Is Public Funding Of Drug R&D The Next Level Of Price Transparency Policies?

A couple of years ago, I was warning my readers about the fallacy of defending drug prices with Research & Development investment figures. My point was rather simple – when you’re seating in front of a public payer defending the price of your new product, don’t bring up your R&D investment, because it might backfire. Payers, in general, believe that you have benefited from direct and indirect public funding to progress your asset- tax credits, private-public partnerships, subsidies, etc. Using this argument in price negotiation would then be double counting. Or double-dipping. That blog post was an instant hit that went viral, and companies stopped communicating on R&D investment to defend their new product pricing altogether. [pause]. Just kidding. If anything, that line of communication just grew bigger and bigger. And now, French lawmakers are setting the scene for that backfire I was warning you about.

On this Thanksgiving week, while many of us are turkey-shopping, there is no holiday for Members of Parliament in France. To my utmost surprise, a bill mandating manufacturers to communicate to France’s Drug Price Setting Committee (CEPS) how much public funding they received throughout their product R&D, was adopted. The initial bill prepared by the far-left-wing of Parliament was foreseeing a direct link between the figure and the negotiated price. The final version was softened by the MPs from the presidential majority, making it a transparency requirement only, not a new – and probably impossible to implement – price-setting mechanism.

So what does it mean in practice? What motivated the bill and what is the ultimate goal French MPs are trying to achieve? Can this spill over to other markets and what would be the consequences? Here are some – probably speculative – elements of an answer.

Why the bill and why now?

As French MPs are legislating on multiple aspects of the 2020 Social Security Financing Law, proposals for more transparency on drug pricing emanated from all parts of the hemicycle. The novelty this year is the desire to go above and beyond the usual demand for more transparency on gross and net prices with the disclosure of public funds that were absorbed in the product R&D process. I do not believe that this push was motivated by an in-depth analysis of macro-economic data showing a disproportionate contribution of public funds to private pharmaceutical R&D. I think it relates, as often, to a handful of prominent cases of recently launched high-cost therapies. Starting with the most debated one of all – Zolgensma. In my recent PharmaceuticalExecutive article on AveXis new wonder Spinal Muscular Atrophy treatment, I omitted one important fact – Zolgensma was licensed-out to AveXis by France’s Genethon, a non-profit lab funded mostly through tax-deductible donations and the French National Research Institute INSERM. In an unfortunate sequence of events, the financial terms of the deal between Genethon and AveXis were leaked by the press a few weeks before the announcement of the buy-out by Novartis and then again a few weeks before Zolgensma price in the US and France. And the figures were, respectively:

  • US$15mio (licensing deal from Genethon to AveXis)
  • US$8.7bio (buyout by Novartis)
  • US$2mio (cost of one injection in the US and France)

So how on earth can the publicly funded-Genethon have licensed out a product to a US startup for what would eventually become the revenue generated by just half a dozen patients? That’s a mystery to me, but also to a few activist MPs who took that matter up to the Minister of Health during parliamentary Q&A sessions as you can see here if you read French. And that was, with little doubt, the genesis of the bill.

What can the consequences be?

If the final much-sweetened version of the bill makes the requirement an ‘FYI’ only, there is little doubt that the final game plan is to use this data in price-setting. This is a typical backfiring of the parma industry strategy to constantly focus their pricing rhetoric on inputs – cost of R&D, cost of attrition, cost of manufacturing, short patent life, cost of labor, etc. – instead of solely focusing on outputs – the value created for patients, healthcare systems and society. If legislators and pricing authorities reach the elusive goal to reverse-correlate the price of reimbursed products to the R&D public financing efforts, the consequences will be mixed, at best. The myth of profit-hungry multinational corporations riding the coattails of virtuous government-funded biomedical research labs nested within the NIH or INSERM is indeed a myth. See for instance this fact-check in Science showing that the private sector investment in basic science outpaces the federal investment and will soon become the number 1 source of funding.

