July 1, 2015 (Vol. 35, No. 13)

While Payers Pursue Discounts, U.S. Prices Likely to Remain Higher than Europe’s

The biopharma industry was rattled in 2012 when oncologists at Memorial Sloan-Kettering Cancer Center (MSK) refused to prescribe Zaltrap (ziv-aflibercept) for metastatic colorectal cancer due to its initial $11,000-per-month cost. Zaltrap developer Sanofi responded with 50% discounts while maintaining its official price.

A year later, some 120 investigators and other experts in chronic myeloid leukemia (CML) publicly demanded lower cancer drug prices. The group faulted high U.S. prices in part on the failure of insurers and officials to negotiate drug prices with developers.

Now, years of talk is finally translating into action on bringing down the price of cancer drugs.

Express Scripts, a pharmacy benefit manager that processed some 1.3 billion U.S. prescriptions last year, recently disclosed it is in talks with several developers of cancer drugs to base the prices of several treatments on their effectiveness. The payer won’t say which drugs or companies are the subject of discussions, first reported last month by The Wall Street Journal.

Brian Henry, Express Scripts’ vp, corporate communications, told GEN the results of those talks will begin to be reflected in its 2016 National Preferred Formulary, which covers 25 million customers. He said drug developers have largely responded positively to the payer overtures.

Cancer was the third most expensive category of specialty drugs last year measured per-member-per-year, according to Express Scripts; Multiple sclerosis (MS) was second, and inflammatory conditions such as rheumatoid arthritis (RA), the priciest. However, cancer accounts for 32% of drugs costing more than $100,000 a year, and is among a handful of key drivers of rising costs.

“There are drugs in cancer that may give five months of life in one indication and 12 days of life in another. Yet payers are being asked to pay the exact same amount for both,” Henry said June 3. “When you get to the point where you have orphan drug pricing for non-orphan drugs, that’s when it becomes unsustainable. Through an indication-based formulary, what you’re able to do is reward innovation at the right cost at a place where it’s sustainable and affordable for payers.”

Express Scripts sees similar cost-reduction opportunity for inflammatory and MS drugs, he added.

Express Scripts, a pharmacy benefit manager that processed 1.3 billion U.S. prescriptions last year, recently disclosed that it is in talks with several developers of cancer drugs to base the prices of treatments on their effectiveness. [iStock/OJO_Images]

The Pursuit of Value

Drug makers have traditionally resisted value-based pricing, arguing they need to recoup R&D costs. The about-face reflects the convulsive changes wrought by U.S. healthcare reform and Europe’s embrace of government-led value-based drug pricing.

In the U.K., the National Institute for Health and Care Excellence (NICE) makes formulary determinations through a “cost-effectiveness” threshold assessing estimated costs of treatments or services in relation to their expected health benefits. Germany’s Institute for Quality and Efficiency in Health Care (IQWIG) applies “reference pricing,” setting reimbursements for new drugs at the same level as the best existing comparator unless the new drugs show superiority to that comparator; any additional cost is paid out-of-pocket by the patient.

U.S. payers can be expected to approve higher prices for cancer drugs than the European agencies, in part given the greater size and affluence of the nation’s economy. Yet payers should also reward developers for innovation, and for treating smaller populations, Peter B. Bach, M.D., MAPP, director of MSK’s Center for Health Policy and Outcomes, told GEN.

Last year, Dr. Bach published a commentary in Journal of the American Medical Association supporting indication-based pricing for cancer drugs. Based on value per indication, the price of Erbitux (cetuximab) would dip from a typical treatment cost of $14,292 to $10,319 for locally advanced squamous cell carcinoma (SCC) of the head and neck. But for its least effective indication of first-line treatment of recurrent or metastatic SCC of the head and neck, according to Dr. Bach, the price would plunge from $42,875 to $471.

“Yervoy and Keytruda, they’re not just important new drugs. They’re also a new idea. I also think it’s true for Gleevec. It’s true for Zalkori. Herceptin also did something new. We probably want to give a small prize for that,” Dr. Bach said.

Under his value model, Herceptin’s price for metastatic breast cancer would drop from a typical $54,118 to $905.

