Game's Up, Pharma: the New Drug Pricing Dynamics

DRUG PRICING

Game’s Up, Pharma: The New Drug Pricing Dynamics Hepatitis C drugs may have provided the spark, but cost-pressured payors, empowered consumers, and at-risk providers are adding fuel to the drug pricing fire. The game may be up for pharma firms that try to push prices out of line with perceived value, potential patient volumes, and affordability. BY MELANIE SENIOR ighteen months after Gilead Sciences Inc. launched ■ The hepatitis C market has shown hepatitis C drug Sovaldi (sofosbuvir) at an eye-popping what more aggressive payors and $84,000 per 12-week treatment course, Sovaldi has now strong competition can do to drug become synonymous with a debate over drug pricing prices. that continues to rage. But the story is no longer about the $1000-per-pill launch price of Sovaldi in the US. It’s now about ■ E It’s unlikely to be a one-off: as the how fast and furiously the cost of this medicine, and others like it, cost of specialty drugs rises, so those has fallen since. paying will seek to squeeze out better deals. Sovaldi’s launch didn’t by itself build the drug pricing fire; it simply provided the spark. The rising cost – and number – of high-priced ■ That includes increasingly empow- specialty drugs more broadly, combined with the effects of the ered consumers, incented by higher 2010 US Affordable Care Act, had already created the conditions for out-of-pocket costs to shop around. a pricing showdown: at-risk providers, cost-pressured payors, and a Biosimilars will provide further pres- growing number of increasingly empowered health care consumers sure on pricing in some categories, facing higher co-pays and thus with more incentive to shop around. though how far or fast isn’t clear. Sovaldi and the rapid succession of competitors behind it provided large pharmacy benefit managers (PBMs) such as Express Scripts ■ Pharma’s days of pricing at will are Inc. the perfect opportunity to turn the screw and show that they limited to clearly differentiated were prepared to say “no” to a new drug. products, with no competition. This wasn’t the first time a payor had balked: in 2012, the Memo- rial Sloan-Kettering Cancer Center snubbed Sanofi’s colorectal cancer drug Zaltrap (ziv-aflibercept), prompting a 50% discount. In that case, though, it was the drug’s questionable added benefit that prompted the price cut. Sovaldi’s effectiveness is undisputed. Here (with far larger sums at stake), it was about market competition. Express Scripts’ stance set in motion discounting that was unprec- edented in its speed and aggression. The PBM in December 2014 agreed to make AbbVie Inc.’s newly approved hepatitis C treatment Viekira Pak (ombitasvir/paritaprevir/ritonavir/dasabuvir) first choice for most patients in exchange for a significant discount. That in turn led Gilead to secure preferential positioning – via discounting – for its follow-on treatment Harvoni (sofosbuvir plus ledipasvir) with Executive Summary >>48 CVS Health Corp. and Anthem Inc., respectively a large PBM and