Drug discovery is no exception. Overall, the vast majority of newly approved entities will reach the patient without the direct contribution of public research institutes – 80% to 90% of them to be more specific according to this good analysis published in the New England Journal of Medicine. If in an extreme scenario, drug pricing watchdogs such as France’s CEPS believe that that the entire value of public funding into drug discovery should be taken out of reimbursed drug prices, that would lead at best to a 10% to 20% decrease in the overall value of pharmaceuticals.

Can this spillover to other markets?

Yes, most surely. In the United States, where the debate on drug pricing shows no sign of cooling off, several researchers are pointing at the chronic underestimation of the NIH’s contribution to drug discovery. If the above-cited NEJM analysis was focusing on the direct implication of the NIH in the patenting process, this other analysis takes a broader approach by including all publications on biological targets that eventually led to the discovery of a new drug. With this approach, the authors conclude that the NIH was involved in the discovery of… 100% of all FDA-approved drugs since 2010.

On a global scale, the WHO adopted earlier this year a resolution on drug transparency noting

the importance of both public and private sector funding for research and development of health products, and seeking to improve the transparency of such funding across the value chain

During the organization’s annual assembly earlier this year, it was noted that Member States were showing various levels of support for the resolution, with strong resistance from the UK and some support from the US… but not for the cost of R&D part.

How to wrap this up and what’s next?

Honestly, I have no idea. Kudos to my home country MPs who apparently managed to debunk the problem. For me though, this is a misplaced debate that takes policymakers away from what should be their sole priority – maximizing the health of their constituents under a strict budget constraint. Here is why I believe so

French MPs are opposing public and private research while they should try to make them more symbiotic.

  • Public research vastly focuses on basic science, or upstream research – understanding the biology of what’s pathological vs. what’s normal for instance. That’s how they uncover potential treatment targets.
  • Private research focuses on how to make a drug out of these targets. They talk about ‘drugability’ (not a word a reckon). This downstream research is all about how to use those targets because this what will lead to patents and in return, revenue

It is quite logical that the latter heavily rely on the former to perform their work, and this is not a bad thing. In fact, to close the Zolgensma chapter, Genethon excels mostly at mapping the genome, identifying the faulty genes and in the case of Zogensma, even identifying the viral vector that will allow delivering the ‘corrected gene’. Where companies such as AveXis excel, is at making this promise a drug reality. Licensing out was the right thing to do.

The new French law also seems to be reflective of an outdated, static view of drug R&D. It ignores the fact that public funding of basic science is plateauing in Europe and the US while private funding is steadily growing. It ignores the emergence of new players who are in my view changing the game altogether – private foundations. Because they are largely agnostic to this futile public vs. private funding debate, they can focus on advancing their programs regardless of who provides the funds. One of the most striking examples is the Cystic Fibrosis Foundation. With and R&D ‘pipeline‘ that can stand the comparison with that of many large pharma companies, the foundation has built strong ties with the industry. They have done so because they know that their industry partners are best equipped to rapidly advance their basic science finding to becoming marketed drugs. Win-win.

4 Take-Away Messages From The Zolgensma® Pricing Storm

I’m sure by now everyone has seen the headlines –

“world’s most expensive therapy”, “astronomical”, “casino culture” 

The recent announcement by Novartis of the list price of its new gene therapy for Spinal Muscular Atrophy, Zolgensma®, has sparked a plethora of heated reactions over the past few weeks. $2.15 million was the figure. The story has definitely dragged the pricing and affordability debate back to the fore. One month later, it is time to look back at the story and try to answer one simple question – was this a storm in a teacup or a tropical cyclone?

Here are my 4 take-away messages from this story.

