costs and benefits of several drugs, including the new wave of hepatitis C treatments, two competing anti-cholesterol drugs that were approved last year, and a heart failure medicine that could be a big test case for creative pricing.
Philanthropists Laura and John Arnold of Houston have put more than $14 million into ICER and other groups doing similar work. ICER said last year the Arnold Foundation money will lead to reports on 15 to 20 drugs in the first two years. Coming soon are evaluations of obeticholic acid, an experimental liver disease treatment from Intercept Pharmaceuticals (NASDAQ: [[ticker:ICPT]]), and of eight treatments for multiple myeloma.
There won’t be a single U.S. authority handing down value assessments, like the U.K. government’s powerful National Institute for Health and Care Excellence. But different groups will likely proliferate and put pressure on the drug companies. “Their existence directly affects the pricing of biopharmaceutical products,” write the authors of a recent drug pricing report from EY—formerly known as Ernst & Young. “That’s because these different assessments provide credible pricing alternatives that manufacturers must address head on when trying to justify a product’s value.”
To counter that pressure, you’ll hear some drug makers talk about “transparency” as they begin to lift the veil on their internal calculations of their products’ worth. Alnylam Pharmaceuticals (NASDAQ: [[ticker:ALNY]]) CEO John Maraganore told Xconomy in January that as his company progresses its most advanced drug, patisiran, through the clinic he will talk publicly about pricing strategy. “This is not something we will hold back on,” he said.
In addition to talking openly about pricing, some companies are thinking creatively about the problem as well. Take Novartis, for one. The heart failure drug that ICER evaluated is a combination of the agents sacubitril and valsartan, marketed as Entresto by Novartis. At launch last year, the Swiss drug giant pledged to tie reimbursement for the drug to the savings of keeping people out of hospitals—one of the first attempts to use a “pay for performance” scheme for a major pharmaceutical product. Novartis knew it would be tough to sign up insurers.
But the company in late January announced its first two pay-for-performance deals, later revealed to be with Cigna and Aetna, which start with a “fairly modest” rebate to the list price that goes up or down based on the reductions in hospitalizations. (The rebate, as most deals between drug makers and insurers, is confidential. But those inclined to speculate might start with ICER’s final report on Entresto in December, in which it recommended that the list price of $4,560 a year should be cut 9 percent, to $4,168, “to prevent an excessive cost burden on the health care system.”)
Amgen (NASDAQ: [[ticker:AMGN]]) of Thousand Oaks, CA, also struck a recent pay-for-performance deal with the health system Harvard Pilgrim after the launch of evolocumab (Repatha), which blocks a protein called PCSK9 and helps patients flush excess cholesterol out of their blood streams. Evolocumab is going head to head with alirocumab (Praluent) from Sanofi (NYSE: [[ticker:SNY]]) and Regeneron Pharmaceuticals (NASDAQ: [[ticker:REGN]]). Both launched last year with list prices around $14,000 a year. They’ve only been approved for a relatively small group of people who can’t lower their cholesterol enough with statins and diet. Insurers will only reimburse for that use, and sales so far have been slow.
Everyone, including doctors wondering how aggressively to prescribe the PCSK9 drugs, is waiting for massive “outcomes” studies with tens of thousands of patients to show not just that they lower cholesterol but that they actually make people healthier and save lives.
That makes the PCSK9 drugs a fascinating test case. With products that purport to be big advances, drug makers might not be able to charge the prices they want until they show longer-term “real world” outcomes—not just positive data in smaller clinical trials.
Pfizer, which is also developing a PCSK9 inhibitor, Amgen, and Sanofi have the wherewithal to run huge trials. But what about small biotechs testing medicine in small patient populations? Some of the biggest pricing questions concern cutting-edge gene therapies and other treatments that have scant clinical track record. Many of them are held out with the promise of a long-lasting treatment—such as many of the hemophilia treatments currently in development.
The first test could come next year, when Philadelphia’s Spark Therapeutics (NASDAQ: [[ticker:ONCE]]) hopes to gain approval for a gene therapy to cure rare forms of genetic blindness. (Dutch firm UniQure (NASDAQ: [[ticker:QURE]]) has had its gene therapy for an ultra-rare liver disease approved in Germany with a reported price of more than $1 million, but it will not ask for approval in the U.S.)
High six figures… nine figures… Could once-unthinkable prices for once-unimaginable cures work if companies prove that insurers would save far more on the hospitalizations, surgeries, and other health costs avoided?
At a regenerative medicine meeting in San Diego last October, a panel of payers discussed new approaches to drug pricing. The prospect of paying for cures brought up a fascinating exchange. The moderator Arturo Araya is in charge of the cell and gene therapy business unit at Novartis, and he asked the panelists what will happen when companies present insurers with short term data, gleaned from a few years of clinical testing, and ask them to pay high prices that reflect long term value—that is, pay for a cure. “What will you need to see?” Araya asked.
John Fox, the VP of medical affairs at Priority Health, which has 640,000 members and is based in Grand Rapids, MI, replied with another question. “What if the treatment fails? Am I on the hook for another one? If your therapy doesn’t last as long as you thought it would, what’s your skin in the game?”
Noting the complicated potential for massive costs and transformative outcomes, panelist Michael White, the director of clinical pharmacy services at Blue Cross Blue Shield of Tennessee, called gene therapy the “dark cloud with the silver lining.”
There are other obstacles. Americans tend to bounce from insurer to insurer, what policy analysts call “churn.” It’s a big problem. Even if a drug proves to be a cure, the insurer paying
