Ed Schoonveld

I have been proud to work in the pharmaceutical industry for more than 35 years. However, there is one thing that I still don’t understand after all this time.

Corporate communications heavily emphasize patients and value, but the internal company processes continue to prioritize speed to FDA approval over providing value to patients at an acceptable ROI. It is hard to believe that an approved drug that sits on the shelf because of poor access is in anybody’s interest, yet company decision-making processes often result in suboptimal market uptake, access restrictions, and/or suboptimal pricing.

In the most recent update of Deloitte’s 

 of the biopharma industry’s ROI, the 2022 ROI for the industry’s late-stage pipeline is projected to be 1.2%, the lowest observed since the study was started 13 years ago. Deloitte is using the report to argue for a “seizing of the digital momentum” in R&D, but the argument could be made that we first need to deal with more fundamental problems in corporate decision-making, specifically those related to delivering differentiated products with real patient value.

 with US and EU payers, serious flaws in biopharma’s evidence packages are highlighted. Payers state that primary endpoints, trial comparators (or lack of comparator), and length of trial are often deemed inappropriate to support value claims, thus resulting in low prices and/or severe restrictions on use. Addressing payers’ evidence demands to demonstrate real patient value may increase cost and risk of clinical failure, but simply ignoring it without a trade-off analysis is not likely to be the right answer.

From my experience in working with many big pharma and small biotech companies, there are many flaws in the decision-making processes that favor theoretical R&D success—i.e., FDA approval overreaching patients—and, hence, commercial success. In personal conversations, access leaders often complain about their lack of ability to impact development decision-making. This is perhaps not surprising, as access leaders often report at many levels below the CEO, thus severely limiting their empowerment and impact.

Based on the points discussed, I have some critical questions for biopharmaceutical company CEOs:

1. When making development choices, are options considered that go beyond speed to FDA approval and benefit the access journey?

2. In revenue forecasting, are your market uptake scenarios consistent with what is realistically achievable under the planned development program?

3. Do you have a senior access champion in your organization, and who has the experience and empowerment to make sure that access is appropriately considered next to other functional aspects for the best company outcome?

4. Particularly for biotech firms: Do you have sufficient (or any) access experience in your team and on your board to guide your preparations for late-stage development, partnering, or commercialization?

Large pharma tend to have strong drug pricing and access expertise on board. Team members understand the decision-making process of global payers and other “access journey” decision-makers. However, changing the corporate decision-making process often is a bridge too far. R&D leaders, who are typically the ultimate decision-makers in drug development, emphasize speed over market attractiveness in line with their typical incentives. Speed to market is important for commercial reasons as well, but not if it leads to a race to nowhere. A strong case can be made for big pharmas to appoint a chief access officer.

Smaller biotechs are most often led by scientists, who understand what is technically required to develop a drug that addresses unmet need. Commercial talent is often only attracted at a much later stage. Even then, the access expertise is still lacking. As a result, development decisions tend to be suboptimal from a commercial view, while putting the company in a poor position for negotiations with big pharma for late-stage development.

Ed Schoonveld is a value and access consultant, and author of The Price of Global Health.

Articles

A dive into the issue of evidence gaps, plus the case for a chief access officer.

Are CEOs Getting Access Right?

In the US and Europe, there is quite a bit of movement on the market access front. The debate continues regarding the European Commission’s plans to shorten effective patent lives by two years unless a drug is launched in all 27 EU countries within two years of European Medicines Agency (EMA) approval. However, this edition of 

will focus on the evolving Inflation Reduction Act (IRA) implementation in the US.

The March 15 Centers for Medicare & Medicaid Services (CMS) guidance 

 provided some clarity, but many questions remain. For an update on IRA and a discussion on the elements, I am referring to Sean D. Sullivan, PhD’s 

). I will discuss some high-level implications.

The process for identification of the “negotiated” Medicare Part D and later Part B drugs is clear. The penalties for not negotiating are also clear and extravagant. The main questions are how the negotiated price will be set by CMS, and how it will impact pricing and formulary access of competitor drugs.

CMS will set a maximum fair price (MFP) for each drug molecule that is on the negotiation list. So far, it is known that the upper limit of MFP is the lower of the current negotiated price (Part D) or average sales price (ASP, Part B), and a percentage of the average manufacturer price (AMP), which ranges from 75% for small molecules between nine and 12 years after FDA approval, to 40% for all drugs beyond 16 years of approval. There is no lower limit, the process is confidential, and the penalties for not accepting CMS demands appear to be excessive. CMS has a lot of flexibility in its approach, as the law only excludes the use of metrics that result in a different valuation for elderly versus younger populations.