  • Time is of the essence

The sticker-shock that stemmed from the Zolgensma® list price reveal has eclipsed the question that really matters – the question of time. A 1, 2, 3 or 10 million investment doesn’t mean much to me if I have zero information regarding the timespan of my expected return. We have to state the obvious here that on the one hand, we have a gene therapy that is a one-time treatment requiring a considerable upfront investment, and on the other hand, we have a host of chronic therapies that require smaller investments spread over a period of time. Taken separately, those chronic treatments might seem more affordable, but cumulated over time, they can become far more expensive than Zolgensma®’s single shot. To me, the question of

‘for how long should we cumulate those chronic treatment costs to make a fair comparison between Zolgensma® and the current standard of care?’

trumps the question of the price tag. Novartis has opted for 10 years. In their press release, they claimed that the set price was “50% below 10-year treatment costs for genetic pediatric ultra-rare diseases (estimated at USD 4.4 million to USD 5.7 million)”. A bit of a cryptic claim in the absence of information relating to the products included in the analysis. So we mined Inbeeo’s pricing database to extract a sample of 10 products that might actually meet the criteria of comparability, including Biogen’s Spinraza®, as the only other disease-modifying therapy approved in SMA.

Orphan-Designated Products Selected from Inbeeo’s Pricing Database

We then estimated the cumulative treatment cost they would generate over different time periods –

Cumulative Cost of Treatment with Selected Orphan-Designated Products in the US

Broadly speaking, our analysis confirms Novartis’s claim of a 50% discount vs. other treatment costs for genetic pediatric rare diseases over 10 years. However, it also reveals that the variability of – and thus the uncertainty around – treatment costs grows considerably after 10 years. A 5-year comparison seems more reasonable, with Zolgensma®’s acquisition price being close to the median cost in our sample. Anything shorter than that puts Zolgensma® under a less favorable light. This is why time is of the essence – a gene therapy price tag is only relevant in the context of how durable will its benefit for the patient be.

  • Cash doesn’t grow on trees

The question of the considerable upfront investment that will bring benefits over time is not a trivial one. In business, it is called ‘cash flow management’, and there are companies going bankrupt every day from doing it poorly.

Novartis has somewhat anticipated the issue by announcing the possibility to fund the product by installments. But installments are a mere payment convenience and payers will need more reassurance before making the decision to fund Zolgensma®. Novartis anticipated that too and announced they were in advanced discussions with multiple payers to design outcomes-based agreements. But with a thin evidence package, this promises to be quite the Herculean work. Insurers are not known for designing insurance schemes that might actually generate a loss for them – not to mention the cost of opportunity at a time when many more advanced therapies are expected.

  • Pricing communication is a thing

Mobile phone networks, energy providers, automakers, gyms, software developers, accounting firms, consultants, and many more have long understood this one key success factor in business: the way you communicate the price of your products is as important as their actual price level.

Paying as little as $5 for a power yoga class sounds like a wiser investment than a $2,000 annual gym membership that includes ‘all-you-can-eat’ classes

and driving around town in the newest German car for $20 a day must be a bargain as compared to cutting a $40,000 check. They are the same product and at the end of the day will cost the customer the same amount of money, but the narrative affects the value perception.  Permanently. This is known as price anchoring, and it is pretty powerful. From the moment you have established a $2.15 million price anchor in the mind of your customers, it is difficult to move away from it.

  • No one is ready for what’s coming

With the not-so-great price anchoring, I suggested that Novartis was not fully prepared for the Zolgensma® story. But who is? Surely not payers. Let’s take a look at the dominant pricing frameworks in the US and the EU and try and assess their level of readiness.

In the US, the dominant model remains utilization management via brand tier placement, using negative financial incentives to nudge patients and prescribers towards preferred brands and generics. Co-insurance continues to be on the rise, meaning it becomes customary to charge patients 10%, 20% or more of the final bill. The sums at play with Zolgensma® are of course mind-boggling. And with Pharma companies blaming insurers for not passing the negotiated rebates on to the consumer, you can be sure this issue will not go unnoticed with a treatment like Zolgensma®. Of course, co-pay cards will come in as short-term fixes, but they cannot hide the deficiencies of a system at risk of losing all connection to the reality of value.

