Changing Market Access White Paper Acg

Changing Market Access Strategies in Pharmaceutical Industry: A Preview August 2010

Current /
Future

1984 -Payors as customers
-Focus on Economic
Value
-Hatch Waxman Act
-Emergence of
Generics Industry
1970--80s
-Dominance of Branded
Companies
-No incentives for
Generics

ANANTH CHANGING MARKET ACCESS
CONSULTING STRATEGIES IN PHARMACEUTICAL
GROUP INDUSTRY: A PREVIEW

August 2010 | Rajaram Iyer
Ananth Consulting Group (ACG) 1


Contents

1. Executive Summary ..................................................................................................... 3

2. Introduction / Background .......................................................................................... 3

3. Market Evolution: Transition Phase — Post 1984 ..................................................... 4

4. Current Scenario — 2000 Onwards ............................................................................ 5

5. Outlook and Conclusions ............................................................................................ 7

6. References ................................................................................................................... 8



1. Executive Summary

Market access strategies in pharmaceutical industry have changed a lot in last 2-3 decades. During
the 1970s and 1980s, branded pharmaceutical companies were very powerful and used to get
reimbursed for all their drugs. Entry of generic drugs was very difficult; and physicians did not have a
lot of choices. In 1984, Hatch Waxman law was passed and generic entry became relatively easy.
Entry of generics through Hatch Waxman was the first major step towards cost containment. Payers
started putting pressure on physicians to prescribe more generics and less branded drugs. Branded
drug manufacturers started campaigning against generic drugs and generic companies fought their
way, supported by political will and strong cost rationale.

1980s also saw the upcoming of biologics industry. Oncology was an area which witnessed launch of
a number of biologics which started a new trend of high priced therapeutics for niche indications,
underserved by small molecules. During this time science also advanced and lot of new treatment
modalities entered the markets which were very high priced. Due to the increasing cost and marginal
benefits of newer therapies, payers started controlling the amount they paid for various treatments.
Payers initially started by tightening their formulary status, providing incentives for generic prescription
and increasing the co-pay for branded drugs. Later on they started newer ways of controlling costs
such as pay-for-performance, price capping, price sharing, outcome-based pricing, etc.

Clearly the power has been shifting steadily away from pharmaceutical companies and into the hands
of payers. Payers have, and are trying innovative ways to reduce costs and the over burden. At the
same time, pharmaceutical companies are also trying to respond to these changes and it will be
interesting to see how the landscape evolves in future. This article reviews various market access
strategies being adopted by payers and pharmaceutical companies in the new world of
pharmaceutical marketing.

2. Introduction / Background

Prior to 1984, branded pharmaceutical companies dominated the scenario. Entry of generic drugs
was very difficult as they had to conduct full clinical trials to demonstrate both safety and efficacy to
obtain approval. This acted as a big barrier for generic drug entry, as there was no commercial
1
incentive to spend big money on conducting clinical trials for generic approval. As a result, branded
pharmaceutical companies
enjoyed monopoly and
controlled the market even
after patent expiry. Due to
this monopoly of branded
companies, payers had no
choice but to reimburse for
branded drugs. They use to
reimburse without a lot of
restrictions or pre-conditions.
As payers had no cost
containment measures, so
the overall healthcare



expenditure started to rise.

During this period, pharmaceutical companies were very powerful and other stakeholders (patients,
physicians and payers) had limited say in the overall healthcare scenario.

3. Market Evolution: Transition Phase — Post 1984
2
Increasing healthcare cost and reimbursement of high priced prescription drugs forced payers and
government to closely monitor
and control the overall
healthcare expenditure. Both,
the payers and government
started to think of cost
containment and as a result
many legislatures were
introduced between 1984 and
1990, specially directed towards
reducing the overall healthcare
cost.

 Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act): Implemented
1,3
in 1984, this act made the entry of generic drugs easy as it allowed generics to enter the
market by just showing bioequivalence to the innovator drug. This act also gave incentives to
branded drugs by way of various exclusivities. This was a landmark act in the US history as it
created a whole new industry around generic drugs.

4
Drug formularies were introduced in managed care . Drug formulary is a list of all the drugs
(branded and generics) classified in various tiers based on which reimbursement and co-pay
levels are decided by the payer. Formularies were used by the payers as a tool to encourage
use of generics and discourage higher priced drugs.
 Prescription Drug Marketing Act was introduced in 1988, limiting the sampling activities by
5
pharmaceutical companies .

6
Hatch Waxman Act had a huge impact on the pharmaceutical industry , as it fundamentally changed
the way industry operated. The Act allowed entry of generic drugs just by showing bioequivalence to
the innovator drug; which increased the generic competition and changed the structure of the market.
Lot of generic companies flourished and started launching generics for almost all the molecule at a
substantially lower price point. Impact of this act is evident from the generic penetration: In 1985,
generic substitution was 22%, while in 1994 it reached 42% and in 2004 it was close to 60% and this
7
is set to grow .

On witnessing competition from generics, branded companies started trying multiple things to keep up
8
the market share, such as providing discounts, launching aggressive DTC campaigns , etc.; however
these measures have not been very successful in controlling the generic penetration.