16 | March 2015 | IN VIVO: THE BUSINESS & MEDICINE REPORT | invivo.pharmaintelligence.informa.com DRUG PRICING managed health company. (See “The Price ential positioning among the key PBMs and straightforward. It involves a host of different War On Drugs: HCV Competition Finally Sparks payors from the outset. Indeed, deals may players, with differing incentives, each seek- Discounting” — IN VIVO, January 2015.) Other even be agreed prior to approval: Express ing to make profits on a different part of the deals followed. The end result, according to Scripts’ Steve Miller, SVP and chief medical chain from manufacturer to patient. Sovaldi Gilead in its 2015 guidance to analysts: an officer, hinted on Bloomberg earlier this and the broader changes wrought by the average 46% discount for Sovaldi and Har- year that he was already “working with” the US ACA have begun to shine a spotlight on voni (the difference between gross and net PCSK9 sponsors. Further Phase III competi- the complex, sometimes conflicted role of pricing) just months after Harvoni’s launch. tion from Pfizer Inc.’s bococizumab and large PBMs like Express Scripts, CVS Health (See “Gilead Expects Fewer Payer Restrictions earlier candidates will only exacerbate the Corp.’s CVS Caremark, or Prime Therapeutics. In 2015, Says 250,000 Could Be Treated In U.S.” price-driven fight. On the one hand, these players have — “The Pink Sheet” DAILY, February 3, 2015.) What are the implications for how pharma been instrumental in forcing the sizeable And the money-off deals are spreading: prices new drugs? Certainly, launch list discounts seen in hepatitis C. The market Prime Therapeutics LLC in January 2015 prices for the first-in-class candidates won’t share they command, and resulting power declared that it was most cost-effective to go down; it’s reasonable to assume they may they have to influence drug uptake, means cover both drugs at the prices offered, rather even rise further, given the curtailed period manufacturers will bend over backward to than agreeing to an exclusive deal on either. during which manufacturer can expect to win favorable formulary positioning. “Absent These dynamics aren’t dissimilar to the maintain that price before competition ar- our move, Gilead was not going to offer any- steep generic-driven price drops still facing rives. “We see no feasible means by which one new [discounted] contracts,” contends many Big Pharmas in the small-molecule either public or commercial payors will put Express Scripts’ Miller. “We opened up the space. “This is sounding not unlike a generic effective pressure on the launch prices of hepatitis C market places … generating bil- strategy,” comments Roger Longman, CEO new specialty products,” wrote analysts at lions of dollars of savings.” Miller claims that of Real Endpoints LLC, a reimbursement- Sector & Sovereign Research in 2014. Express Scripts was simply pulling the lever focused health care analytics company. But overall, net prices will erode faster as of the free market to counterbalance against Granted, hepatitis C has some unique char- payors exploit competitive dynamics to ex- the kind of temporary monopoly enjoyed by acteristics: Sovaldi arrived as a convenient, tract discounts. They may even seek to create Gilead for about a year after Sovaldi’s late orally available cure for many patients, thus competition in categories where technically 2013 launch. “This [creating competition with full, specialty-style pricing power in a none exists, for instance by promoting off-la- and savings] is what we’re set up to do … therapy area that’s relatively large. The cost bel use of a particular drug in a certain setting uniquely, on the drug and pharmacy side,” implications for payors were therefore huge, where, say, only one has labeled approval. he argues. exacerbated by the timing of Gilead’s launch “The notion that you’ll be the only drug in a It suits Express Scripts to portray itself as of the drug, which came, awkwardly, after particular category … it’s great for the time saving costs, and to persuade its customers many payors had completed budgetary you’re there, but will drive more interest in – health plans, providers, employers – that planning for the year ahead. creating competition, by whatever means,” it’s offering the best deals. And there’s no But few believe that Sovaldi is a one-off. predicts Real Endpoints’ Longman. question that its aggressive moves have Payor muscle-flexing triggered by a hefty cut a path for other, smaller PBMs to benefit launch price and rapid succession of looka- PBMS DRIVE DISCOUNTS, from similar discounts on the same drug, like drugs will likely spread across other ther- BUT WHO BENEFITS? which they may not have had the power to apy areas. CVS Health is already setting up A 30% to 40% drop in the cost of a curative win on their own. for battle in another new product category, drug within just months sounds like a good But it’s not always clear that the discounts the cholesterol-lowering PCSK9 inhibitors. thing for all involved: payors, providers, and, PBMs (and other intermediaries, such as (See “Formulary Focus: PCSK9 Drug Prices May most significantly, patients. Out-of-pocket wholesalers or drug retailers) extract from Lead Payers To Impose Coverage Restrictions” drug costs for individuals are rising fast, with manufacturers are passed downstream to — “The Pink Sheet,” January 26, 2015.) It has co-pay percentages inflating on specialist payor-providers and ultimately to patients. warned that these drugs may cost the health drugs in particular, as payors try to deal with “When prices fall [due to discounts, as was system $150 billion a year, given the huge the growing number of these high-priced the case in hepatitis C] the vast majority of potential patient population of up to 15 mil- products. “Anywhere from 30% to 50% of the those savings benefit the PBMs, rather than lion (five times more than in hepatitis C). Yet total drug spend is now on specialty drugs,” the payors,” contends Bryan Birch, CEO of here too, there’s fierce competition: Sanofi warns Harry Travis, VP of specialty and home Truveris Inc., whose products help make and partner Regeneron Pharmaceuticals delivery pharmacy at Aetna Inc., yet they’re PBMs’ offerings more transparent and easily Inc., armed with a priority-review voucher, consumed by less than 5% of patients. And comparable. Birch acknowledges, though, recently leapfrogged Amgen Inc. at FDA it only looks set to get worse as more and that the extent to which discounts are with alirocumab (proposed name Praluent), more new drugs fall into the “specialty” shared depends hugely on the PBM and on whose review deadline is July 24. Amgen’s category (loosely defined as those costing individual stakeholder contracts. evolocumab deadline is just weeks later, in more than $600 per month, and often many Meanwhile, manufacturers often pay back late August. Approvals in tight succession times more). rebates to PBMs or plans (including within will likely force a vigorous fight for prefer- But the US health care system isn’t Medicare), as a portion of overall spend on