In Europe, the dominant framework remains that of the ICER, the incremental cost-effectiveness ratio. It is affected by some well-documented methodological issues, but if I oversimplify them to what are in my view the most acute ones, they are 2-fold. Firstly, the desire to summarize in one universal measure – the QALY – something which is incredibly personal and individual – outcomes related to chronic disease. And secondly, the way time and uncertainty are handled in cost-effectiveness models. Some recent product launches have clearly put those weaknesses in the spotlight, in particular in the orphan drug space. But assessing the lifetime cost-effectiveness of a $2.15 million product based on two single-arm open-label studies of 35 patients combined promises to be quite the challenge. I can only imagine the dramatic effects of the sensitivity analyses when varying the proportion of patients being able to walk or sit thanks to the treatment could take the ICER down from several million to virtually zero.

In a (difficult) attempt to wrap it up, it is clear that this is just the beginning of a story that is unfolding before our eyes, as confirmed by the recent list price disclosure of Zynteglo®, a gene therapy against transfusion-dependent β-thalassemia. Claiming that Zolgensma® is the most expensive treatment in the world is misleading. But claiming that it is ‘expected to save costs to the healthcare system’ in its approval press release is a leap of faith given how little we know about its long-term benefit-risk profile. The only thing which is certain is that pricing frameworks on both sides of the Atlantic need a profound change to be ready for gene and other advanced therapies. And by profound change, I mean a rework from the ground up, not applying band-aids through installments or ICER threshold modulations. With an estimated 10,000 monogenic diseases (WHO), the likes of Zolgensma® and Zynteglo® are prototypes of what payers are truly facing – not a few isolated storms, but an irreversible climate change.

#genetherpay #drugpricing #valuebasedpricing

Four Definitions of Value-Based Pricing and Counting

I just got back from the annual ISPOR conference in Barcelona after a few years of absence (my absence, not ISPOR’s; it turns out they kept hosting the conference without me #weird). And I still feel energized by the quality of the scientific exchanges I had the chance to participate in (it also turns out the overall quality of the conference went up in my absence #weirder). At Inbeeo, we got an energy boost from all the buzz around ‘value-based pricing’, or VBP. My VBP’o’Meter counted an average of 24.6±2.5 mentions across the three plenary sessions. Quite a good sign as we are rolling-out our very-own i-vbp®. At the same time, if like me you are more on the tangible application side of things, you might have returned from the conference with a hint of frustration. There was no hands-on session on VBP, not even a presentation on how it is defined.  A formula maybe? Nope. By contrast, if you are new to the field and this was your first ISPOR conference, chances are you now have a good sense of what is an Incremental Cost-effectiveness Ratio (ICER) or a number of Quality-Adjusted Life-Years (QALY). Not so much of what is a value-based price.

It left me with a paradoxical feeling and many interrogations. Why would such an important topic not receive the clarity it deserves? Is it because it is so obvious, no one would want to waste the attendees’ time with some form of description? And no one would dare to ask, of course. A bit like ten years ago everybody would mention ‘hashtag’ and you would not dare to ask, because you knew it would have made you look bad. Or is it because it is not so clear? Or even worth, not clear at all? Maybe this is because there are 5,485 definitions of value-based pricing, i.e. one per ISPOR attendee? That would be extreme. More reasonably, the only plausible explanation I can find is that there are a few definitions of value-based pricing that co-exist at the moment. And they mainly depend on one thing – perspective.

  • The health-economist’s definition

If you are a health-economist, chances are you have developed expert skills at estimating the incremental cost-effectiveness ratio of medical innovations vs. the standard of care in a given indication. You do this by applying your craftsmanship to cost-effectiveness model building. Whether you are addicted to Excel, R, or TreeAge, you have also become an expert at “stochasticizing” your otherwise largely deterministic models. For you, value-based pricing is straightforward. You plug a monetary threshold representing the willingness-to-pay of the payer you are building your analyses for in your model, and you perform a ‘break-even analysis’ of the price of the new treatment. You literally push the treatment price up to the point that will break the bank. Or more precisely, you look for the lowest price point that will push the ICER of the new treatment just above the set threshold.

