Over the last two decades, the growth of payer power has made access increasingly challenging for pharmaceutical companies. In our previous article, we considered how health technology assessment (HTA) and increasingly aggressive pricing methods have put drug manufacturers under pressure. In this article, we will examine how the pricing of one product in particular has been a catalyst for changes shaping the access environment of today and tomorrow.
Sovaldi—a transformative therapy in more ways than one
One drug, in particular, has been the focus of criticism of pharmaceutical pricing in recent years. In 2014, Gilead’s Sovaldi (sofosbuvir) transformed the treatment of hepatitis C. The drug’s effectiveness was beyond dispute, and it was also generally judged to be cost-effective, not least because of its ability to prevent expensive long-term complications of the disease. However, given the large numbers of eligible patients, its budget impact at a headline price of around $84,000 per course of therapy was potentially crippling to healthcare system budgets. Medical professionals, the media and politicians around the world demanded unprecedented intervention to cut Sovaldi’s cost.
Governments did indeed take action, using methods such as price-volume agreements, fixed costs per patient, budget caps, risk-sharing agreements and competitive tendering. As a result, healthcare systems were able to provide access to Sovaldi and later entries to the direct-acting antiviral market, delivering enormous benefits to patients. However, the controversy also transformed the debate about international drug pricing, increasing the pressure on pharmaceutical companies to offer affordable and sustainable pricing.
Payers across Europe are increasingly looking to companies to negotiate managed entry agreements, particularly for high-priced drugs at the cutting edge of medicine. These deals may take many forms but can be broadly divided into financial agreements (discounts, rebates, free stock) or outcomes-based agreements (payment conditional on meeting clinical targets). Manufacturers generally insist on strict confidentiality on the terms of these deals as a key condition of reaching agreement.
At the same time, critics of the pharmaceutical industry have called for disclosure of the terms of rebates and discounts. They would also like more information on the cost of developing and manufacturing new drugs, with a view to limiting the profits that companies make or introducing some form of cost-plus pricing. At the World Health Assembly in 2019, a transparency resolution was adopted by all countries except Germany, the UK and Hungary. Ending confidential deals might lead to lower net prices, but pharmaceutical companies might be less willing to negotiate agreements in some markets, potentially making access considerably worse for patients.
Pricing without borders?
Some countries have also formed cross-border collaborations – usually with their near neighbours – to share pricing information, collaborate on HTA and increase their bargaining power (Figure 1). The best known of these alliances are the Beneluxa Initiative and the Valletta Declaration group, but others have also formed across Europe. While the impact is yet to be fully realised, these collaborations are gaining momentum and are likely to influence future access. Although companies may be reluctant to participate, valuable learnings may be realised by companies willing to engage in early pilots.
Implications for pharma: Affordability and sustainability needs to be considered carefully during the development of drug pricing strategy. Companies that are flexible, solution-oriented and can actively collaborate with payers during clinical development are likely to succeed in the long run.
Prescribing autonomy in decline…
The rise in payer power has been accompanied by a slow but sure erosion in the degree of prescribing autonomy reported by physicians – prescription choice is now largely driven by payer-approved formularies that are based on both clinical evidence and economic considerations. As real-world evidence becomes increasingly ubiquitous, it is likely that its analysis will directly influence the development of payer guidelines that will evolve more rapidly and will be implemented more strictly. This will have a major influence on prescribing behaviours and will further erode the effectiveness of pharma’s increasingly outdated share of voice model.
Facing new challenges
The highest-priced medicines are generally orphan drugs, a reflection of the economics of recouping development costs from a very limited patient population. The EU Orphan Regulation in 2000 offered financial incentives to develop treatments for rare diseases. More than 150 such products have launched over the last two decades, an undeniable success. Nevertheless, the EU is now considering changes to the Orphan Regulation to reduce rewards for ‘stacking’ of orphan indications – gaining approval for multiple rare diseases – and to encourage companies to explore new indications and to commit to commercialising their drugs promptly across Europe.
Some of the most innovative treatments for rare diseases are cell and gene therapies, which offer the promise of a cure in a single treatment. These products come with price tags of up to €2 million which makes payers wary, not least because the evidence base is limited and long-term outcomes uncertain. Solutions offered include instalment payments over several years to spread the cost, and outcomes-based agreements to give payers the reassurance of guaranteed refunds if clinical benefits are not delivered. Companies developing these treatments must prepare well in advance to ensure they understand how evidence will be received by payers, what additional data will be requested, and any additional arrangements needed to secure access while managing real world uncertainty.
Implications for pharma: The ability to execute outcome-based agreements will become critical and companies will need to be creative to ensure an acceptable return on investment. Evidence generation efforts must adapt from focusing mainly on clinical studies to the continuous, collaborative generation of data that can inform evolving treatment guidelines and clinical practice.
COVID-19: boon or bane for pharma?
Over the last year, the COVID-19 pandemic has added an intriguing twist to the pricing debate. Developers of SARS-CoV-2 vaccines and therapies have helped to restore the industry’s tarnished reputation, but these companies have also been the subject of intense scrutiny for their pricing policies. Decisions they take on the pricing of SARS-CoV-2 vaccines after the pandemic is deemed to be over could have significant repercussions, not just for them, but also for the wider industry – an echo of the Sovaldi effect discussed earlier.
In the coming years, governments will have to confront the enormous costs incurred in tackling the pandemic. Following the 2008 financial crisis, many European governments adopted more aggressive pricing procedures and introduced tough new cost-containment measures. In some countries, pharmaceutical sales declined sharply and took years to recover. In the aftermath of COVID-19, will governments again make the pharmaceutical industry the prime target for healthcare cost containment, or will they reward it for its crucial role in tackling the pandemic and the vital contribution it can make to both public health and economic vigour in the future?
One thing does seem certain; achieving commercial success for new medicines is set to become even more challenging now that the payer is dominant in most healthcare systems. We believe that focusing on regulatory approval as the only key milestone during drug development will increasingly result in launches that significantly underperform expectations and commercial failure. Access must be considered early and thoroughly. Companies that focus on the delivery of a reimbursable file will reap the financial rewards, and most importantly, will also deliver greater benefits to patients with high unmet need.