©2015 Informa Business Information, Inc., an Informa company | IN VIVO: THE BUSINESS & MEDICINE REPORT | March 2015 | 17 DRUG PRICING a particular drug or group of drugs. These (and number) of specialist drugs, is pushing those savings recently extracted in hepa- are coming under growing scrutiny amid a growing portion of health plans to charge titis C – Express Scripts’ Miller declares that ACA-triggered changes. Rebates often patients 30% or more of the cost of those biosimilars are “crucial for the affordability comprise a very profitable part of PBMs’ drugs, according to a study by Washington, of health care in the US.” For Aetna’s Travis, businesses. In principle, they can help cut DC-based advisory firm Avalere Health. And copycat biologics are the “number one tool costs, since PBMs and insurers can demand although these products are consumed by a we will have to control growth of specialty higher rebates on me-too and older drugs minority of patients (causing serious imbal- drug spend.” Because industry’s pipeline to keep them on formulary. But they can also ances in costs across the population as a continues to fill with biologics – 71% of the incent price increases rather than price falls, whole), they’re used to treat an ever-wider top 10 best-sellers in 2012 were biologics, because they’re calculated as a percentage range of serious, often chronic conditions according to Tufts Center for the Study of of overall sales. This can range from 5% to as including rheumatoid arthritis, multiple Drug Development – biosimilars “will be a much as 50%, according to consulting firm sclerosis, and certain cancers. long-term trend,” Travis contends, providing ZS Associates. And if health plans or PBMs Heftier personal bills is having the pricing pressure on a wide range of both try to extract higher rebates, manufacturers immediate-term effect of compelling phar- new and older biologics. may simply raise their prices to compensate. maceutical firms to engage in more co-pay Payors describe biosimilars as providing High-margin specialty drugs are likely assistance programs (co-pay cards), eating much-needed budgetary relief that will in to face more rebates under Medicare Parts into net sales and ultimately incenting plans turn allow newer drugs to be paid for. (This A and B, according to analysts at Sector & to increase out-of-pocket costs even further. pro-innovation stance, as well as looking Sovereign Research; commercial formulary The longer-term effect of more burdensome good, also conveniently keeps the door open managers will likely demand rebates on out-of-pocket costs is to prompt patients for rebates on innovator drugs.) But how fast such products, too, given the growth of to shop around. That trend alone will vastly that relief will be realized, and how significant more restrictive health plans with higher cost-sharing (making it harder to promote uptake of such products). “Biosimilars are the number one tool we will have to control Given these complex, opaque dynamics, many experts feel that rebating (worth about growth of the specialty drug spend.” – Harry Travis, Aetna $40 billion a year, according to ZS Associ- ates) is hurting US health care spend. Real change the overall industry, predicts Birch. it will be, is far from clear. On March 6, FDA Endpoints’ Longman predicts that “the rebate “More member liability means more power granted its first approval under the abbrevi- issue will come back to haunt them [PBMs].” in consumers’ hands, which demands trans- ated 351(k) pathway: Novartis AG/Sandoz Already, though, a host of newer players parency so they can ensure they get the Inc.’s Zarxio (filgrastim-sndz), a biosimilar of like Truveris and other health benefits man- value they need at point of sale,” he says. Amgen’s Neupogen. (See “Now Comes The Hard agers have emerged to help payors, employ- The result may eventually be that individu- Part: Sandoz Must Sell Its Biosimilar” — “The ers, and providers better understand and als start to purchase directly the drug that Pink Sheet,” March 9, 2015.) control the downstream costs and implica- their physician has recommended, bypass- A handful of other products are under tions of favoring one particular drug over ing the middlemen. “Decision making may review, but this dearth of biosimilar approv- another. In the post-ACA world focused on shift from business entities to individuals,” als in the US, nine years after such products outcome and overall costs, not simply drug speculates Birch. launched in Europe, reflects innovators’ ex- spend, they’re demanding more transpar- We’re not yet at an Amazon-style market traordinarily effective defense tactics. Those ency and ultimately may seek to curb PBMs’ for prescription drugs; regulatory constraints will continue as biosimilars reach the market, control over drug formularies. “We ferret out may preclude that ever happening. But the including via information campaigns that the best deal on the long-term basis for balance of pricing power, having already raise doubt over the copycats’ degree of our clients,” sums up Birch, including with shifted away from manufacturers toward similarity to the originator drugs. products such as RxChoice that provides large PBMs and payors, may well soon shift Biosimilars face two further brakes on easy-to-compare online quotes from PBMs. further toward providers and patients, as uptake: as seen for pioneer Zarxio, most will “Any time you have a free market, led by both groups seek to take more control over have non-proprietary names (INNs) distinct capitalism, you’ll try to drive up profit until what drugs they buy and at what price. from their reference drugs, and won’t be there are further entrants in the market, or labeled interchangeable, at least for a time. tools to evaluate fair profitability,” he says. BIOSIMILARS: CRUCIAL TO THE In sum, “there are far more hurdles” to ex- AFFORDABILITY OF HEALTH CARE? tracting savings from biosimilars than there PATIENT POWER SHOULD PUSH Meanwhile, biosimilars’ long-awaited ar- were in hepatitis C, acknowledges Express PRICE TRANSPARENCY rival onto the US market should provide Scripts’ Miller. The growing drug cost burden on patients further downward pricing pressure and He claims Express Scripts has been work- will also drive more transparent pricing. more choice across multiple therapy areas. ing to prepare the ground for biosimilars Health reform compels more individuals to Citing potential savings worth $250 billion for several years, including via educational buy insurance, but the skyrocketing price over the next decade – way more than outreach to pharmacy groups. The PBM says