The focus seems to be on comparative effectiveness, manufacturer ROI, and potentially international price comparisons. At first glance, comparative effectiveness seems a fair criterion, but the experience in Germany shows that the definition of a comparator can easily be used to stack the cards in favor of lower-cost generics when not giving due consideration to effectiveness across populations, individual patient differences, and tolerability. What will be an accepted way to demonstrate differential value in the later stages of the life cycle, and what will be deemed significant? Will real-world data be accepted?

2. How will price and formulary status of drugs that are competing with the price-controlled drugs be impacted?

When a Medicare Part D plan starts implementing a, for example, 60% discount for drug A as a result of its determined MFP, how will they manage formulary listing for drugs A and competing (newer) drugs B and C that are in the same drug class? Will managed care plans be able to extract significant additional discounts for drugs B and C as the competitive balance has been distorted in favor of the now cheaper drug A? Will plans be tempted and able to force additional rebates for drug A?

Meanwhile, politicians are eager to build on the political IRA success with various partisan and bipartisan initiatives that take IRA a few steps further. As an example, on April 24, Sen. Klobushar 

 to change drug negotiation eligibility to five years after FDA approval and to accelerate the number of drugs up for negotiation. While these new initiatives are unlikely to pass the House, it needs to be a continuing wake-up call to the industry that there is a lot of energy in Congress to further control prescription drug pricing.

Engage in scenario analysis to guide development choices and commercialization decisions for individual drugs and portfolios.

Step-up communication capabilities and efforts beyond lobbying to politicians. The economics of pharmaceutical development is complex, but we need to agree on securing funding for innovation while ensuring that patients have access to the drugs.

The latest on its implementation—and the implications for biopharma.

IRA Journey Update

Over the last few months, biopharmaceutical firms have been more vocal than ever about challenges in the European business environment. The likes of 

 have openly or more discretely focused attention away from Europe in favor of the US and China. Ironically, this is happening at a time when the US is implementing a first step toward price controls through the Inflation Reduction Act (IRA).

What makes the European changes even more alarming than the disruptive changes in the US? As you probably know, the European single-market government payers have been able to extract prices for drugs that can be significantly lower than in free-market systems such as the US. Whether you believe that US prices are too high or not, the fact is they are in general higher, suggesting that patients who live in a free-market system for prescription drugs are subsidizing governments and patients in single-payer monopsonies.

European governments are struggling to make ends meet due to the economic recession following COVID-19, along with the impact of the war in the Ukraine. Let’s look at some of the specific changes.

 Sometimes coined as “AMNOG 2.0,” the German government has significantly tightened the evidence requirements for orphan drugs, essentially requiring a major or considerable benefit demonstration for commercial viability. In addition, it introduced discounts for combination drugs, shortening of the free pricing period from one year to six months, and an increase of the mandated rebate to 19% for all drugs.

 has systematically extracted rebates for prescription drugs, so that the net drug budget has declined by 4.5% per year since 2011.

 Due to overspending of the National Health Service (NHS) on drugs, the government wants to 

 as a rebate, per the voluntary scheme for branded medicines pricing and access. This comes on top of a decline in willingness to pay by lack of consumer price index adjustment of cost-effectiveness thresholds since 1999. 

The Association of the British Pharmaceutical Industry

 notes that the share of healthcare budget spent on pharmaceuticals is only 9% in the UK, versus 15% in France and 17% in Germany.

 Has introduced a more formal cost-effectiveness criteria as part of national price approval. In an initial assessment, this can have a large impact on the number of drugs that will be viable for launch.

The European Commission is contemplating 

 that will reduce effective patent lives from 10 to eight years and/or make it mandatory for manufacturers to commercially launch their approved drugs in all EU member states, irrespective of the locally determined price. This is really concerning, since a mandatory launch at the lower range of European prices will quickly cascade throughout the region.

What does this all mean for biopharma? Should companies de-emphasize Europe as some have done? That depends. For products with strong evidence of patient benefit, there may still be a strong case to launch in Europe. In cases where the benefit is minimal, or where the company has not been willing to develop the required evidence, commercialization will be even less successful than it already was prior to these changes.

Interestingly, US IRA-related changes may make the hurdle to be prepared for European access needs less high. Instituting a timeclock to the Centers for Medicare and Medicaid Services (CMS) negotiations for every new drug may motivate companies to develop stronger evidence and prioritize larger indications before formal launch, as it will result in more rapid uptake and higher cumulative revenue until CMS price control kicks in.

