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Back to School 2013: Facing reality

21st BioCentury Back to School Issue: Facing reality in the drug marketplace

For the first time since the 2008 meltdown, nearly everything appears to be coming up roses for biopharma. Money is again flowing into the sector, FDA, EMAand Japan's Pharmaceuticals and Medical Devices Agency are reporting rising numbers of approvals, and new regulatory pathways promise to increase the speed of development and approval of drugs that could provide treatment breakthroughs for patients who are gravely ill.

But just as regulators and companies attempt to speed highly promising drugs to market based on abbreviated data packages, payers worldwide are making reimbursement contingent upon the kinds of data that can take years of postmarket experience to collect.

These pressures require drug companies to rethink the kinds of products that stand a chance of reimbursement, the types of evidence that payers will require, and the prices that will be paid for products that clear the first two hurdles.

While many biopharma companies are paying lip service to this reality, BioCentury's 21st Back to School essay argues that for many - if not most - lip service is all it is.

For drug developers, facing the reality actually will require at least four transformational changes of behavior.

It will require substantive engagement with patients and payers to share data that can answer essential questions about drug development and reimbursement - questions that no one stakeholder can answer on its own.

It will require changing pipelines and R&D programs to focus on meeting the needs of patients and payers as those two stakeholders define them.

It will require hands-on participation in health technology assessment, where drug developers should be contributing knowledge to improve the HTA process rather than fighting it.

Lastly, and least popularly, the drug industry is going to have to come to grips with the reality that the existing pricing paradigm is not sustainable. This is precisely the opposite of the direction companies are pursuing with their focus on Orphan drugs and ever-smaller cancer indications, which they expect will continue to be priced at eye-popping levels with eye-popping margins and a steady dose of price increases.

While this may make investors happy in the short run, Back to School argues it will be destructive to both the industry and its investors in the long run by making payer and public backlash even harsher than it already is.

The loss of pricing power is already evident in many countries and can only be expected to accelerate. If the drug industry acts as a naysayer and fails to participate in shaping the system that defines innovation, the system will relegate drug companies to vendor status and make decisions based mostly if not solely on cost.

While many in biopharma may say this prescription amounts to "sleeping with the enemy," there really is no alternative.

Indeed, Back to School argues the reimbursement space is ripe for the kind of collaboration that has resulted in profound breakthroughs in regulatory innovation over the last several years.

The situation

Nobody is immune to the new realities of the marketplace. Not the big pharmas that do the lion's share of selling; not the tiny biotechs whose main customers are pharma BD&L groups; not payers struggling for ways to provide the required benefits to many more lives; and not patients whose needs are inadequately served by existing treatments.

Right now, the payers - public and private - are driving the car.

Agencies that explicitly or implicitly evaluate the cost-benefit of drugs have existed across Europe for decades. But lately countries like Germany and France have raised the bar for demonstrating benefit and getting reimbursement. These austerity effects are itemized in the quarterly earnings statements of virtually all the global pharma players.

Meanwhile, implementation of the Patient Protection and Affordable Care Act (ACA) in the U.S. is expected to pump tens of millions of additional lives into government and private systems. In an effort to provide drugs and services required by the statute at affordable premiums, payers will design formularies to favor low-cost generics and limit use of newer drugs through higher cost-sharing, prior authorization and step-therapy requirements.

Some investors and companies recognize that stricter reimbursement is not a transient problem. These players are now putting their resources into assets with ever-higher levels of differentiation. And venture investors and pharmas are beginning to demand as much clarity as possible on the reimbursement profile of an asset at every stage of development - starting in discovery.

Nevertheless, too many companies are clinging to old definitions of innovation that are grounded in science but have little to do with patient or payer demands.

In addition, too many smaller biotechs focused on early development continue to think evidence of differentiation can be created later - and preferably by someone else, like a large partner.

It's not only small companies that aren't facing reality. One can find payers and patient groups that say the biggest pharma companies engage only cursorily to determine what innovations are most important, and what kinds of evidence could be used to show benefit.

Nevertheless, the healthcare marketplace is being reshaped by the kind of tension that creates conditions for a perfect storm, where all the stakeholders can be washed overboard.

A proliferation of new drugs - many first in class - is hitting the market in the midst of a worldwide economic crisis, and just as aging populations and healthcare reform are swelling the ranks of those seeking care under public and private insurance plans from the U.S. to China.

The number of drug approvals is soaring, driven by ever-more targeted therapies and the use of regulatory pathways designed to speed development and approval for novel medicines intended to treat serious conditions.

Approvals of new active substances have been on the rise in Europe since 2010. And in 2012, Japan approved the highest number of new active substances in a decade (see "Flooding the Market").

According to FDA, the 39 NMEs approved by CDER in calendar 2012 also was the highest in more than a decade - 63% higher than the nine-year average of 24 NMEs from 2003 through 2011.

"Many of these NMEs are notable for their potential positive impact and unique contributions to quality care and public health," FDA wrote in its Novel New Drugs Summary, released in January (see Featured Links, A28).

The agency considered 20 of the 39 NMEs approved in 2012 to be first in class, "meaning drugs which, for example, use a new and unique mechanism of action for treating a medical condition. First-in-Class is one indicator of the innovative nature of a drug and 51% First-in-Class approval rate suggests that the group of CY 2012 NMEs is a field of highly innovative new products."

In addition, 22 of the 39 NMEs CDER approved last year received Fast Track designation, Priority Review and/or accelerated approval.

These numbers reflect the combined efforts of regulators, companies, legislators and patient groups that have labored for years to devise better ways of satisfying society's desire for new and better drugs. But it creates a conundrum for payers grappling with a tsunami of newly available - and almost universally expensive - products.

For instance, the total cost for one course of treatment with the 32 NME therapeutics that were approved by CDER in 2012 and have disclosed prices would be about $2.4 million (see "Price of Innovation," A18).

The strain is being felt by government and private payers around the world but lately has been most visible in Europe, where austerity measures at the national level have placed an even higher premium on controlling healthcare costs than in the past.

In several cases, European HTAs and reimbursement authorities are recommending against or declining coverage of drugs that have received expedited approval based on what regulators considered to be strong evidence of the likelihood the drugs would meet unmet needs (see "G-BA Decisions," A4).

For example, the German HTA Institute for Quality and Efficiency in Health Care (IQWiG) issued a preliminary assessment that concluded Pfizer Inc.'s Xalkori crizotinib provided no additional benefit to non-small cell lung cancer patients compared with docetaxel or pemetrexed-containing chemotherapy.

By contrast, FDA and EMA considered the drug enough of an advance to grant accelerated approval in the U.S. and conditional approval in Europe based on an unprecedented 61% response rate in patients with locally advanced ALK-positive NSCLC.

Whether Xalkori can increase overall survival won't be known until confirmatory trials are completed. According to FDA's approval letter, the first trial should be complete by year end with a second trial to complete in December 2015.

After IQWiG's review, Pfizer submitted additional data that allowed the German Federal Joint Committee (G-BA) in May to conclude that Xalkori has "significant" additional benefit over chemotherapies in its approved indication.

In its final assessment, G-BA said Xalkori leads to a clear improvement in quality of life and a clear reduction in non-serious disease symptoms vs. comparators.

It was

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