, EXAMINATION &

SCREENING

1

2

2 - 5

5 - 10

3,000 – 10,000

QUANTITY OF SUBSTANCES

16

Costs of development new molecular entity (NME)

• Estimation: 1 billion euros

Cost factor:

• R&D (including failures): 17%

• Manufacturing

• Marketing and promotion: 23%

• More is spent on marketing than on R&D

17

Costs per clinical phase in percentage of total R&D, period 2000-2007

Phase Percentage of total R&D

Pre-clinical (incl. Basic research) 8%

Phase I 12%

Phase II 20%

Phase III 60%

18

Declining number of NME approved by FDA

Source: www.fda.gov

19

Introduction phaseDifferences in the uptake of innovation

20

Growth phase

• Slower rate of growth than typical industrial product

– Switching patients to other drugs may be risky

– Me-too’s or established drug classes are doing well

– Promotion limited

– Health authorities cautious about letting new drug be introduced initially to a broad population because of safety issues

– More and more biologics that target multiple smaller indications, which are introduced successively over the life of a drug

– Cost containment policies affecting supply, demand, price

21

Growth phase: International Reference Pricing (IRP) is used in some form in most European countries

IMS HEALTH Pharmaquery Sept 2012

22

OECD (2011), “Pharmaceutical expenditure”, in Health at a Glance2011: OECD Indicators, OECD Publishing.

Growth in real per capita pharmaceutical expenditure, 2000-09 (or nearest year)

23

Challenges

1. Pipeline NME drying

2. Cancer: need for more therapeutic value (not only end of life drugs)

3. Higher development costs

4. Increased regulatory requirements because of safety concerns

5. Tougher environment for pricing, reimbursement, listing

6. Increased competition

7. Earlier generic drugs

8. Poor image

24

Tougher environment for pricing, reimbursement, listing

Regulatory

QualityEfficacySafety

Pricing, Reimbursement

Comparative effectiveness in real worldCost-effectiveness (trial-based and model-based)

Purchase, listing

Budget impact analyses

25

What is our “Product”? - Product Positioning

• A molecule is not a product…..for price estimation purposes we must define its “positioning”

• “Positioning” (here) = place in the treatment regimen

Line of therapy?

Target Patients?

Prevention or treatment?

Monotherapy or combination?

Positioning variables …different implications for…..

Reference Price

Positive Differentiatio

n Value

Negative Differentiatio

n Value

Perceived Value

VR

D

Price Optimization across countries

US

France

Germany

1. Assess individual market price/demand dynamics

UK

Canada

etc

3. Implement and maintain a Global Pricing Strategy

Global floor or corridor

Launch sequence

Price targets

Cohesive Global

Strategy

2. Overlay global context and optimize

Individual Demand curves

Optimization Modeling

Cross Market Interactions

Recent turbulence, turning point in NL?

“CvZ to delist 2 expensive ultra-orphan drugs” (Pompe/Fabry, after 5 yrs conditional reimbursement)

Fueled discussion (“finally….”) =>• Ethical to stop treatment?• Ethical to value health monetarily?• Ethical to deny the scarcity of resources?• Better options to limit cost explosion?• Why are these orphan drugs so expensive?• Negotiate on prices with industry?

9/2012 CvZ, struggle-> advise “reimburse”,

but not in regular benefit package…………

Recent turbulence ultra orphans in NL

Argument contra reimbursement:

•Cost per QALY too high (up to 1 mln € per QALY)

Argument pro:

•For subgroup that benefits it is established treatment for several years (“acquired right on care”)

Lesson: maybe conditional reimbursement of these orphan drugs 5 years ago was unwise?

A proposal for ultra orphans in NL

Say: WTP/QALY for normal drugs up to 80,000 € per QALY,

Say: for ultra orphan drugs WTP 300,000 € per QALY

For sub group that really benefits say a gain of 0.75 QALY per year

Given max WTP/QALY -> max drug costs per year:

= 225,000 € (as 225,000/0.75= 300,000).

Message of reimbursement authorities to producers:

“Don’t develop drugs with annual treatment costs of more than 225,000 €, we will not even allow conditional reimbursement”.

Reimbursement (1)

Coverage with evidence NL: final reimbursement decision after 4 years, based on cost-effectiveness in daily practice and appropriate drug use (extended in 2013);

• Quite comfortable arrangement for producers: 4 years a high price (t=0-4, risk for payer);

Reimbursement (2)• Volume-price agreements (France ea)• sales < Y price P1; sales > Y lower price P2

Advantages:• less uncertainty on budget impact• industry can cover R & D costs (Price1*Volume1)

Disadvantages: • does not address value for money• negotiations not transparant

Reimbursement (3)

• Contract : reimbursement depend on treatment success (outcomes based risk sharing,

Pay for performance) • August 2012 CVZ omalizumab (severe asthma)

• Advantages:– “no cure, no pay” => value for money– application on best patient sub groups – after contract new decision possible

• Disadvantages:– transaction costs contract– clear outcome indicator crucial– cost of monitoring/registration

Equal access: dynamics in treatments multiple myeloma (IEqual access: dynamics in treatments multiple myeloma (I) )

Equal access: non small cell lung cancer patients receiving 1st line Iressa or Tarceva (II)

25% - 50%

<25%

50% - 75%

>75%

Thank you!