Every situation is different; however, this is another indication that the biopharma industry needs to engage in more detailed global trade-off analyses that are well informed by a strong understanding of how evidence scenarios result in access and product utilization in the largest global markets. Many companies may still have some 

 to do in order to achieve this and go beyond lip service in delivering value.

How various factors are affecting the amount of funds allocated to healthcare.

Assessing Drug Pricing in Europe

There are many reasons to devote a column to value and access.

Value and access are perhaps the most important and yet least comprehended two words in today’s biopharmaceutical industry. Corporate talk includes frequent mentions of value and reaching patients, but is it just lip service? Payers certainly think so.

In my recent article “The IRA is Industry’s Wake-up Call” (

), I reported on payer feedback with respect to four typical evidence gaps in pricing and reimbursement submissions from biopharma companies. The problem is that companies either have a poor understanding of evidence needs, or have a decision-making process that does not sufficiently incorporate value and access angles.

Why are many companies surprised every time they receive a poor access or pricing decision? Over the last 10 years, 93% of new drugs reviewed in France received an innovation rating that does not warrant any premium price over standard of care. Firms keep making the same mistakes again and again. In some circumstances, a minimal evidence package with an imperfect comparator or surrogate endpoints may make sense. However, have we properly analyzed the situation, and was that a deliberate decision?

Many perceive the drug industry to be greedy. In the introduction of my book 

I write: “How did the drug industry, with its lifesaving innovations, manage to earn a public image that is much worse than industries with products that kill, such as gun and tobacco industries?” That poor reputation and public anger resulted in the institution of effective price control in the US under the Inflation Reduction Act of 2022 (IRA). The same public anger resulted in the introduction of price controls in Germany in 2015 and subsequent increasingly restrictive measures.

Are governments fair? I am going to ask you to engage in an experiment. Please go to your regular grocery store and tell them that unfortunately you exceeded your food budget for the year by, say, $700, and ask them to refund the overage. I will let you use your imagination on the grocer’s reaction. Yet, governments now routinely demand repayments for overspending in the drug budget: 

. On top of that, prices are effectively controlled through UK's National Institute for Health and Care Excellence (NICE) at a cost-effectiveness cut-off rate that has not changed since 1999. 

 of a 1999 pound sterling is only £0.48, simply due to inflation. If taking responsibility for paying its fair share, new drug prices in the UK should be at least double of what they are allowed to be today. Unusual? No. Despite aging populations, unhealthy lifestyles, and the emergence of innovative technologies, European governments routinely budget for zero or minimal growth.

The implementation of IRA and other access evolutions around the world, such as the recent “AMNOG 2.0” decision in Germany, will also be topics of discussion in this column. We don’t know how the Centers for Medicare & Medicaid Services (CMS) will decide what is fair value for a drug. Yes, decide. The penalties to the industry for not agreeing to the “negotiations” are so severe, that you cannot speak of a real negotiation but rather an “offer that you can’t refuse.” We don’t know whether legal challenges of IRA will be effective and how IRA will affect the pipeline for new drugs and launch pricing.

Despite many contentions, the biopharma industry is a very competitive industry where companies make early development decisions based on a trade-off between multiple leads. An effective shortening of the patent life, which the IRA is, will result in lowering of an already 

low return on investment for biopharma R&D

. A company can rationally only either discontinue less attractive development options, or (where possible) increase price to offset the reduced revenues. In the first case, there will be fewer new drug innovations, and in the second, IRA will not yield meaningful savings. It’s simple math! What will happen if IRA does not result in lower drug cost? IRA 2.0? Is the industry ready to pre-empt that with a better dialog on drug (industry) value and global healthcare needs?

New Pharma Commerce column addresses the relevance of pricing.

Introducing Value & Access 

The recently approved Inflation Reduction Act (IRA) of 2022

 is highlighting an issue that the biopharmaceutical industry has failed to address and that can no longer be ignored. Now that the US is effectively introducing price controls for at least part of the prescription drug market, it is time to consider payer and provider needs more seriously in drug development planning. The IRA comes at a time when outside the US, the biopharma industry is increasingly faced with payer rejections of new drug value propositions and subsequent market withdrawals or poor commercial results. Bluebird Bio’s withdrawal of Zynteglo from Europe after failed price negotiations was just one example of misalignment between biopharma expectations and commercial reality.

Inadequately addressing payer evidence needs is already leading to suboptimal pricing, and sometimes, an inability to launch in international markets. It is time that the industry realizes that placebo-controlled clinical trials, single arm trials, and surrogate endpoints may pass the FDA hurdle but may not lead to commercial viability. Biopharma companies now need to address a lingering value issue that they have so far largely ignored.

