New Pharma Commerce column addresses the relevance of pricing.
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” (https://bit.ly/3koZtun), 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 The Price of Global Health, 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: 24.4% in the UK for 2022. 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. Today’s value 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?
About the Author
Ed Schoonveld is a value and access consultant, and author of The Price of Global Health.