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

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 month

Melanoma: Ipilimumab:
- 10-20% patients benefit
- Cost: 84.000,- per patient
- Budget impact: 20-40 mln

Policy goals in health care

Sustainability

System objectives

Equity

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

Quality of
care

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

INTEREST
HOUSING

EDUCATION

EMPLOYMENT

ROADS

HEALTH CARE

ENVIRONMENT

DEFENSE

SECURITY

DEVELOPMENT AID

Development drug expenditure (in mln),

2002-2009
Expensive drugs
Other drugs

10

11

Question: Why are the prices of new

drugs high?

Development process
Succes rate
Uptake of innovation
Reimbursement

12

Development phase: a long and

winding road to registration
Registration

Clinical Data
Analysis

and Medical
Devices and
Technologies

Full
Development
Studies in 100-300
Patients (Phase II)

Candidate Medicine Tested in

3-10,000 Patients (Phase III)
Large Amounts of
Candidate Medicine
Synthesized
Extensive
Safety
Studies

Studies in Healthy
Volunteers Phase I

Exploratory Development

Project Team
and Plans

Candidate

Formulations
Developed

Synthesis
of Compounds

Early
Safety
Studies
Screening

Discovery

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

13

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Development phase
From discovery to patient

1 medicinal product
0

5 years

10 years

15 years

10 years of research
Source: Recherche & Vie, LIM (AGIM)

2 to 3 years of
administrative
procedures

20 years
Patent expiry

14

Life cycle of a drug

development

introduction

growth

maturity

Sales

Time
Ellery and Hansen, Pharmaceutical Lifecycle management, Wiley 2012

decline

15

Development phase: clinical trials (phase 1

to 3) in humans

16

Development phase
Discovery and development of a successful
drug
YEARS
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0

INTRODUCTION
/REGISTRATION

DEVELOPMENT

POST-MARKETING SURVEILLANCE Phas

1
2

CLINICAL TEST (HUMANS) Phase I t

2-5
5 - 10
BASIC
RESEARCH

3,000 10,000

PRECLINICAL TEST (ANIMAL

SYNTHESIS,
EXAMINATION &
SCREENING

QUANTITY OF SUBSTANCES

17

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

18

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%

19

Declining number of NME approved by

FDA

Source: www.fda.gov

20

Introduction phase
Differences in the uptake of
innovation

21

Growth phase
Slower rate of growth than typical industrial product
Switching patients to other drugs may be risky
Me-toos 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

22

Growth phase: International Reference

Pricing (IRP) is used in some form in
most European countries

IMS HEALTH Pharmaquery Sept 2012

23

Growth in real per capita pharmaceutical

expenditure, 2000-09 (or nearest year)

OECD (2011), Pharmaceutical expenditure, in Health at a Glance

2011: OECD Indicators, OECD Publishing.

24

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

25

Tougher environment for pricing,

reimbursement, listing
Regulatory
Quality
Efficacy
Safety

Pricing,
Reimbursement
Comparative
effectiveness in real
world
Cost-effectiveness
(trial-based and
model-based)

Purchase, listing
Budget impact
analyses

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
Positioning variables

different implications for..

Line of therapy?
Target Patients?
Prevention or treatment?
Monotherapy or combination?

Negative
Differentiatio
n Value

D
R

Positive
Differentiatio
n Value

Reference
Price

V
Perceived
Value

Price Optimization across countries

1. Assess individual
market
price/demand
dynamics

US
France

2. Overlay global
context and
optimize

Optimization Modeling
Individual
Demand
curves

Cohesive
Global
Strategy

Germany
UK
Canada
etc

3. Implement and
maintain a Global
Pricing Strategy

Cross Market
Interactions

Global floor or
corridor
Launch
sequence
Price targets

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:

Dont 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 (I)

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

<25%
25% - 50%
50% - 75%
>75%

Thank you!