The IRA includes a redesign of Medicare Part D, allows the Centers for Medicare and Medicaid Services (CMS) to negotiate drug prices for Medicare Parts B and D, and penalizes inflationary price increases with Medicare rebates. The most concerning part about the new law is the “negotiation” aspect. The level of penalties for not complying with CMS rules gives a strong scent of direct price control rather than negotiations; this is also likely a basis for legal challenge of the IRA.

We must wait for further details on the implementation of the CMS negotiation framework. The IRA seems to have a relatively favorable impact on biologics vs. small molecules and on pharmacy benefits vs. medical benefits, although it remains to be seen how managed care will adjust its formulary management after patient cost for Medicare Part D is capped at $2,000 per year.

Assuming that (after legal challenge or not) negotiations will be based on value and competition, there is a high probability that the steepest discounts will fall on drugs that are medically deemed undifferentiated or insufficiently substantiated with evidence of patient or healthcare system value.

In many countries outside the US, drug price controls have dominated the commercial landscape for decades. Increasingly strict clinical and economic evidence requirements create steep commercial hurdles beyond the efficacy and safety-oriented regulatory approvals, such as by the European Medicines Agency (EMA) that officially signify market authorization, but in reality, just start payer discussions.

Amplified by COVID-19-related general economic and healthcare budget pressures, global governments are engaging in cost-cutting programs that include strict containment of prescription drug spending. ZS analysis

 shows that ongoing healthcare budget deficits will likely lead to more severe restrictions and lower prices or price cuts for undifferentiated drugs, increased scrutiny on value of high-budget impact therapies, increased use of biosimilars, and price pressures on combination oncology treatments and orphan drugs. As an illustration, the share of reimbursement submissions in France that were successful in securing a rating of ASMR I, II, or III, thus having a potential for a meaningful price premium over the standard of care, has declined from only 7.1% from 2006-2010 to an even lower 3.6% from 2016-2020. In Germany in 2021 and the first half of 2022, nine new drugs were withdrawn from the German market over health technology assessment (HTA) results and resulting pricing problems. Prior to 2020 this was a very rare event.

Payers increasingly scrutinize a lack of longer-term outcomes as proof of drug benefit. Where the medical community and FDA or EMA tend to accept surrogate endpoints as evidence of efficacy, payers demand evidence of sustained effectiveness. For example, payers look for a meaningful improvement in overall survival rather than a tumor response rate, or they demand a reduction in cardiovascular event rates instead of lowered cholesterol. Biopharma companies often do not take these requirements seriously, sometimes because they mistakenly believe these hurdles can be overcome and other times because they are simply not willing to take the clinical risk or make the additional time and monetary investment to show compelling data.

In an early 2022 poll, we asked payers in the US, Germany, France, Italy, Spain, and the UK to give their perspectives on biopharma pricing and reimbursement submissions and the main gaps that they experience. Four evidence gaps were highlighted as having the largest impact on payer assessments:

Figure 1 above illustrates that the ratings across countries vary somewhat. Overall, France and Germany tend to be most critical in their evidence requirements; ironically, these are also the most-referenced countries among the set, making pricing and access success in these two countries critical for ex-US global commercialization. In France, the choice of trial comparator is the highest-ranked concern, while in Germany, the single-arm trial is highlighted most. Spain and Italy also express substantial concerns. The US and UK are on the lower end of the concern spectrum and tend to be more willing to find ways of overcoming the evidence gaps through other analyses. For the US, the question is how this may change post-IRA.

The selection of the primary endpoint in pivotal clinical trials is the most frequently stated payer concern expressed across countries. US payers also express strong concern about this aspect. It reflects the consistent feedback from payers that, while clinicians make decisions based on surrogate endpoints as immediate signals on patient management, payers are highly skeptical whether, for example, in oncology, tumor response rates, or even progression-free survival (PFS) are leading to meaningful survival improvements. As a result, drugs with lack of compelling evidence of long-term patient health improvements are heavily penalized on price in countries such as France and Germany. An example is the CDK4/6 class, where Ibrance, Verzenio, and Kisqali received relatively poor pricing outside the US despite compelling PFS data, as these therapies lacked evidence of overall survival improvement at launch.

The choice of a comparative treatment arm in a randomized controlled head-to-head clinical trial is critical in many payer systems. Having chosen an inappropriate or no-longer-relevant comparator can have a drastic impact on the accepted benefit level. An example of an unfortunate outcome has been the withdrawal of Piqray

 from Germany and France after payers deemed the comparator treatment arm in the trial no longer the relevant choice since the adoption of CDK4/6 inhibitors. Particularly in France, Germany, Spain, and Italy, this is one of the most common reasons for an unsuccessful price negotiation.

