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Healthcare restructuring pressures drug developers

Jan 20, 2014 Tags: Biotech Pharma Drug development

The Affordable Care Act is triggering a fundamental restructuring of the drug development ecosystem, challenging the industry more profoundly than at any time in the past quarter century. Panelists at a Biotech Showcase™ plenary luncheon session highlighted a multitude of changes and challenges for drug developers that are emerging as that Act is implemented. (View the full session here.)

In providing an overview of the changes, Karen Bernstein, co-founder, chairman and editor-in-chief at BioCentury, began with patients. “Patients are well-informed. What happens when they want a particular therapeutic and can’t get it?” she asked. “How patients will react when they realize they must subsidize others and must buy policies with provisions they don’t want and don’t need, may be quite surprising.”

Payers face their own set of pressures. They must provide more coverage despite greater pricing constraints, Bernstein said. “Payers are responding by demanding evidence that drugs work, and are limiting the use of the most expensive drugs. Many are asking for comparative information—not just to placebo, but to other therapeutics” and in multiple patient subsets. Regulators, in contrast, are putting drugs on the market faster and with less data, she said.

Drug developers are largely unaware of how these changes affect them. At Avalere Health, Dan Mendelson, CEO, said, “We’re seeing development plans for a lot of early stage products that don’t anticipate how much things are changing in this environment.” Reimbursement criteria have changed, so that hospitals are reimbursed based upon such quality metrics as readmissions and length of stay. Therefore, products that demonstrate reduced stays and fewer readmissions have a competitive advantage. “Economics are becoming increasingly important to sales and marketing.”

A just-released CMS survey of the new Obamacare health exchange plans found that silver and bronze plans had “very restrictive formularies and a 50 percent co-pay for fourth-tier biologics. They are exposing patients to the full out-of-pocket costs of the drugs. That changes the information imperative and changes the way patients view drugs,” Mendelson stressed. “These benefit designs will spread to the private sector in the next few years,” he predicted.

The changing healthcare environment means that it is no longer sufficient for a drug developer to have strong data, Evonne Sepsis, managing director at ESC Advisors, pointed out. In addition, “you need to start pricing considerations very early, in parallel to development. That’s one of the biggest changes.” She advised companies to consider not only the drug, but the competitive landscape, comparative efficacy, market size, pricing, exit strategies and all the other aspects that historically are deferred until at least Phase III.

Panelists recommended engaging payers early—not to ensure reimbursement, but to understand payers’ concerns so their quality metrics may be built into the clinical trial design. “There are many places in which your incentives are aligned with those of payers. If you can show an advantage over existing clinical therapies, they’ll be interested,” Mendelson said.

That said, “Different payers want different things,” Sepsis admitted. “The standard of care varies globally, so aligning trials to payers’ concerns isn’t easy.” She advised identifying the standard of care and being willing to be compared against it. “Don’t design a trial that disallows comparison,” she stressed.

Discussions of payer engagement are rare among biotech and pharma companies, panelists agreed. “It’s not typically part of board agendas,” Dennis Purcell, senior managing director at Aisling Capital, acknowledged. Mendelson said he sat on one board for eight years without it being mentioned.

“Many companies say they’ll address those issues later or they’re somebody else’s problem,” Bernstein interjected. “They couldn’t be more wrong. Pricing pressure is here to stay and companies that fail to address these points early will get lower values. The pricing of some drugs is completely unsustainable.”

For example, Purcell pointed out, “Ten of the past 12 drugs approved for cancer cost more than USD 100,000 (for a treatment regimen).” Although those prices may not be sustainable in this emerging ecosystem, slashing prices isn’t viable for the industry, either.

Companion diagnostics are one solution. By allowing physicians to tightly target patient populations, efficacy rates are improved and companies can justify the higher prices because the drugs work.

To improve the drug development environment, in addition to working with payers, Purcell also recommended working closely with disease foundations. “Many will start venture funds within the next year or two,” he predicted, noting that Aisling is considering forming an umbrella for some of those potential funds.

Mendelson also touted the value of foundations. “They are becoming more sophisticated. The Juvenile Diabetes Foundation, for example, recently conducted a head-to-head trial of glucose modeling systems and invited manufacturers to participate.” The result was an independent comparison of products that managed care providers and payers will consider when making purchasing or reimbursement decisions.

“Embrace head-to-head comparisons, and participate in them earlier,” Bernstein said. Companies are better off learning their competitive position early, she emphasized. From a venture position, early competitions can help projects fail faster, before they burn through massive quantities of cash that could be reallocated to higher potential projects.

Another partial solution drives certain aspects of the industry offshore. As the US drug development landscape changes, emerging nations are entering that space. “Trials are faster outside the US,” said Anton Gopka, managing partner at RMI Partners. As Mendelson added, companies must decide between US or non-US trials. Some therapeutics, like stem cell therapies, are easier to develop outside the US, where the regulatory environment enables faster scientific development.

Gopka predicted a shift in attention to international markets. As an example, “The Russian healthcare system is a USD 100 billion market already, and USD 13 billion will be spent on pharmaceuticals.” As it develops, Russia’s healthcare market—like other emerging markets—will undoubtedly skip some of the evolutionary steps that European and American markets experienced. “We’re trying to adopt the latest systems and make them as sophisticated as those in the US,” Gopka said. He suggested drug development in those markets will be increasingly aligned with payers’ concerns.