9
Entry of generics gave a big lever in payers‟ hand for cost control . Hatch Waxman Act was the
lynchpin for payers to start imposing cost containment measures; and since then they have grown in
strength and have introduced several measures for cost control. Overall, payers have tightened their
grip on the healthcare system and are now a big influencer.

This was the time when power shift started happening and payers became more influential.

4. Current Scenario — 2000 Onwards

During late 1990s and early 2000, when generics were flourishing and giving tough competition to
10
branded drugs, biologics (therapeutics based on protein or peptides) entered the treatment scene .

10
A lot of biologics were launched specially for diseases where small molecules were not very
effective (for instance Oncology and Inflammatory Diseases). As biologics are difficult to manufacture,
store and administer, drug companies started pricing them at a hefty premium. Payers, though initially
reluctant, started reimbursing for biologics-based therapy; primarily because of they were the only
good treatment option for
patients with certain disease
conditions.

Biologics became the new
buzzword and a lot of
companies started working on
biologics and launched
therapies for various diseases.
Some of the biologics were
clearly differentiated while some
had very marginal or no
11
benefit . In addition to
Biologics, last decade also saw launch of some very specialized drugs, which were highly priced.
Launch of biologics and other specialized drugs increased the overall spend on drugs and payers
again stared to look for measures to either reduce the cost or share the risk as every drug is not
guaranteed to work on every patient. An interesting observation during this time was that payers were
not only looking at price discounts but also wanted pharmaceutical companies to share the risk.

Market access strategies for pharmaceuticals have changed substantially in the last 2 decade and
now, in addition to physicians‟, payers have also become a big customer segment for pharmaceutical
companies. Additionally, regulatory bodies are also becoming stricter and demanding additional
clinical studies to conclusively demonstrate efficacy and safety of the product.

Payers are using lot of tools to control the overall cost and are putting lot of restrictions in reimbursing
drugs. Some of them are discussed below:



Pay-for-performance Pricing: This involves an arrangement between the pharmaceutical company
and the payer, wherein reimbursement is made on the basis of the performance of the drug for
individual patients.

Europe has led the charge in implementing pay-for-performance initiatives. Two big examples in this
space are:
 Agreement between UK‟s NHS and Johnson & Johnson for an Oncology drug – Velcade.
Under this agreement termed “Velcade Response Scheme”, NHS will pay only if the Velcade
12
treatment shows desired response measured by the reduction in tumor size .
 Agreement between UK‟s NICE and Novartis for an eye drug – Lucentis. Under this
agreement, Novartis has agreed to cover the cost of treatment if more than 14 injections are
13
required for Lucentis i.e. patients will get free Lucentis if they need more than 14 injections .

In the US also, payers are focusing on implementing pay-for-performance measures. Private
14
insurance companies particularly Aetna and Cigna have lot of such partnerships with various
hospitals. In Aug 2006, Aetna launched a national pay-for-performance program under which it
15
incentivizes physicians who improve the quality of care and reduce the overall treatment cost .
Improving the quality of care means focusing on prevention, early detection and treatment that
reduces or avoids high long term treatment costs. CIGNA HealthCare also has multiple such
partnerships wherein they reward physicians and hospitals for improving the treatment outcome and
reducing the treatment cost.

Step Edit Therapy: This tool has been in use for quite some time now and is quite powerful to reduce
costs. Step Edit means that one needs to use a particular drug (generally cheaper/generics version)
first before another drug (generally expensive branded drugs) can be authorized for use. Another drug
is authorized only when the earlier drug(s) has not been effective. Step Edit is popular in places
where a lot of generics are available. Many payers in the US use this for various therapies, especially
for biologics-based therapies.


16
Blue Cross of Idaho has a Step Edit on Byetta-a new medication for diabetes. Based on the
guidelines, Byetta is placed in third tier and it is only authorized when patients have taken at
least two other agents (out of Sulphonylurea, Biguanides, Thiazolidinedione, combination
agent) or 1 combination drug.

17
Harvard Pilgrim Health Care has a Step Edit on Vyotorin (combination of Zetia and
Simvastatin), wherein patients are encouraged to maximize the statin dose before adding
Zetia (Ezetimibe) to their regimen.

Price Capping: This tool involves capping the price for various drugs for a particular treatment. Using
this tool, payers fix the upper limit of reimbursement for a drug for a particular treatment.


18
Genentech capped the total cost of treatment with Avastin for both the approved indication
at $ 55,000/year for people below a certain income level.
 Amgen capped a patient‟s annual co-payment for panitumumab (Vectibix) at 5% of the
19
patient‟s adjusted gross income



Outcome-based Pricing: Pharmaceutical companies are now going for outcome-based risk sharing
deals with payers. One example is an outcome based agreement devised between Janssen-Cilag
and NICE, in the UK. Initially, NICE determined that a drug, Velcade, was not cost-effective; so the
company proposed that they be allowed to treat eligible patients for four months and get paid if certain
outcomes are met. According to the agreement, if the drug achieved a specific response, patients
would continue the therapy at the NHS‟s expense; otherwise company will reimburse the NHS for its
expenses. Some of the other outcome-based pricing deals include:

 In line with cost sharing, Merck has signed a deal with Cigna where Merck's two anti-diabetic
20
drugs, Januvia and Janumet will be paid according to their performance .

