Market Access After COVID-19: Sector Goodwill Or Hard Crackdown?
Executive Summary
The pandemic has brightened pharma’s image, but drug pricing is still high on the political agenda. For US and European politicians, the health crisis has heightened the tension between supporting innovation and controlling rising costs.
Drug pricing was knocked off the front pages for a few months during 2020, as the world adapted to lockdowns and shifted healthcare delivery online. It did not stay out of the headlines for long, though. Despite industry’s central role in unlocking us from the crisis, over-stretched health budgets are now an even more urgent problem. US President Biden said in his 28 April speech to Congress that he wants drug pricing reforms this year, to pay for wider health care coverage. Meanwhile, in an apparent turn of the tables, parts of Europe are showing a more industry-friendly stance as life sciences’ strategic importance grows. But drug price curbs are not going away there, either.
US Drug Prices In The Crosshairs
Drug price reform has featured on the ruling Democrat party wish-list for years. And since the party’s slim majority in Congress might not last, “they’re thinking, this is our chance,” says Steven Pearson, President of the Institute for Clinical and Economic Review (ICER), which assesses drugs’ value. The public is clamoring for lower prices, given the economic woes of the last year. “There’s a lot of concern about rising health care costs and premiums,” says one US payer whose organisation covers about 2.4 million lives. “Everyone is struggling.”
President Biden campaigned on several drug-price lowering promises, including capping drug price increases or out-of-pocket pay, and, most controversially, letting Medicare negotiate drug prices. Those negotiated prices may be book-ended by figures paid by other nations, through international reference pricing, or controlled by an independent value-based assessor such as ICER. “We’ve talked about [negotiating drug prices] long enough, let’s get it done this year,” said President Biden in his April speech.
Ex-President Trump’s efforts to introduce international reference pricing to drugs purchased under government-funded Medicare were stymied by the courts. Yet the idea of pegging prices to those in other nations – a common practice in other parts of the world – has not gone away. Industry insiders warn that the approach would stifle innovation and perhaps even lead to higher prices elsewhere. But, if price negotiations do get over the line, using international benchmarks “may be an easier sell, politically” than an HTA approach, says Pearson. Benchmarks are simpler, conceptually, and no voter likes to pay more for medicines than those in other countries.
It's also easier to calculate in advance expected savings from reference pricing. That matters, since the idea is that those savings help fund some of the US president’s multi-billion-dollar spending plans – including expanded health coverage.
Still, even the combined forces of a Democrat majority and public opinion may not be enough to break through the thicket of interested players in the US health system – in particular rebates, the legal kickbacks that manufacturers pay to get priority formulary listing. Hence even the most avid drug pricing critics give a less than 50% chance of any meaningful federal-level reform.
States Take The Initiative
Incremental change may come from elsewhere. Legislators in at least five US states are trying to tie the prices of their 250 most costly drugs to those in Canada – which is itself altering the basket of countries it references.
Over a dozen states have either created, or plan to create, drug affordability boards which set upper limits on prices and price increases, according to consultancy Manatt Health. States cannot set Medicare prices and have limited enforcement powers. But they do regulate health insurers and have other levers at their disposal that can indirectly influence drug pricing. One is taxes. Another is price transparency. Colorado lawmakers in 2019 compelled manufacturers to provide the wholesale acquisition cost (list price) of any drug they present to prescribers, along with the prices of at least three other medicines in the same therapeutic category (if they exist). Several states also require advance warning of planned drug price increases above certain thresholds.
So even if the federal government falls short on price curbs, “there’s definitely momentum at state level,” says Pearson.
Canada re-sets reference pricing
Canada is changing the reference countries its authorities use to set maximum prices, removing the US and Switzerland, and adding a basket of EU countries plus Australia and Japan. The idea is that reference markets are similarly sized, populated and have similar health care systems to Canada’s. The changes also give the country’s price-regulator, the Patented Medicines Prices Review Board, access to market (actual) prices of medicines rather than list prices, and sets up processes for investigating apparently excessive prices, revenues or price increases. The reforms, already delayed a year, are designed to save more than $10bn over 10 years.
That momentum is trickling through to other parts of the system, too. Many payers already use ICER’s cost-effectiveness analyses and recommended prices to help determine access, and the cost-effectiveness body’s influence continues to grow. In 2019, it started publishing an annual name-and-shame list of unsupported drug price rises. (Also see "In US Drug Pricing Debate, ICER’s Voice Gets Louder" - In Vivo, 20 Nov, 2019.)
ICER also has other health care stakeholders in its sights. In September 2020, insurers themselves were taken to task on the fairness or otherwise of their coverage and co-pay policies. The FDA has not escaped scrutiny either. An April 2021 white paper asks whether the Accelerated Approval Pathway allows too many unproven, expensive drugs onto the market with insufficient chase-up of confirmatory data.