When an appropriate comparator is not selected, payer acceptance comes down to the justification. It may not be a surprise that, what is often the real reason (“I am not sure I can win against product X”) is exactly the reason why payers insist on this point. Payers may say, “If you don’t have the stomach to show value, why do you expect us to pay for it?”

Single-arm studies are only deemed appropriate in situations where a properly powered head-to-head trial showing statistically significant improvements on important endpoints is not feasible, such as in the situation of many orphan drugs. Yet even in this situation, payers have become very critical. Germany is increasingly rejecting benefit claims for orphan drugs over lack of evidence through the single-arm trial, which we saw clearly illustrated by the German responses in our survey. This should be seen in the context of the German government’s actions to clamp down on what it considers an explosion of orphan-drug applications following Arzneimittelmarkt-Neuordnungsgesetz's (AMNOG) automatic exclusion of “no-benefit” designations for orphan drugs with limited revenue.

Payers are also concerned with a sustained effect of treatment. Shorter trials can satisfy claims regarding some surrogate endpoints. But initially, observed improvements can be reversed over time, resulting in a lack of longer-term improvements in outcomes. There is some overlap between this concern and the insistence on endpoints that reflect longer-term outcomes. For example, in kidney disease, a sustained change in estimated glomerular filtration rate (eGFR) may support claims of disease modification, although payers usually want to see a verification in terms of fewer patients progressing to end-stage renal disease.

The medical community has great expectations for real-world data (RWD). RWD offers opportunities to learn from statistical analyses of real-life outcomes across patient populations and treatments. But RWD can only be obtained in support of benefit claims after widespread use in medical practice and thus has limited use for initial approvals for new drugs. Since the 21st Century Cures Act of 2016, FDA has become more engaged in addressing the role of RWD in US marketing authorization approvals. Recent examples

 show some FDA willingness to use RWD as an external control arm and in addressing concerns regarding single-arm studies. However, payers are only slowly and highly selectively accepting RWD.

In our survey, payers strongly indicated that while RWD can be useful for treatment protocols and to orient physician prescribing, they do not accept uncontrolled observational data as a substitute for randomized controlled trial data. More specifically, payers indicated that RWD will generally not be accepted to overcome an inappropriate endpoint selection or trial comparator, or for choosing to conduct a single-arm trial (see Figure 2). Therefore, we should be very careful in assuming that evidence gaps can be fixed with RWD.

Many biopharma companies are still coming to grips with the need to demonstrate evidence of value beyond the very limited requirements that FDA is imposing. This is often a deep organizational issue, where development decision-making is heavily focused on speed and clinical risk reduction rather than a holistic evaluation of multiple options with respect to impact on commercialization. Many companies make market share projections based on theoretical potential, but ignore evidence needs to ensure that the potential comes to fruition. They tend to choose the fastest road to FDA approval, largely ignoring the evidence needs of the medical community, payers, providers, and prescribers. As a result, they lack acceptance in guidelines and have poor formulary placement and slow adoption.

There are several things that biopharma companies can do today to be better prepared for the evolving needs of payers and the emerging needs under the IRA.

Enforce better-structured access involvement in the drug development and corporate business development decision-making processes.

 The creation of a chief access officer is long overdue to ensure that access has a strong voice next to R&D, to add a sense of urgency, to build a stronger organizational understanding of payers and providers, and to pursue meaningful customer partnerships.

Incorporate access and pricing in forecasting and business decision-making. 

Medical community adoption in guidelines, payer/provider formulary uptake, and physician prescribing are highly correlated with the evidence provided beyond the FDA-mandated placebo-controlled trial. Forecasting needs to support trade-off analyses and decision-making that considers multiple development options. Scenario planning is important to address uncertainties with respect to further US market evolution within and beyond the IRA implementation.

Evolve global strategies to address commercial evidence needs in the US, Japan, Europe, and

 Consider regional evidence needs, and not just as a US afterthought. In some cases, it may make sense to launch in the US and Japan first, and strengthen US market uptake and European/Canadian pricing and access requirements with more robust evidence. However, price control timelines under the IRA could change that.

Ed Schoonveld is a managing partner and founder of the value and access practice at ZS, a management consulting and technology firm.

https://www.zs.com/insights/inflation-reduction-act-what-biopharma-needs-to-know

2. Stefan Kloss and Emmanuel Colliot, “Once bent out of shape: Implications from the latest cost containment measures to address post-COVID healthcare budget deficits in Western Europe,” ZS white paper, Oct. 2022.

