Biotech Can’t Sidestep Cost-Effectiveness Anymore

4/2/12Follow @xconomy

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reimbursement strategy has essentially gone from being a secondary consideration to a primary consideration.

“Reimbursement (which integrates the cost effective issue) is a key issue for us investing in any company, at any stage,” Powell says. “In the distant past, we had this as a ‘secondary diligence item’ for the Sofinnova investment process, but recently it has become one of those ‘front and center’ issues. Which, I must say, is frustrating sometimes, because getting real data on future reimbursement levels is a best-guess prediction for most drugs. Often we are trying to guesstimate reimbursement for a drug that is treating an unmet medical need today—and so there is little guidance as to accurately predict reimbursement levels.”

It’s interesting to see people forced to think about reimbursement this early in the development process, years before companies even think about filing an application to the FDA. Decisions about pricing and health economic pitches to insurers used to be considered only after companies completed the third and final phase of clinical trials, or got ready to submit new drug applications to the FDA, says Chris Rivera, the president of the Washington Biotechnology & Biomedical Association, and a former senior vice president at Genzyme.

Cost-effectiveness and reimbursement have become such important factors that Rivera says he counsels entrepreneurs to consider it from their earliest days in business and to seek out experts on the subject at the University of Washington, Fred Hutchinson Cancer Research Center, and Group Health.

“If I were starting a company today, whether I had a novel compound or was licensing it in, one of the first things I’d look at is whether there is an unmet need, and next would be whether there is a reimbursement strategy,” Rivera says.

There are a number of ideas percolating out there about how the pharma industry can deliver better value for the money. Sam Waksal, the former CEO of ImClone Systems, recently wrote a New York Times op-ed about offering refunds to patients when drugs don’t work—an idea that has been tested in the U.K. and proposed by many others in the U.S. before. This idea is about neutralizing some of frustration patients have about cancer drugs that sometimes cost around $100,000 per patient while offering a few months of extra survival time on average.

While those stories get a lot of attention—ask Dendreon—there are still quite a few companies charging high prices with less resistance. Some of the new personalized medicines—Roche’s vemurafenib (Zelboraf), Pfizer’s crizotinib (Xalkori) and Seattle Genetics’ brentuximab vedotin (Adcetris) for example—have proven they can charge very high prices for their cancer drugs with little pushback from insurers because their drugs are so effective for a well-defined genetic subgroup of patients. Essentially, if you are UnitedHealth, Aetna, or WellPoint, you know that if you pay for one of these drugs, you won’t be flushing three-quarters of the money down the toilet on patients who won’t benefit. Put another way, society is still willing to pay very high drug prices on occasion, but only when we’re really confident it will be money well spent.

As a citizen who pays taxes and health insurance premiums, I dislike waste. I like to see people come up with innovations that save the healthcare system money rather than just add more cost. Healthcare costs are unsustainable at the current rate, but most people would also agree that we as a society want to keep developing new drugs to help us live longer and better lives. The burden is on the biotech and pharmaceutical community to prove that these innovations can do great things both for our health, and for our budgets.

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  • nanostring

    I don’t know Luke, heart attacks are very expensive, too: how many PCIs, coronary bypasses, heart transplants, etc. could be avoided by these antibodies?

  • scott

    The cost of goods does not drive the price of the drug. It’s the cost of failures. The Alder CoGs are not significantly different than a modern high-titer mammalian process so there is little leverage there.

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  • Theodore J. Cohen

    “While those stories get a lot of attention—ask Dendreon—there are still quite a few companies charging high prices with less resistance. Some of the new personalized medicines—Roche’s vemurafenib (Zelboraf), Pfizer’s crizotinib (Xalkori) and Seattle Genetics’ brentuximab vedotin (Adcetris) for example—have proven they can charge very high prices for their cancer drugs with little pushback from insurers because their drugs are so effective for a well-defined genetic subgroup of patients.”

    Huh? What am I missing? The issue with Provenge was not cost, but ‘cost density’…$93,000 for three treatments administered over a period of one month. If that cost had been spread out over four, or six, or 12 months, you probably would not even have cited it in your column today. Some treatments today cost well over $100,000, and they are paid without so much as a blink of an eye.

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  • http://zaicom.com Michael Quattro

    Yes, keep a firm eye on Cost of Goods in product development.
    Cost-effectiveness has been with the industry for a long time and can impact product choice and new product adoption significantly, this is well documented across the EU and the North America.
    Cost of goods (COGs) is an important variable in commercialization because it often determines your pricing flexibility in competitive situations.
    As the smaller markets (even cancer) become crowded with multiple competing offereings, products with similar clinical benefits will compete on other factors such as price and cost-effectiveness. Products with inherent COGs advantages, e.g., synthetic peptides vs. proteins, will have an advantage in the contracting process and product selection.
    We recommend that companies strive for the lowest COGs possible, consistent with the highest product quality at all points in the product development cycle. The pre-launch plan should always have a product optimization pathway that drives the COGs lower as the product reaches the market. COGs are important and this strategy allows you to negotiate EU entry reimbursement packages with EMA and not penalize pricing in the rest of the world.

    Michael Quattro
    Preident & CEO
    Zaicom, US

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