Market access and the need for stakeholder-centricity
Jan Stojaspal examines how pharma can build mutually advantageous partnerships within a changing stakeholder environment
Today, it’s no longer enough for pharma companies to just make and sell drugs. They also have to convince payers how well their drugs work, and that they work for the maximum number of people at an acceptable cost. “Everyone needs to be in the same business, meaning that we are here to improve outcomes for the patient at an economic benefit for the health system, whether the payer is employers or the government,” says Carolyn Buck-Luce, global pharmaceutical sector leader at Ernst & Young.
The pressure on pharma companies has been highest in Europe, where the persistent euro debt crisis, rapidly aging populations, and rising drug expenditures are threatening the very sustainability of the continent‘s universal healthcare coverage.
The European market
In the United Kingdom, where the National Health Service’s total spend on drugs almost doubled between 2000 and 2010, from $10.5 billion to $18.9 billion, negotiations are expected to begin later this year on a new value-based pricing (VBP) system that aims to assign reimbursement values to new medicines based on how well they can demonstrate therapeutic improvement compared to other products or that tackle a “greater burden of illness” as measured by the severity of an illness and the level of unmet need.
“There must be a much closer link between the price the [National Health Service] pays and the value that a medicine delivers,” the UK Department of Health wrote in a 2010 brief. Already the government is trying to contain drug costs by capping profits of pharmaceutical companies and negotiating price cuts on older drugs. (For more on VBP, see Is value-based pricing an aid to market access?, The impact of value-based pricing on market access and patience compliance, and Market access: The impact of HTAs on strategy; for more on the NHS, see The 'new' NHS: What does it mean for pharma?)
A law passed last December in France requires all pharma companies to demonstrate the value and efficacy of their new products by comparison to similar products on the market, instead of just doing placebo-controlled trials. According to Steven Flostrand, principal of IMS Consulting Group, the Commission de la Transparence, the French agency in charge of assessing quality of healthcare, has also been increasingly asking for additional real-world trials that demonstrate the performance of products in practice and using the findings for future re-evaluations of price and reimbursement status of drugs.
In Germany, a bill passed in late 2010, has limited the time during which pharma companies can freely price their newly launched patent-protected drugs to one year, according to Ernst & Young.
The US market
In the United States, pharma companies are enjoying more freedom when it comes to setting prices and negotiating reimbursement rates, due to the commercial nature of the market and its high fragmentation. But even there payers are getting tighter with money as medical costs soar and the government is left to pick up more and more of the bill.
According to Buck-Luce, the percentage of drugs reimbursed by the government jumped from 10 percent to 40 percent as a result of the Medicare Modernization Act, passed in 2003. And the percentage is expected to continue climbing as a result of President Barack Obama’s healthcare reforms, assuming Obama is reelected and the Supreme Court upholds the so-called individual mandate that would require most Americans to buy health insurance by 2014.
“With the healthcare reforms … there will be more and more patients moving into Medicare coverage,“ Flostrand says. “And because it’s a government system, Medicare is going to behave more like a European-style payer. At least that’s the theory, because they have less freedom to negotiate, so they are going to want to see better evidence up-front.” (For more from Steven Flostrand, see Pharma and market access: How to overcome the challenges.)
Over the next decade, the US government plans to spend more than $4 billion researching comparative effectiveness of drugs, according to consulting firm PwC. Private payers are not far behind. (For more on comparative effectiveness, see Why Comparative Effectiveness Research is a market opportunity, Pharma marketing and comparative effectiveness research, Health data and comparative effectiveness, and How to build value through comparative effectiveness research.)
A global pharmaceutical industry report released by Ernst & Young last year cites the example of Regence, the largest health insurer in the Northwest and Intermountain regions of the United States. In the late 1990s, Regence decided to tackle higher medical costs and lower renewal rates by starting a systematic review of products it was covering. It assigned three pharmacists to the task of reviewing all drugs once a year and checking them against its coverage policies. And it launched a system of information audits to identify reliable studies on which to base its healthcare decisions.
The audits have shown, Ernst & Young reports, that “only 20% of new pharmaceuticals have proven value in terms of effectiveness, safety, persistence, and/or cost.” At the end of 2008, Regence reported cost savings of over $530 million, the report adds.
With payer scrutiny intensifying and sales remaining sluggish in most mature markets, a number of pharma companies are betting on emerging markets. The projected double-digit market growth rates for countries like China and India may look promising enough. But these markets are no panacea, warns Cyrus A. Chowdhury, chief executive officer at CBPartners.
Not only are pharma companies unlikely to get a break on having to demonstrate the medical benefits of their products, they will also be hard-pressed to achieve the same returns on their innovative drugs, due to lower income levels. “Nobody, and I don’t care how quickly your economy is growing or how many dollars of GDP growth you had last year, nobody is going to be whimsical with their dollars these days,” Chowdhury says. “They are going to be very careful about how they are spending it.” (For more from Cyrus A. Chowdhury, see Market access: China and international reference pricing and Market access in Russia: Localization versus isolation.)
It would also be a mistake to judge a country’s market potential solely on population size. For example, China with its 1.3 billion people may look like a vast market, but the reality is that the absolute number of patients who have access to innovative medicines there is roughly the same as it is in Germany.