18 | March 2015 | IN VIVO: THE BUSINESS & MEDICINE REPORT | invivo.pharmaintelligence.informa.com DRUG PRICING

Rocketing US specialty drug spend 7 of 10 2005 2030 24% 44% Total Drug Total Drug Spend Spend drugs will be specialty products within 4 years

Burgeoning specialty drug pipeline and approvals 19 of 39 New entities approved by the FDA in 2014 were specialty, 40% mostly in oncology and rare diseases 60% 51% Of specialty drug spend Of drugs in development covers products in cancer, New drugs expected to be (650 in total) are specialty RA and MS approved in US near term will be specialty

Growing consumer costs

60% 2006 2013

Of lower-premium ‘bronze’ health plans demand more than 0 of cost of (pharmacy bene t) of employer plans of employer plans drugs from consumers utilized specialty ‘tier’ charging have specialty tier consumers a % of drug costs

SOURCES: Pharmaceutical Care Management Association; Health Aﬀairs; Avalere Health; UnitedHealth Group

©2015 Informa Business Information, Inc., an Informa company | IN VIVO: THE BUSINESS & MEDICINE REPORT | March 2015 | 19 DRUG PRICING it will continue to educate in favor of biosimi- branded drug. Norway is taking switching for many patients in England has been de- lars and to collect real-world data to support studies into its own hands, too, with the layed until mid-2015 as regional authorities safe switching to these cheaper products. But government-funded NOR-SWITCH study round up the necessary funds. trying to prove a negative – that biosimilars designed to reassure clinicians that patients Other drugs, in particular for cancer, don’t do any harm – is hard. Until biosimilars can safety be switched from the brand to often don’t tick the cost-effectiveness box. are labeled interchangeable – and it’s unclear the biosimilar. Pretty soon that will mean they’re simply not if or when FDA will grant such a designation Biosimilar infliximab, sold in Europe by available at all, warns UK-based consultant – biosimilar sponsors will have to offer big Celltrion and Hospira (now part of Pfizer) as oncologist Karol Sikora, PhD. For the past discounts to incent payors to bother switch- Remsima and Inflectra, respectively, is cur- few years, many cancer drugs in the UK have ing patients over. Not only that, they’ll also rently being rolled out across larger markets been funded by a dedicated, £200 million-a- have to counter the often-hefty innovator such as France, Germany, and Spain following year Cancer Drugs Fund. But that can’t last; drug rebates, which may well be withdrawn the February 2015 expiry of a pediatric license already, it faces NICE-style restrictions on if preference is given to a biosimilar competi- extension for Remicade in these countries. what it can pay for. “The Cancer Drugs Fund tor. “Whether the PBM or plan gets enough With powerful, often monopolistic na- will go after the next [UK general] election” market share onto the biosimilar to ensure tional health systems and rigorous health in May 2015, predicts Sikora. Most of the the discount on the copycat outweighs the assessment agencies, Europe has long two dozen or so cancer drugs approved by lost rebates on the originator is an open ques- exerted more aggressive price controls the European Medicines Agency over the tion,” says Longman. than the US. But the growth of high-priced last two years are priced in the £60,000 to Biosimilars’ impact on US health care specialty drugs continues to force more £100,000 range, making them “simply unaf- costs won’t be immediate. For the first handful of products at least, the speed of “The overall industry will be changed very quickly – uptake will be very compound-specific: the relatively simple filgrastim molecule, in the next three to five years.” – Bryan Birch, Truveris supported by an experienced, Western sponsor and used in an acute setting across extreme measures