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European Biopharmaceutical Review

Less is More

A recent Washington Post article ran with the title ‘Specialty drugs now cost more than median household income’. Medical costs are in the spotlight, and drug prices in particular garner the most attention. In a system where 80% of medical costs are affected by physician decisions, doctors are under increased pressure to balance patient needs against limited resources. The high price of speciality cancer drugs places the disparate interests of patient and payer into sharp focus.

New game-changing therapies seek to ‘cure’ certain serious or hereditary disorders, rather than treat them chronically. Gene therapy and cancer vaccines are a harbinger of the future. They are at once enormously expensive, and replace a lifetime of chronic care and dosing with a single curative regimen.

Success has considerable merit. Clearly, they promise to alleviate patient burden and suffering, while reducing medical resource utilisation. The missing links are business models and policy mechanisms to align the stakeholders on the high upfront cost of treatment, versus the long tail of future savings.

New therapies can be expensive. They entail the high production costs inherent in biologics. There are also technical barriers like immunogenicity, delivery system, specificity and duration. Payers and innovators together will need to resolve basic market issues: market size; clinical efficacy; comparative effectiveness; and overall budget impact. Even if it works, there are the regulatory issues: how long is the clinical trial? Should patients be enrolled by phenotype or genotype? What biomarker indicates a durable cure – and for how long should this be monitored?

The optimum price point will need to take account of a relatively small patient population, consuming a limited number of doses, which is inherent in the single treatment paradigm. The list price of such a drug will be based, in part, on the value of future cost avoidance. This future-value issue is of great concern to payers. Will the same payer still be on board to accrue the benefits in the context of a transient patient population? This is less of an issue in national systems, where there is only one payer at any given stage of the disease progression.

In the fragmented US healthcare market, the Affordable Care Act was intended to control medical costs, in part by market competition. Individuals can switch insurance plans freely with insurance exchanges and community-based underwriting. The average tenure in an individual plan is around three years. Moreover, the health insurance industry has traditionally based its business model on a one-year underwriting time horizon.

Clearly the business question emerges: how do we value future cost avoidance and health benefits that may accrue to a party other than the original payer?

Medical economists have proposed a variety of fixes for this conundrum: reinsurance; multi-year underwriting; and cost-sharing pools. Upon deeper analysis, some variation on reinsurance appears to be the most manageable. It is a standard practice in other types of insurance, and is transparent to the patients, providers and innovators. In the end, economic success of the next wave of therapeutic innovation depends on the collaboration of, and cooperation among, all stakeholders.

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Emile Bellott is a member of the EBR Industry Advisory Board, and an industry consultant with over 25 years of experience in drug discovery, development and pharmaceutical outsourcing.
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Emile Bellott
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