That said, ICER would likely support the FDA’s March 2020 decision to broaden out the biosimilar category to allow competition in more areas, including insulin. Vested interests and challenging regulations have given these copy-cat biologics a bumpy ride in the US so far. But smooth patches are appearing. Cancer drug trastuzumab (Roche Holding AG’s Herceptin) faces five biosimilar competitors, and some insurers have begun dishing out cash incentives to patients who switch to cheaper biosimilars.
Meanwhile, in the private investment arena, one of the largest series A financing rounds of 2020 was for EQRx, whose mission is to develop cheaper drugs through more efficient R&D and strategic tie-ups with payers. Payers themselves invested part of a further $500m financing round in early 2021.
Innovation In The East
One way in which EQRx is saving R&D costs is by licensing assets from China. A large part of the innovative R&D emerging from China’s nascent biotech sector involves creating, if not first-in-class drugs, then as good or better-in-class biologics whose main selling point is affordability. Chinese government-mandated prices for new drugs, like PD-1 targeting cancer medicines for example, are half, or sometimes less than half, of those in the US. These domestic pricing constraints and a still-emerging health care system compel highly efficient R&D. So even though ‘affordable innovation’ is possible anywhere in the world, thanks to new technologies, China provides the clearest evidence of it, points out EQRx’s founder, chair and CEO Alexis Borisy.
The China-US price discrepancy means China-based companies investing significantly in R&D want to sell their drugs in other markets, too. “The government will regulate return on investment, so companies need to out-license their drugs or create products that can be launched in the US in order to make out-sized returns,” says one Hong Kong-based equity analyst.
Launching in the US with a clear price advantage as well as some differentiation – on specificity or toxicity, for instance, or effectiveness combined with other drugs – looks particularly compelling in the current price-sensitive environment. Regulatory and development standards between the US and China have rapidly aligned, increasing the number of Chinese assets licensed by Western partners. “China could be the biggest thing coming,” says one commentator, if US health plans can wean themselves off the current rebate system.
India is also rapidly developing its own biopharma industry and repatriating scientists. Its Serum Institute entered the limelight in 2020 as manufacturer of vaccines, yet the country also already makes nearly a third of the world’s insulin.
PhRMA Admits Need For Change
Perhaps the most compelling sign that US drug pricing has got out of hand comes from industry itself. US lobbying group the Pharmaceutical Research and Manufacturers of America (PhRMA), in a recent publicity push, sought to pre-empt the most draconian reforms by offering olive branch of its own – plus a reminder of the industry’s savior role in the pandemic. It is quietly backing the idea that drug companies pay back Medicare for some expensive drugs that private purchasers can get more cheaply.
The direction of travel for US drug prices is clear, even if the precise mix of forces that will prevail – federal or state legislative reform, insurer-encouraged biosimilar uptake, innovation from the East or self-policing– remains less so. In the meantime, many US payers are stuck with what they hate the most: uncertainty. “We know there will be lots more [COVID-19-related costs], but we don’t know what they are,” says one. Policymakers in some states have, with reason, compelled more lenient coverage rules during the pandemic. Yet there is no specific end-date. “Things are very politicized.”
Germany Tightens Its Belt
The same is true in Europe, where politicians are also trying to contain the outbreak and feed public opinion with more generous health care, while keeping a lid on spend.
In Germany, the pandemic has already forced politicians to waive their own strict rules on how much debt the nation can carry. Statutory health insurers were left with a €6bn ($7.3bn) deficit in 2020, which is expected to rise into the double-digit billions of euros next year, despite a one-off €5bn grant. With federal elections in September 2021, further drug price tightening is likely. “Parliament will introduce a drug austerity bill at the start of 2022,” predicts one German payer. That may include an increase in the rebate drugmakers must pay, and more rigorous application of health technology assessment rules.
Josef Hecken, chair of Germany’s reimbursement authority, the G-BA, would like to halve the current year of “free” pricing that new drugs enjoy before being subjected to cost-effectiveness tests. “G-BA makes its decision [on whether a drug has added-benefit] in just six months,” he told Deutsches Aerzteblatt in January 2021. “Negotiated prices could apply retrospectively from the time of the decision.”
Germany has already made it harder for orphan drugs to automatically be granted ‘added benefit’ status, by changing how it calculates the €50m annual sales threshold. In-patient and private insurance sales are now counted as part of that total, as well as out-patient prescriptions. And since 2020, manufacturers can be forced to collect very precisely-defined real-world data around products – like expensive orphans and gene therapies – for which there is insufficient data at launch to determine added-value. That happened in 2020 to Novartis AG for Zolgensma, a gene therapy for spinal muscular atrophy, priced at almost €2m.