there, too. As it is, most fordable for common cancers,” insists Sikora. a range of closely related indications, will European countries negotiated prices for Particularly as their benefits are relatively probably have an easier ride than biosimilar Sovaldi that are lower than in the US. France limited, he continues, often to a few weeks’ infliximab (Johnson & Johnson/Merck & in November 2014 boasted the lowest price or months’ of progression-free survival. Co. Inc.’s Remicade). This complex mono- across the region (€41,000/$51,000 per 12- There are solutions: more, and more reli- clonal antibody, manufactured by Korean week course) plus further volume-linked able, biomarkers to allow truly personalized sponsor Celltrion Inc., is used chronically discounts and a rebate in case of treatment treatments; more widespread embrace in rheumatoid arthritis but also in gastro- failure. This deal came in part thanks to a among pharma of money-back deals if drugs intestinal settings such as Crohn’s disease. selective tax on drug firms whose product don’t work; or, the simplest, reduced prices It won approval in Europe, based only on costs collectively exceed a certain threshold – perhaps in exchange for higher volumes. clinical data in the arthritis setting, but even each year. Four German statutory health in- Short of these, though, “it’s going to end in if FDA follows suit, GI specialists in particu- surers in early 2015 declared they’d secured disaster. Governments, health care provid- lar are likely to be skeptical. (See “2015: US discounts on the drug’s €60,000/$67,000 list ers, and insurers are going to stop funding Biosimilars’ Year of Reckoning” — IN VIVO, price in that country, though no details were cancer drugs,” warns Sikora. February 2015.) given. In the UK, Sovaldi costs about £35,000 ($54,000) per 12-week course. CONTROLLED DRUG PRICING: EUROPEAN EXPERIENCE MAY But Sovaldi’s arrival in Europe and the mul- A BIG ENOUGH STICK? BRING TAILWIND tiple parallel pricing negotiations prompted There are similarly urgent calls to action on But if cost pressures continue to mount on talk of – and some early efforts toward – drug pricing in the US. President Obama’s both payors and, crucially, patients, even international pricing negotiations for new proposal in early 2015 that Medicare should modest US experience with biosimilars may products. Four or five countries negotiating have price negotiation powers over Part D be enough to compel uptake. Clinicians, reg- collaboratively will have the leverage to drugs may be unlikely to pass through Con- ulators, and patients may already take com- extract far better deals than each separately, gress. But the fact that US drug price controls fort from Europe, where several countries given the patient volumes at stake. are being talked about at all provides the that operate nationwide hospital tenders for European payors won’t pay at all for drugs biggest incentive for all health care stake- lowest-price biologics have switched many that are deemed too expensive relative to the holders to allow market forces, including patients from one product to another, thus value they bring. Sovaldi, for all its headlines, biosimilar competition, to more freely, and far without ill-effects. Norway has embraced was widely deemed cost-effective. England’s transparently, drive prices to the levels that biosimilars most avidly, and isn’t hesitating National Institute of Health and Care Excel- payors and patients can bear, and which to promote the complex antibodies, either: lence approved it for certain patients during more clearly reflect drugs’ value. in early 2014 biosimilar infliximab won a 2014. The problem is affordability, given the Quantifying that value isn’t easy, not least national tender with a 39% discount on the number of eligible patients. Access to Sovaldi as it may vary widely by indication, setting,