3. Neena Brizmohun, “Piqray: German Withdrawal, European Reimbursement Deals & Broader Indication Plans,” Pink Sheet, May 6, 2022. 

https://pink.pharmaintelligence.informa.com/PS144276/Piqray-German-Withdrawal-European-Reimbursement-Deals--Broader-Indication-Plans#:~:text=Novartis%20has%20withdrawn%20Piqray%20(alpelisib,use%20across%20Europe%20last%20year

4. Bridget Silverman. “RWE On The Runway: Trio Of Upcoming Approval Decisions Will Test US FDA’s Thinking On RWE For Efficacy,” Pink Sheet, Sept. 5, 2022. 

https://pink.pharmaintelligence.informa.com/PS146958/RWE-On-The-Runway-Trio-Of-Upcoming-Approval-Decisions-Will-Test-US-FDAs-Thinking-On-RWE-For-Efficacy

Exploring the legislation's diverging requirements between regulatory agencies and global payers, and its impact on the commercial results of biopharma companies

The IRA is Industry's Wake-up Call

	With increasing frequency in Europe, and now starting to show up in the US, biopharma companies and payers are entering into agreements to provide some form of risk sharing or price protection as new drugs are adopted into formularies. The best known among these include Pfizer’s Sutent (sunitinib malate) and Onyx/Bayer’s Nexavar (sorafenib) anti-cancer drugs; Novartis’ Aclasta (zoledronic acid), and Sanofi-Aventis/Procter & Gamble’s Actonel (risedronate sodium), both osteoporosis drugs. Manufacturers have agreed to various plans in Italy, Germany and the US to provide drug for free if no improvement is seen after initial treatment, or to reimburse health plans if bone fractures occur despite the osteoporosis therapy. There are numerous others, and more under consideration.

There is a lot of misunderstanding and controversy about risk sharing in the pharmaceutical industry. Some love it, others hate it, but most of us are just confused about the topic. What is the risk and who is sharing? Will we miss out if we don’t start closing these deals immediately? In this article, we will give you a structured four-step approach to help your decision making on whether you need to act, and for which opportunities.

	The fundamental idea of risk sharing is simple: in return for a pharmaceutical company’s guarantee of efficacy, a payer will add a new product to its formulary that it would not have added otherwise. The concept is similar to a “money back” guarantee for consumer products — they provide a perception of quality and confidence. However it does raise the question whether pharmaceutical companies should provide insurance to insurance companies? That sounds like something that one should be careful about.

	For new drugs, risk sharing can make a lot of sense, as the manufacturer has better insights in the strength behind its claims with respect to yet unproven long-term health benefits. A deal can help overcome challenges in addressing payer hurdles in providing meaningful long-term outcomes data prior to launch. For drugs at a later stage of their life cycle, payers are likely to have much better data on outcomes than the drug company, and the deal could represent unjustifiable risk to the manufacturer.

	Let’s call it ‘alternative pricing’

	Most risk-sharing deals share no risk at all, if one takes the definition of “share” taught in kindergarten. It would be better to refer to this large group of risk sharing deals, outcomes-based contracting and performance-based agreements as “alternative pricing schemes.”

	Alternative pricing schemes originated in Europe and Australia, where they served to overcome individual nations’ particular pricing and reimbursement approval hurdles. In the UK, for instance, risk-sharing deals have helped reduce cost per patient within National Institute for Health and Clinical Excellence (NICE) guidelines. As such, these deals are really poorly disguised price cuts.

	Risk sharing continues to fascinate the industry, even though relatively few deals actually bridge risk inherent to a long-term outcome of a pharmaceutical product. Payers tend to love these deals as discount opportunities. Health outcomes specialists support the use of their data in structuring agreements. But drug pricing professionals are very skeptical. They know from experience that price concessions have a domino effect across markets, and once a payer in one country or region gets a risk-sharing discount, payers elsewhere will demand the same net price.

	If the benefits are slender, why is the industry abuzz about these deals? Often, payers are directly or indirectly demanding these arrangements, particularly in Europe, where centralized mechanisms give payers power over market access. Enticed by demanding payers, pharmaceutical companies have engaged in arrangements that provide short-term local success, but can have major long-term bottom-line repercussions.

	Many pharmaceutical executives are unclear what makes a good alternative-pricing scheme, one that is mutually beneficial to all parties instead of tilted towards one or the other. There are different types of alternative-pricing schemes, and it is in executives’ best interest to understand exactly how these deals work—and how to make deals work for them.