Russia, on the other hand, Chowdhury points out, may have a population that is a tenth of China’s, yet has done a much better job paying for some very high-cost medicines in areas like multiple sclerosis and certain types of leukemias and lymphomas. “So the opportunity today is not quite as substantial as I think everyone would like it to be,” Chowdhury says. “But everything you do in the emerging markets is with an eye to the future.” (For eyeforpharma’s comprehensive coverage of emerging markets, see Special report: Pharma's emerging markets and download Pharma Emerging Markets Report 2011-12.)
The future in these markets could involve increased public spending on treating typical middle-class diseases like diabetes and cardiovascular diseases, as more and more people are lifted out of poverty and succumb to poor eating habits and lack of exercise. But it also holds dramatic improvements in public access to healthcare. For example, basic public medical insurance coverage in China reached 93 percent of the population by the end of 2011, as part of a three-year, $135-billion healthcare reform plan. (In 2005, only 15 percent of the population was covered.) Some 2,000 county-level hospitals were built under the same plan.
With so many changes, pharma companies have been struggling to keep up. In its November, 2011, report Top Health Industry Issues of 2012: Connecting in Uncertainty, PwC calls the various business models emerging “as varied as the costumes in a Broadway musical.” But one thing is clear, they all must allow for the growing leverage of payers.
New stakeholder environment
Ed Schoonveld, market access & pricing practice leader at ZS Associates and author of The Price of Global Health, has the following advice for succeeding in the new stakeholder environment:
· Try to understand the payer’s perspective and incorporate it into product development decisions, by providing evidence of important benefits over existing treatment options to payers.
· Build broad consensus across key stakeholders in commercial and development disciplines.
· Do a much better job in communicating a drug's value to physicians, patients and payers.
“If you are not seriously considering the payer angle as part of your development program, you are making a serious mistake,” Schoonveld says. “Companies that are not looking at payers are really planning to underperform.” (For more from Ed Schoonveld, see Market access: Risk sharing and alternative pricing schemes.)
Companies like the AstraZeneca and Roche appear to get that. AstraZeneca has been refocusing its business to be able to demonstrate value of its medicines by engaging a broad range of specialists with knowledge of the needs of healthcare decisionmakers and budget holders, using their insight to better tailor clinical trials and studies to better suit payers’ needs, says Isabelle Jouin, the company’s head of product communication, specialist care.
AstraZeneca has also joined pioneering Real World Evidence (RWE) agreements such as HealthCore in the United States. “At AstraZeneca, we’re increasing our capabilities to provide data (real-world evidence, or RWE) about the effectiveness of our medicines and their relative value to the total cost of care; e.g. do they provide better value for money by reducing length of stay in hospital or the number of visits to their doctor?” Jouin says.
Roche, for its part, has started pairing development of innovative pharmaceuticals with accompanying diagnostics to help doctors determine which patients are most likely to respond to its medications. Its Herceptin and Pertuzumab treatments for breast cancer, for example, require testing for the HER2 protein prior to treatment. And testing for the mutation of theBRAF gene is required prior to treating metastatic melanoma with Zelboraf.
In emerging markets, Roche has worked with local authorities to make its medications accessible at a lower cost to the payer. In Egypt, it was able to offer Pegasys, its hepatitis C treatment, by packaging it locally in vials rather than pre-filled syringes and marketing it under a different brand name, says DanielGrotzky of Roche Group communications.
Time to adapt
Still, many others are having a hard time adapting. “There are some, who still have a challenge about it and who say things like, ‘You know, the EMA [European Medicines Agency] approves our drug and that’s proof that it’s effective. Payers should pay,’” Flostrand of IMS Consulting Group says. “And when you hear things like that, then you know that they still haven’t got it.”
Traditionally, pharma companies have been reluctant to do comparative trials, where their compound is compared to current standard of care. According to Flostrand, such trials are expensive, and it can be hard to prove more subtle differences, like a 10 percent improvement in effectiveness in a clinical trial setting. “It requires a large sample and they run the trial for a long time, and there is always risk that the trial does not show a difference, even if there is one, or that the difference is not statistically significant,” he says.
He adds, “Imagine I work in market access in a pharma company and I say to my R&D department, ‘You know, in order to convince payers of the benefit of this drug, I need a comparative trial head-to-head versus standard of care.’ And the R&D people say, ‘Ok, that’s going to cost you $200, it’s going to take a year, and we only have a 60 percent chance of it working.’ You can imagine the conversation. It’s not an easy decision.”
There is, of course, still the option of sticking to the time-tested blockbuster model of launching a radically innovative product, the value of which will be obvious. “The old rules apply if you had a breakthrough in areas where there is significant unmet need, like Alzheimer’s disease,” says Mark H. Mozeson, a partner in the health and life sciences practice at Oliver Wyman. “I think the first pharma company that comes to market with a drug that either dramatically slows the progression of Alzheimer’s disease or attacks Alzheimer’s disease in some of sort of curative fashion will do tremendously well. The same is probably true in many areas within oncology. The same is probably true in diseases like multiple sclerosis, which is not managed very well through pharmaceutical intervention.”
But until those breakthroughs are made, pharma companies will need to make do in a stakeholder environment where the payer increasingly sets the rules.
For eyeforpharma’s coverage of emerging markets, check out our Emerging Markets special report.
For exclusive business insights, download eyeforpharma's Pharma Emerging Markets Report 2011-12.