Strategy
Guest Commentary: Overvaluing speed to market
Why Priority Review vouchers might not be worth it
Economic bubbles are notoriously tough to identify pre-pop. But I'd like to at least try in this one case: Priority Review vouchers.
A year ago, BioMarin Pharmaceutical Inc. monetized the Priority Review voucher it won for the approval of Vimizim elosulfase alfa by selling it to partners Regeneron Pharmaceuticals Inc. and Sanofi for $67.5 million. A few months later, Knight Therapeutics Inc. sold Gilead Sciences Inc. a voucher won under the tropical disease program for $125 million. In May, the price nearly doubled again when Retrophin Inc. sold its voucher for Cholbam cholic acid to Sanofi for $245 million. And just last week, United Therapeutics Corp. managed to negotiate $350 million for its voucher from AbbVie Inc., a voucher United won for neuroblastoma treatment Unituxin dinutuximab.
So far as I know, only Regeneron and Sanofi have actually used the voucher they bought -- or even said what it was going to be used for. It's also the only voucher, therefore, whose value can be in any way quantified. Which I'd do for around -- well, less than the $67.5 million they paid.
To explain: the value of vouchers is based around the dual notion that the longer a drug has on the market the more sales it will generate and that the first drug in a class to reach the market will create, via market incumbency, a marketplace advantage. Doctors would prescribe the drug, get used to it and keep prescribing it. Any new drug would have to convince a doctor to use something other than what she'd become comfortable with.
Enter payers.
Payers hate incumbency, which makes it more difficult to pit one drug against another to get the best price -- and drives up costs. And they're doing more and more to counter it. In what I think is yet another watershed moment in the inexorable rise of payer power, CVS Health Corp. cut the market leading interferon for MS, Biogen Inc.'s Avonex, from its national formulary -- a clear example that payers or their agents are willing to endure, for a big rebate, the blowback from physicians and patients by virtually forcing patients stabilized on one medicine to start a new one, even in the case of large-molecule chronic therapies for very serious diseases.
Or take Praluent alirocumab. Virtually every payer and PBM I know of has, in effect, shut the door on scripts for the Regeneron/Sanofi drug. They are waiting, first, for the approval of Amgen Inc.'s Repatha evolocumab so they have a competitive bidder, and second, as long as they can before Medicare and their employer clients force them to put the drug on the formulary. Even so, thanks to the voucher, Praluent will get a few more months of sales, at this low level.
But the voucher investment will have gained them virtually nothing in long-term market share. Had they not bought the voucher, and had Amgen's drug gotten approval a few months before Praluent, Regeneron and Sanofi would have been in more or less the same place because payers would have held up Repatha to wait for Praluent.
I'm not arguing that all vouchers should be tarred with the same brush. A Priority Review could in fact be worth a lot of money if the drug for which it's used treats a disease over which payers have little influence (e.g., most cancers, Orphan diseases). Or maybe if it has a big enough head start on competitors, and works so much better than current standard of care, that payers can't delay paying for it until the follow-ons appear.
But the number of drugs that satisfy either of these two conditions is shrinking -- and thus so is the overall incremental value of first-in-class drugs. Think about two new important categories on the relatively near-term horizon -- the anti-CGRP migraine prophylaxis drugs and the new therapies for non-alcoholic steatohepatitis (NASH).
Payers are going to do everything they can to restrict the use of the first therapies that arrive. Both these markets could grow very large, and both could be extremely rewarding for at least a few of the competitors. But the winners won't win because they've gotten first-in-class awards. They'll win because they've proven meaningful clinical or practical differentiation.
Even cancer is going to come under increasing payer scrutiny. To take one example, Express Scripts Holding Co. is seriously examining indication-specific pricing. If that challenging payment mechanism ever gets implemented (and admittedly there are plenty of obstacles), it will mean, in general, even less value for first-in-class entrants because the first indication isn't always the most valuable indication. But we don't have to wait for indication-specific pricing. Given the number of competitors coming in indications like multiple myeloma (MM), chronic lymphocytic leukemia (CLL) or non-Hodgkin's lymphoma (NHL), payers are going to start making choices among the competitive set, one way or the other.
Now to some extent, the issue isn't the high prices paid for vouchers. Simple rarity has driven up the prices. There don't seem to be any more vouchers to buy right now. And it's not clear how many more FDA is going to issue as rewards for pursuing tropical diseases, or rare pediatric illnesses. The latter program sunsets in seven months, unless it gets renewed.
The real point is this: paying a lot of money to get your drug to market first -- whether you buy a Priority Review voucher or drop key differentiating endpoints from your trials to hasten your path to market or buy speed in some other way -- is, in most cases, going to be worth a lot less in a payer-engaged future than it was in the physician-dominated past. In an era of steam-powered sea travel, it just doesn't make sense to be designing new clipper ships with more and more sails.
-- Real Endpoints is an information and analytics company focused on pharmaceutical reimbursement.
Companies and Institutions Mentioned
AbbVie Inc. (NYSE:ABBV), Chicago, Ill.
Amgen Inc. (NASDAQ:AMGN), Thousand Oaks, Calif.
Biogen Inc. (NASDAQ:BIIB), Cambridge, Mass.
BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Novato, Calif.
CVS Health Corp. (NYSE:CVS), Woonsocket, R.I.
Express Scripts Holding Co. (NASDAQ:ESRX), St. Louis, Mo.
Gilead Sciences Inc. (NASDAQ:GILD), Foster City, Calif.
Knight Therapeutics Inc. (TSX:GUD), Westmount, Quebec
Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), Tarrytown, N.Y.
Retrophin Inc. (NASDAQ:RTRX), New York, N.Y.
Sanofi (Euronext:SAN; NYSE:SNY), Paris, France
United Therapeutics Corp. (NASDAQ:UTHR), Silver Spring, Md.
U.S. Food and Drug Administration, Silver Spring, Md.
References
Edelson, S. "Valuing vouchers." BioCentury (2015)
McCallister, E. "Indications of value." BioCentury (2015)
McCallister, E. "Prepping for PCSK9s." BioCentury (2015)