	We have identified seven basic types of alternative-pricing/risk-sharing schemes. Each is based on two determining factors: is the deal based on population or individual outcomes, and is the agreement triggered by biomarker, short-term clinical, long-term clinical or financial data? Figure 1 gives an overview of the deal types. 

1. The biomarker-linked reimbursement deal 

	In this type of arrangement, payers make reimbursement conditional on results from biomarker tests. Herceptin is a good example. The drug is particularly effective in HER2-positive patients. Payers have made reimbursement contingent on a positive biomarker test that screens for HER2-positive patients. 

Biomarkers inherently limit a drug’s eligible patient population, but can significantly enhance the product’s value through a demonstrated higher effectiveness—it can command a higher price and market share, provided that the biomarker is available and reimbursed at the time of launch. 

2. The surrogate endpoint-based reimbursement deal 

	This is the most-liked—and loathed&mdash;type of deal. Some argue that the surrogate endpoint deal is sometimes necessary to bring a product to market; others say it is a problematic precedent-setting price discount. These deals link reimbursement to meeting short-term surrogate endpoints, such as tumor response rates. However, clinical risk is not associated with surrogate outcomes, but rather with the predictability of long-term outcomes that the deal does not address. 

Sutent and Nexevar in Italy were introduced using this kind of deal and show some of the hazards of engaging in it. The Italian government reimbursement agency now frequently insists upon agreements that link reimbursement to demonstrated efficacy; Sutent and Nexevar have been approved for partial reimbursement for the first three months of use. After three months, the government only pays for patients who respond under agreed-upon patient response definitions. 

Government insistence to not pay for non-responsive patients creates objections with many pharmaceutical pricing executives. It seems unfair to first reference a drug price to other countries and then to insist on paying only for a subset of treated patients. 

	Patient warranty deals are based on explicit guarantees regarding long-term patient outcomes. This agreement makes intuitive sense—it provides the payer an explicit guarantee that a product works as advertised. An example of such a deal is the deal between Novartis and some German sickness funds, where Novartis refunds cost of its bisphosphenate Aclasta for osteoporosis, for patients who suffer from a fracture despite taking the drug. 

The warranty deal has several merits, but one stands out: the drug company is making a claim for which they have better information than the payer. From that perspective, it is truly a “risk sharing” partnership. A population-based deal (discussed later) may be more practical, as it may reduce administrative burden. 

4. The short-term performance-based deal 

	This type of deal is rare. At launch, a pharmaceutical company usually knows a product’s short-term clinical performance, diminishing the need for complicated risk-sharing deals. 

However, an arrangement between Merck and Cigna for diabetes drug Januvia is an interesting exception. This partnership involves guarantees on HbA1c as well as patient compliance, key in achieving longterm health improvements. The partnership component of this deal may be of great use in other situations. 

5. The population-based performance guarantee deal 

	In many ways, this is an ideal agreement, as it brings drug innovations to needy patients, thus benefiting health policy objectives and the pharmaceutical innovator. As its name suggests, reimbursement is based upon longterm outcomes of a patient population, rather than individual or short-term population outcomes. 

The multiple sclerosis deal in the UK was one of the first true risk-sharing deals. The situation was ideal for a population-based guarantee deal: the British government wanted to address high patient demand for MS treatments, despite a negative NICE ruling, while pharmaceutical companies were willing to guarantee longterm outcomes of new products. Both parties stood to gain and mutually bear risk.

The concept of this deal type is actively explored on many fronts in the US under the Coverage with Evidence Development (CED) classification. Garrison et al (L.P. Garrison, 2008) attribute a number of device- and drug-reimbursement agreements with CMS to the CED concept. Under this agreement, reimbursement coverage is provided by CMS, under the condition that the patient is enrolled in a registry in which further evidence on the treatment’s efficacy and safety is gathered over time.

	The recent Sanofi-Aventis/Proctor & Gamble deal with Health Alliance in the US for its Actonel osteoporosis treatment deal is a variation on the Novartis-German sickness funds deal guaranteeing outcomes. However in this deal, for patients taking Actonel and suffering fractures, Sanofi-Aventis will reimburse the medical cost for treating a fracture rather than just the cost of the drug treatment. It is unclear if an uncertainty of clinical outcomes forms the basis for this type of deal, rather than tactical life-cycle marketing objectives. 