 Cigna is also trying to strike a deal with statin manufacturers, where manufacturers will pay
for the treatment cost, if the person suffers from heart attack despite taking statins on a
21
regular basis .

5. Outlook and Conclusions

Market access strategies have changed drastically in the last 2-3 decades, from a physician focused
to more of payer focused. In the last decade, payers have emerged really strong and have become a
key customer segment for pharmaceutical companies. They have introduced a lot of cost containment
measures and have tried various options to control costs. This trend is likely to continue in future.

In future, pharmaceutical companies will start involving payers and regulators during drug
development itself, so that they have a chance to comment on the study design and also change it, if
necessary. This trend has already started and there are instances which support this:

 In June 2008, GlaxoSmithKline invited healthcare officials from UK, France, Spain and Italy to
examine their candidate molecules under-development. The initiative was carried out to
gather feedback on the molecules to be prioritized and data required for the molecule to be
22
approved by the healthcare agencies .
 In Dec 2007, Novartis struck a deal with the National Institute for Health and Clinical
Excellence (NICE). Under the deal, design of a Phase III clinical trial was evaluated by NICE
and the agency shared with the company the sort of information they will require to reimburse
23
the medicine .

Involving payers early in the process will be good for pharmaceutical companies, as they will clearly
know what payers would expect once the drug is launched.

In addition to safety and efficacy, overall economic value of the molecule will become important and
most companies will start focusing on this.



6. References

1
Jeremiah Helm, The Patent End Game: Evaluating Generic Entry into a Blockbuster Pharmaceutical
2
Market in the Absence of FDA Incentives, 14 Mich. Telecomm. Tech. L. Rev. 175 (2007), available at
http://www.mttlr.org/volfourteen/helm.pdf
3
Robert N. Frumkin, Health Insurance Trends in Cost Control and Coverage, Monthly Labor Review,
Vol. 109, 1986
4
Wendy H. Schacht and John R. Thomas, Patent Law and Its Application to the Pharmaceutical
Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of
1984("The Hatch-Waxman Act"), CRS (CongressionalResearchService) Report for Congress,
updated Jan 10, 2005
5
Report titled „History in the making‟ by Academy of Managed Care Pharmacy
6
“Managed Care and a Changing Pharmaceutical Industry”, Micheal P. Roland, Health Affairs, 1990

Research and Development in the Pharmaceutical Industry, The Congress of the United States,
Congressional Budget Office, Oct 2006
7
Report titled „Celebrating the Past Defining the Future‟ by GpHA (Generic Pharmaceutical
Association)
8
Nielsen Monitor-Plus: U.S. advertising spend reports
9
Report titled “A Primer: Generic Drugs, Patents and the Pharmaceutical Marketplace” by The
National Institute for Health Care Management Research and Educational Foundation
10
BLA approvals from USFDA website
11
Tito Fojo, Christine Grady. How Much Is Life Worth: Cetuximab, Non–Small Cell Lung Cancer, and
the $440 Billion Question. JNCI Journal of the National Cancer Institute 2009 101(15):1044-1048
[Pubmed Abstract]
12
NICE website; details available at
http://www.nice.org.uk/nicemedia/pdf/MyelomaDofHSummaryResponderScheme.pdf
13
Reuters new article available at http://uk.reuters.com/article/idUKLQ43255720080827
14
Report titled “Prospering in a Pay-for-Performance World” by Cisco
15
Press release by Aetna
16
Custom Formulary 2010 by Blue Cross Blue Shieldof Michigan and Blue Care Network
17
https://www.harvardpilgrim.org/portal/page?_pageid=253,255222&_dad=portal&_schema=PORTAL
18
Genentech: Newsroom: Press Releases: News Release February 22, 2008
19
New York Times article published on September 28, 2006
20
“Merck leads the way to U.S. cost-sharing”, Fierce Pharma, April 23, 2009



21
Paul Jones and Jan Malek. Prospering in a Pay-for-Performance World. A point of view paper by
Cisco
22
“Glaxo Seeks Guidance From Health Systems”, The Wall Street Journal, July 7, 2008
23
“Novartis in UK trials deal”, Market Watch, Dec 17, 2007

All the Brand Name/Trade Name/Drug Name mentioned in this document are property of their
respective owners.

Acknowledgement:

I would like to thank Mr. Saurabh Gupta for his inputs during the production of this document.



About Us:

Ananth Consulting Group (ACG) is an emerging business consulting firm providing answers to
business problems of global pharmaceutical and life sciences companies. We provide a whole
spectrum of custom market research and competitive intelligence support services, which enables you
to make informed decisions.

Contact Details:
Rajaram Iyer
President – ACG
D 305 Parsvnath Prestige
Sector 93A, Noida 201304
UP, India

Tel: +91 – 98187 23030
E-mail: rajaram@ananthconsulting.com
Website: www.ananthconsulting.com


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