The Galien Forum USA 2019

How will we be paying for medicine 10 years from now?

Paying for prescription drugs is not a new issue. Only gradually have these been included as a covered benefit under subsidized social insurance programs – Medicare did not add outpatient drugs as an entitlement until 2006.  Combine this with the fact that most commercial insurance programs require an out-of-pocket payment at the pharmacy counter and it is no surprise that spending on medicines figures prominently in discussions on the cost and affordability of health care overall.   This is true even though prescription medicines on average account for a relatively small share, around 15%, of national health spend in the 36 OECD industrialized nations.

Two trends ensure that the visibility and impact of the question posed to today’s CEO panel will continue to strengthen.  The first is the explosion of scientific progress in the lab, led by cell and gene-based therapies that offer the hope of a single treatment to prevent or cure a wide range of diseases. Four such products have been introduced to the market in the last two years, at list prices that approach $1 million or more. The Alliance for Regenerative Medicine states that over 1,000 clinical trials are underway involving gene- or cell-based therapies — 92 are already in Phase III – and the FDA expects to be approving 10 to 20 such products yearly by 2025.

The second is a global demographic shift toward an aging society. Over the next eight years, the population of the US over age 65 will increase by nearly 20 million, amounting to more than one fifth of the total.  According to the federal Centers for Medicare & Medicaid Services (CMS), national  health expenditures are slated to double by 2027, to $6 trillion or 19.4%  of GDP, while spending on medicine is estimated to rise by an average 6.1% annually, a rate that is about 25% higher than present due to higher use anticipated from new drugs and greater attention of insurers to managing the growing incidence of chronic diseases like diabetes.

Drug makers’ response to these unstoppable forces is hampered by the persistent difficulties in maintaining R&D productivity as development costs for these novel treatments continue to grow.  According to the Tufts Center for the Study of Drug Development, it now requires on average $2.6 billion, inclusive of investment opportunity cost, to bring a novel compound forward to market approval. Seven out of eight drugs that enter clinical testing will fail at some stage due to trial complexity, longer trial stages, and the expectations of regulators and payers for better evidence demonstrating safety, effectiveness and also “value” – a marker that is often poorly defined.

Current arrangements with payers for high-price drugs tend to focus on intensive utilization management and pilot programs conducted through in-house centers of excellence.  Nevertheless, there are signs that some biopharma companies are moving beyond the “pay as you go” model tailored to an era where drugs were paid for up front in ways that don’t account for a therapy’s long-term outcome in patients. New strategies are being introduced that rely on outcomes contracts tied to short and long-term performance measures spread over multiple years – the “annuity” concept. The key element is a risk-sharing guarantee allowing payers to perform a therapeutic durability test at several intervals, after the first 30 to 90 days post-treatment and then two to three years later, to determine if the patient’s outcome accords to initial expectations in terms of an amelioration of symptoms or cure.  If these agreed treatment outcomes measures are not met at either point, then the payer can be eligible to receive a rebate on the cost, within the limits of CMS “best price” rules.

It is important to add that such changes are unlikely to take root on their own. The ultimate success of all innovative payment approaches depends on structural reforms to the US regulatory and commercial environment that address long standing restraints on competition and remove barriers to transparency, so that the value of therapies is tied to their true price.

Finally, industry experts point to the principle of continuous improvement as another way to get a handle on the pricing and access challenges from novel medicines. An example is the impending arrival of allogeneic, off-the-shelf alternatives to the current individualized CAR-T cell therapy platform. It is anticipated these can achieve substantial savings on the highly customized manufacturing, logistics and distribution overhead now required in treating individual patients.  These new platform technologies are seen by many CROs as potentially more revolutionary than the product itself.

Whatever the future holds, it is no exaggeration to state that the traditional model of securing a patent on a molecule entirely developed in-house, winning approval on the basis of a randomized trial against placebo, after which the originator can depend on a predictable period of exclusivity with little push back from payers or competitors, is now at its end.  What health stakeholders do together in innovating new standards of pricing and access will determine whether all this bounty of new science will be truly transformative for patients.

Our two co-chairs and three CEO panelists will address Topics that include:
·   Is the US trending toward a government single-payer model of health financing along with the slow demise of private employer-based insurance?
·   Will the US adopt an indexed pricing model linked to prices of drugs in Europe and/or other industrialized countries? What impact might this have on the innovative incentive  in biopharma on both sides of the Atlantic?
·   Is the traditional practice of paying for innovation through regular large price increases on established drugs sustainable?  Does big pharma face a sustained revenue gap as the time lag in market build for new product introductions gets longer?
·   Are pharmacy benefit manager firms (PBMs) going to disappear as the middlemen in drug pricing transactions?  How strong are the pressures for increased transparency in US pricing – and is more transparency a pre-condition for financing tomorrow’s high-price therapies?