	In general, the per-patient cost capitation deal ensures payers that cost will not exceed a certain limit. This is particularly important for payers concerned that a pharmaceutical product can support sustained use beyond what the payer may find reasonable. For example, in a deal with the Department of Health in the UK, Novartis agreed to pay for macular degeneration drug Lucentis when patients require more than 14 injections of the treatment, beyond which evidence suggests that it is not clinically useful. 

7. The overall sales-volume capitation deal

	The final type of risk-sharing/alternate pricing agreement ties prices to sales. As part of a launch price negotiation in France, annual sales volumes must be agreed upon for several years. If the maximum volume is exceeded, the pharmaceutical company will pay penalties, be it in terms of rebates or price reductions. Sales-volume capitation deals are designed to address government budget concerns, but form a disincentive for innovation, as additional demand following better data can be punished severely. 

	Pricing and health outcomes disciplines need to engage in close collaboration to ensure that the right strategic deal is pursued. There are some truly great opportunities for alternative pricing schemes. However, as with the “disease management” phenomenon in the 1990s, many health care companies are jumping on the risk-sharing bandwagon because they do not want to feel left out, no matter the benefits in any given deal.

	A simple measurement of a deal’s viability is when both payer and pharmaceutical company see a benefit. The multiple sclerosis agreement in the UK is a role model example for a perfect fit of a risk sharing deal. The payer and pharmaceutical companies truly shared the risk, and, despite some implementation difficulties, patients gained access to the drugs and a difficult situation for the NHS was averted. 

True “risk sharing” agreements can be pursued for two reasons: 

A pharmaceutical company has in-depth information on a new product’s characteristics; i.e. at or prior to launch.

Availability of key data to back up pharmaceutical company claims is dependent on the company’s commitment to plan and execute these trials. 

Whether the deal is a true “risk sharing” deal or not, we should evaluate every opportunity for an alternative pricing scheme in a logical and structured fashion: 

		What are we trying to achieve? When the objective of a deal is vague, we are not likely to come up with a meaningful deal that makes sense in the long run. Good deals resolve issues rather than create them. 

		What is in it for the payer? If it is not a win-win deal, it is less likely to be successful or it may not be a good deal for one of the parties. Are we pursuing the right kind of deal? 

		What is the longterm strategic impact on our business? Will we impact pricing in other countries? Are we just increasing the cost of doing business through admin and data collection cost? 

		Can it be implemented? Even the much heralded MS deal in the UK has been facing great implementation issues. 

A deal that gets a positive report card after review on the above four criteria, is likely to be worthwhile pursuing. 

	Even when a biopharma company negotiates a deal that looks good on paper, it can easily fall apart over implementation issues such as data collection complexities and administrative burdens related to validation of claims related to the deal. To reduce longer-term cost and administrative burdens, it is important to have an exit strategy after a sufficient evaluation of the risk elements. 

Ensuring transparency on both sides is essential, as is making sure that the deal will not distort the market elsewhere. Global brand management needs to have oversight over the actions of regional managers who might seek a deal that makes sense in one country, but can affect the drug’s market elsewhere. Some deals that seem useful initially may form a substantial barrier to entry for new follow-on drugs. Such a deal may be an attractive tactical move, but is not in the interest of maintaining a competitive market. 

Underlying all of these conditions is the answer to a fundamental question for pharmaceutical companies: is the deal adding any fundamental value to the company, or providing a competitive advantage? Pricing professionals need to convincingly answer “yes” before embarking upon a complicated and hard-to-implement deal. 

	It will be interesting to see how alternative-pricing schemes will evolve. Outside the US, existing practices on alternative pricing arrangements are likely to continue, as government payers identified a way to demand prices outside international pricing bands that were previously guarded carefully. 

In the US, deals have so far been sporadic and with limited numbers of payers. They have the nature of experiments. However, there is a lot of flux behind the Coverage with Evidence Development (CED) concept, which fits within the population-based performance guarantee category. Ongoing federal healthcare-reform discussions are likely to further impact support for this initiative. We can help establish a meaningful place for alternative pricing schemes by focusing on deals that make sense. PC 

	Ed Schoonveld is Principal and Leader of the Market Access and Pricing Practice at ZS Associates, a global management consulting firm specializing in sales and marketing consulting, capability building and outsourcing. Schoonveld has previously held positions at Bristol-Myers Squibb, Wyeth and Eli Lilly. He can be reached at 

Stefan Kloss is a Manager with ZS Associates in New York City and a member of ZS’s Global Market Access & Pricing Practice Team. He can be reached at Stefan.Kloss@zsassociates.com. 

Shared-risk or ‘pay for performance’ agreements between drugmakers and payers can represent uncertain rewards for both parties. Use strategic planning before entering into them