  • The US Pharmacy Benefit Manager’s definition

As a PBM, you know very well about value-based price. It is your job to obtain value-based prices from pharmaceutical companies to get the best deals for your clients. Whatever is the way to get there – rebates, value-based-contracts, market-share based agreements – value-based price can have only one definition: the cheapest, with cheapness being measured as the gap between the product price tag and the one you have skilfully negotiated. And yes, you have recently started to embrace the health-economist’s definition (see above) by leveraging the reports from the Institute for Clinical and Economic Review (ICER, but not the same as above ICER) in price negotiation. After all, it’s leverage.

  • The European public payer’s definition

As a European payer, you have a lot of respect for the health economist’s definition of value-based pricing. You employ a few health-economists yourself and you have put a lot of energy in the development of your very own guidelines for health-economic evaluation. But after careful consideration of the health-economist’s value-based price, you have no other option than applying a price point that is a tiny bit lower – the affordable price. Literally the price you can afford given your budgetary constraint in the given therapy area and the pressure from your boss. Whether you get there by playing with the thresholds like in England, imposing pre-historical price comparators like in Germany, or ‘just because’ like in France, it does not matter. You don’t have a choice.

  • The pharmaceutical company’s definition

As a pharmaceutical leader, you are fully committed to your mission of providing value for your end-customer – the patient #wewontrest. There is no doubt in your mind that payers around the world demonstrate a very fragmented view of the value of your product. You have decided to embark on a journey to educate them on the many dimensions of the value they are missing out on, blinkered by their restrictive value assessment frameworks. Value-based-price for you is a multiple of what any breakeven analysis will produce, and it finds its justification also in the considerable investments you are making in Research and Development.

  •  Inbeeo’s definition

Spoiler alert! There is a clue in the blog’s picture. We believe it is pricing based on value. Or if I elaborate,

true value-based pricing is realized at a point where the value provided by a new product matches the differentiated worth the company is claiming for it.

This definition is freely inspired by Harvard’s Strategy Professor Utpal M. Dholakia’s, and frankly, we believe it says things in a way that sums it all up nicely.

Having said this, because this definition is largely driven by consumer goods pricing, it requires a bit of extra work for health technologies pricing. Because the demand for drugs and medical devices is intermediated, and because the realization of value cannot be seen at the level of one agent in isolation of the others, value-based pricing must span across several perspectives to reach an elusive goal of reliability. To be fair, it means that there are bits and parts of the four definitions of VBP described above in our definition of value-based pricing. It is all a question of how you weight them against each other. Surely a hot topic for many more posts to come. Watch this space!

Six Drugs that Cost a Medicare Part D Beneficiary more than $10,000 a Year

No one will argue that Medicare Part D met a genuine need at its inception in the mid-2000s – offering US Seniors an affordable voluntary health insurance plan that would cover their outpatient prescription needs. Fast forward 10 years. Has Part D met its objective? Looking at the front-end of things in terms of the availability of a wide range of plans at an affordable premium in all parts of the nation, yes, definitely. Looking at the back-end of things in terms of actual payments made to beneficiaries, this is a question mark.

The good thing about CMS is that they are true to their commitment to data transparency and availability. Seventy percent of all claims leading to a Medicare Part D reimbursement event are available on their website for anyone to download and analyze. Which I did and which I will keep doing regularly given the wealth of insight laying in that goldmine for anyone interested in value-based healthcare. And because this is individual claims data, you can aggregate them by any variable you are interested in – product if you are a pharma company, region if you are a policymaker, indication if you are a physician, etc. I have looked at it through the lens of the beneficiary. More precisely, by asking the data

“How much could the maximum financial burden for a patient be in one year and for one single medicine?”