20 | March 2015 | IN VIVO: THE BUSINESS & MEDICINE REPORT | invivo.pharmaintelligence.informa.com DRUG PRICING and indeed by individual patients. There For now, though, outside of hepatitis C RELATED READING have been attempts in Europe to close in there are few signs of falling prices in the “The Price War On Drugs: HCV Competition Finally on “value-based pricing,” though they have US. And indeed, the premiums on new, dif- Sparks Discounting” — IN VIVO, January 2015 not, as yet, been successful. US experiments ferentiated drugs will remain or even grow. [A#2015800021] around value-based insurance models con- But it appears inevitable that the prices of “Gilead Expects Fewer Payer Restrictions In tinue, alongside myriad outcomes-focused everything else will have to fall. Health care 2015, Says 250,000 Could Be Treated In U.S.” — “The Pink Sheet” DAILY, February 3, 2015 set-ups such as medical homes and ac- is an industry about to confront consumer- [A#14150203003] countable care organizations. These may driven market forces similar to those faced “Formulary Focus: PCSK9 Drug Prices May Lead eventually help force more value-focused by other sectors. “The overall industry will be Payers To Impose Coverage Restrictions” — “The pricing, though they’re not designed to do changed very quickly – in the next three to Pink Sheet,” January 26, 2015 [A#00150126009] so. Meanwhile, several drug firms have be- five years,” predicts Truveris’ Birch. That will “Now Comes The Hard Part: Sandoz Must Sell gun to engage in “beyond the pill” services mean game’s up for pharma firms push- Its Biosimilar” — “The Pink Sheet,” March 9, 2015 [A#00150309015] to help ensure their products deliver the ing prices out of line with perceived value, “2015: US Biosimilars’ Year of Reckoning” — promised outcomes, and thus more clearly potential patient volumes, and affordability. IN VIVO, February 2015 [A#2015800034] demonstrate value-for-money. Some firms A#2015800048 IV ACCESS THESE ARTICLES AT OUR ONLINE STORE have committed to limiting price inflation comments: Email the editor: [email protected] www.PharmaMedtechBI.com for some existing products.

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