France Boosts Local Industry
Political winds in France and the UK are more industry friendly. France is licking its wounds
after failing so far to produce a home-grown COVID-19 vaccine and feels vulnerable to foreign medicine supply chains. So French authorities are doubling down to support a strategically vital sector that has, in its own words, been “left behind.”
An entire chapter of a new three-year industry-government framework, delayed from mid-2020, is devoted to increasing France’s investment appeal. That includes “re-shoring” key activities such as medicines production. There is a big emphasis on faster access to innovation, promises of price stability for innovative medicines and price boosts for medicines that are mostly manufactured in France. Even medicines deemed to have no added benefit are protected from price drops in the first three years.
The industry association, LEEM, is delighted. “The French state recognizes the strategic importance of our industry,” declared chair Frédéric Collet, in a March 2021 statement announcing the agreement. “It wants to re-establish France as a major force in pharmaceutical production.”
UK Woos Drugmakers With Rapid Access
The UK government, reeling from the double blows of Brexit and the pandemic, also has a newfound impetus to nurture its own life sciences sector and attract inward investment. That drive is all the greater given the successful development and roll-out of the AstraZeneca PLC/Oxford COVID-19 vaccine.
The UK medicines regulator MHRA, now independent of the European Medicines Agency, has introduced new, more flexible approval routes to accelerate access to new medicines, and to fast-track drug trials. Rolling reviews – involving a continuous flow of input and feedback – have already helped speed up vaccine roll-out across the country. The experience of running one of the world’s largest and fastest randomized controlled trials, the RECOVERY study of COVID-19 therapeutics, may attract further clinical trial investment.
Cost-watchdog the National Institute of Health and Care Excellence (NICE) is also changing how it assesses drugs. Its new five-year strategy, published 19 April, sets out a “rapid, robust and responsive” evaluation process which accelerates access to medicines and helps ensure the UK remains a “first-launch” country for important new health technologies.
Detailed methodological changes are out for consultation. But the broader picture on process is clear: rather than one-off reviews that result in a binary ‘yes’ or ‘no’ to national reimbursement, NICE wants a more collaborative and less confrontational health technology management approach. Early advice and adoption will be followed by regular assessment using real-world performance data. Just like in France, the emphasis is on working with the pharmaceutical sector to support early patient access. And as Britain rebuilds outside the European Union, NICE is keen to maintain its reputation as a world-leader in HTA.
NICE’s Methods Change
NICE regularly reviews its methods for assessing new drugs’ value and whether they should be reimbursed on the National Health Service. The latest set of proposed changes – the first since the UK left the European Union – appear quite industry-friendly. A new ‘severity modifier’ may replace the ‘end of life’ extension as a means of increasing the cost-effectiveness threshold (and therefore allowing higher reimbursed prices). That means more drugs may be able to benefit from it – not just drugs that extend life, but those that improve quality of life, including for example in patients with severe, often rare conditions. Another proposed change reduces the discount rate for costs and health effects from 3.5% to 1.5%. This places a higher value on the future benefits of new technologies – favoring medicines like gene therapies that have a high upfront cost, but which may save money and bring benefits over the long-term.
Bigger Buyers, Smaller Suppliers?
Europe also wants its member states to do more bulk buying. The New Pharmaceutical Strategy calls for more joint negotiations or tendering among national payers to secure better pricing and access. “Public buyers should design smart and innovative procurement procedures,” it declares, suggesting ‘winner-takes-all’ processes and making price conditional on things like supply continuity and green production.
Getting payers – especially national payers – to work together is not easy or quick. The European Union’s relatively slow vaccine procurement is a recent example. Outside COVID-19, there are very few cases of countries clubbing together to negotiate drug prices.
And while buyers are encouraged to get bigger, drug firms may have to stay smaller. Authorities across Europe and North America are clamping down on and pharmaceutical M&A that they perceive may result in anti-competitive practices, such as price hikes or price fixing. The European Commission’s strategy promises to “continue to carefully review” pharmaceutical mergers. In the US, a Democrat-led Federal Trade Commission is also sharpening its knives, as a result of “skyrocketing drug prices,” says acting chair Rebecca Kelly Slaughter. FTC has instigated a new international working group to scrutinize pharmaceutical M&A. It brings together US regulators with counterparts from the UK, Europe and Canada.
Analysts warn that pharmaceutical M&A, which boomed throughout most of the pandemic, may soon become less attractive. Despite the sector’s achievements, the US government in particular has “wasted no time instilling fear into boardrooms” via its proposed drug price legislation and the threat from more stringent anti-trust regulators, writes Geoffrey Porges, senior managing director and research analyst at SVB Leerink in a 6 April note.
The verdict on market access after COVID-19? More like hard crackdown than sector goodwill.