The short answer is “a lot”. In more details, there are 6 prescription drugs that will, on average, cost a patient more than US$10,000 a year

  • Cinryze® – a C1 Esterase Inhibitor indicated for the prevention of swelling and/or painful attacks in teenagers and adults with Hereditary Angioedema (HAE)
  • Berinert® – a C1 Esterase Inhibitor indicated for the on-demand treatment of swelling and/or painful attacks of hereditary angioedema (HAE) in adults and children
  • Actiimune® – an Interferon Gamma-1B indicated for the treatment of chronic granulomatous disease and severe malignant osteoporosis
  • Gattex® – a glucagon-like peptide-2 (GLP-2) analog indicated for the treatment of adult patients with Short Bowel Syndrome (SBS)
  • Kalbitor® – a plasma kallikrein inhibitor indicated for treatment of acute attacks of hereditary angioedema (HAE)

Now, the purpose of this post is not to discuss the merit of these products from the point of view of value-based pricing. Because value-based pricing is my day job and I somewhat consider this blog to be my night job. No, the purpose of this post, also because it is getting late in the day and I am craving sugar, is to write about donuts. More specifically what is usually in the middle of it – a big hole.

Somewhere in the thick piece of legislation that provides the framework for Part D, lawmakers have designed a sophisticated scheme that would make the beneficiaries financially accountable for a portion of their drugs payment. The definition of “portion” has been the subject of intense Experts meetings and has led to this –

source: Center for Medicare and Medicaid Sevices / Inbeeo’s analysis

I have put this schematic together because trying to write about it would have led to something like-

The beneficiary funds the first tens of dollars of the cost – except in the case of $0-deductible plans – and then splits the cost 25-75 with the plan, before paying a bigger portion of the cost in something called the “donut hole” – portion that becomes smaller and smaller as manufacturers are required to chip in as part of the Affordable Care Act – for finally paying a small portion of the highest tranche of the cost – for which the manufacturer is not required to chip in – although it is aptly named the “catastrophic coverage portion”.

And there goes the rule to write short sentences in articles – down the toilet!

So, how big is the problem? Surely small in absolute terms. Surely big if you ask the affected patients. And there are worryingly more and more of them-

part D copay greater than 10K evolution
source: Center for Medicare and Medicaid Sevices / Inbeeo’s analysis (based on 70% of all claims; beneficiaries of Low-Income Subsidies were excluded)

Putting the initial legislation aside, what stuns me the most in this story is the level of sophistication that has been applied to the progressive closing of the donut hole, while the Catastrophic Coverage Portion was ignored altogether. It inevitably reminds me of one of my all-time favorite scenes from The Simpsons-


The Dust Never Settled after Drug Pricing 9/22

Google is powerful. You knew that, I knew that. It really is. But it keeps amazing me when it differentiates a church from a cathedral in my photos while Adobe can’t recognize my face, when it sends me a weather alert before I get on my bicycle while my iPhone thinks I’m driving when I’m on the tube, or when it perfectly filters all the spams from my Gmail account while Outlook keeps trashing emails from clients. In a recent acute distraction episode, I started reading on the hot topic of how investors were increasingly leveraging Google’s analytical tools to make investment decisions. You may have heard for instance that the correlation between the price of bitcoin and google searches of the term was at an astonishing 91%. Enlightened by my discoveries, I tried to bring them back home and started to analyze how search topics such as “pharmaceutical market access”, “drug pricing” or “value-based pricing” were trending.