As for pricing rare-disease drugs higher, Dr. Bach added: “A dispassionate economist would say that’s inefficient. But I think as a society, we want to invest to make sure that smaller groups of people aren’t left behind just because there aren’t enough of them to create a real market. That’s the other piece of the value equation we really want to think about.”

Beyond One-Size-Fits-All

Unlike the European agencies, which are the sole buyers of drugs for state-run healthcare systems, numerous U.S. payers exist. They can be expected to take different paths to pricing, “which means that there will not be a one-size-fits-all approach, or a take-it-or-leave it approach,” Joshua P. Cohen, Ph.D., research associate professor with the Tufts Center for the Study of Drug Development, told GEN.

Having numerous payers, the U.S is less likely to see drug developers offer the extent of free trials or money-back guarantees, or rebates for new drugs, as many have done in Europe to gain market access. Numerous payers is one reason why prices set by U.S. payers will likely be more palatable to drug developers than what European agencies have set, Dr. Cohen said. Another is the absence of U.S. government price controls.

What effect, then, will indication pricing have on cancer drug prices?

“Bringing down the growth rate, yes. Actually reducing cancer drug prices across the board, very unlikely,” Dr. Cohen concluded. “In comparison to Europe, U.S. prices will likely remain relatively high.”

The growth rate will shrink, he said, as payer cut prices for less-effective treatments—even after developers invest in IT systems, drug utilization programs, and post-marketing clinical trials to gather data on clinical and cost-effectiveness.

“The less effective a treatment, is the less it will be utilized. The flipside of this is that the better treatments will still be commanding high prices,” Dr. Cohen said.

Pricing decisions will hinge on data from providers: “This is being presented as a way to manage money, but in reality we should be doing this as a standard of care to create a continuous loop of improvement,” Harry Glorikian, a life sciences and healthcare industry consultant, told GEN.

Success with Hepatitis

Express Scripts is hoping to repeat the success it enjoyed last year in hepatitis C. In December 2014, the company immediately added AbbVie’s Viekira Pak® to its National Preferred Formulary as the exclusive option for patients with genotype 1 hepatitis C—just three days after the FDA approved the drug.

By providing access for a large customer base on its biggest formulary to a single hep C drug and a single pharmacy (Accredo® Specialty Pharmacy), Express Scripts was able to drive down Viekira Pak’s cost.

AbbVie agreed to an undisclosed lower price for Viekira Pak, which lists at $83,319 per 12-week course. Henry said the lower price is consistent with discounts given for the drug in Europe for Sovaldi, which Gilead has said ranges up to 46%. In February, Gilead agreed with German insurance regulators to charge €41,000 ($45,560 as of June 5) for Sovaldi, a 45% discount.

Express Scripts’ independent Pharmacy & Therapeutics Committee concluded that Viekira Pak was at least clinically equivalent to two Gilead Sciences drugs, Harvoni® (ledipasvir and sofosbuvir) and Sovaldi® (sofosbuvir). Express Scripts has stopped covering Harvoni, and only covers Sovaldi for non-genotype 1 hepatitis C.

“Our clients will save more than $1 billion this year on hepatitis C medications, and we will financially guarantee that their patients will adhere to their therapy. Due to the industry-wide ripple effect of our decision, the U.S. healthcare system will save more than $4 billion this year,” Express Scripts CMO Steve Miller, M.D., said in a January 27 statement.

Express Scripts pursued talks with AbbVie after failing to reach agreement with Gilead on a discount for Sovaldi, which costs $84,000 for a 12-week treatment course. Harvoni costs $94,500 for 12-week treatment.

That price brought upon Gilead criticism from Express Scripts and three members of Congress, all Democrats in the Republican-majority House of Representatives. Gilead has defended its $1,000-a-pill pricing by noting that the cost of Sovaldi is lower than the cost of complications associated with hepatitis C treatment, such as liver damage or liver failure.

A Congress that can do little surely cannot lower cancer drug prices as effectively as payers could. The challenge for Washington is to help deliver on that promise, and thus help patients, by promoting competition among payers and drug developers—as well as pooling and sharing of resources. Institutions, developers, and patient groups should be encouraged to form consortia capable of assembling subpopulations large enough to speed up development, reducing costs for developers, as well as justify volume discounts, reducing costs for patients.

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