Screen Shot 2017-11-16 at 12.29.05
Google Search Index for “value-based pricing”, “pharmaceutical market access” and “drug pricing” over the past 5 years – source Google trends

The first piece of insight I gained from my exploration was that my line of business was not exactly booming, at least not the bitcoin-like booming. But it was stable. The second – and way more striking fact – was that something happened around September 2015. Something that had had a sustained effect on how many people around the world were genuinely interested in how prescription drugs are being priced. The data looked like a textbook example of a structural change in a time series. Now, when things get really interesting with Google’s analytical tools, is that you can dig deeper into regions, associated search terms, time frames, type of searches e.g. web, news, blogs etc. Trying to put my finger on the event(s) that triggered the shift, my first list of suspects was without surprise:

  • Hot topics in the US included Medicare Part D, 340B federal discount program, drug coverage, and Valeant
  • US elections also came up quite significantly with the usual pharma-targeting Constant Gardner-inspired evil corporation rhetoric
  • Other regions on the heat map included Canada, Western Europe, and India

All of those were interesting, but nothing really coincided with that week of September 20th, 2015 when the surge happened. Slicing the data like a salami, I zoomed into that week and split the data into search types. And then it was apparent “like the nose in the middle of the face” (you don’t really say that in English, do you?). On Tuesday the 22nd of September the news of Turing Pharmaceuticals jacking up the price of Daraprim by 50x broke globally. However, searches of “Turing Pharmaceuticals” were insignificant. Instead, all the noise was crystallizing around the name of the company’s founder, Martin Shkreli. So how does “Martin Shkreli” search term correlates with “Drug Pricing”? Well, it’s bitcoin-like correlation.

Google Search Index for “drug pricing” and “Martin Shkreli” over the past 5 years – source Google trends

To be complete, the only other search term providing a similar level of correlation was “pharma bro”. If you’re having doubts about one man significantly and durably raising the profile of prescription drug pricing like this (or if you’re a statistician about to add a “you forgot to account for the confounding factors” comment), here is the order of magnitude between him and the other associated search terms.

Screen Shot 2017-11-16 at 13.49.04
Google Search Index for “Martin Shkreli”, “Turing Pharmaceuticals”, “Valeant”, “Medicare Part D”, and “304B” over the past 5 years – source Google trends

So what did we learn? I’m not sure, to be honest. This piece of data left me voiceless, and I wanted to share it. It saddens me to think that the incredibly important topic of drug pricing has been brought to light by this individual. Taking a step back, there must be a silver lining here

  • People are watching – and that’s a good thing. In the end, pharmaceutical companies and payers are both accountable to the people they serve. Pricing, discounting, coverage, and co-pay decisions must be based on patient value
  • It is personal – corporations can be detestable. Remember Enron? But nothing matches the  power of a bad guy a la Joker in Batman, or more so a la Pellegrin in The Constant Gardener, to mobilize the masses
  • Google is powerful, use it! – I mean not for googling. For everything else. Companies are spending millions in market research while they could reinvest that money in R&D and start leveraging the data they have free of charge at their fingertips

Why I Prefer a Value-Based Healthcare Mayhem over the Status Quo

“Value-based pricing”, “value-based assessment”, “value-based healthcare”, “value-based insurance design”, “value-based purchasing”… I recently saw a “value-based marketplace” although I’m unsure about this one. OK, we get the message, healthcare funding decisions must be based on value. But doesn’t it sound like a bombardment of truisms? Yes, but sometimes truisms are worth saying, Jacques de La Palice would surely agree with me. If he weren’t dead, of course.

In the case of pharmaceutical pricing, I see the “VBP invasion” as a balancing act. A call for action to move away from all the other idiotic pharmaceutical pricing techniques which are enforced around the world and across segments of public and private care. If like me you have been involved with pharmaceutical pricing for some years, there must have been plenty of diners with friends or relatives asking you to explain why and how is drug pricing so different than the pricing of any other good. When I’m asked, I am trying to pick an example people can relate to – ” See the new iPhone for example. There must have been some meeting at Apple to decide if the larger screen and extended battery life justify a price tag crossing the $1,000 line, right? Well, that is the exact opposite of what is happening in the pharma industry.”

So what is really happening the often-fantasized world of pharmaceutical pricing? Here is a short list, surely not exhaustive, in plain language, of the things that can only be seen in drug pricing, sorted by random order of value-denial:

  • External Reference Pricing (ERP) – a mechanism by which country A sets the price  of product X at the exact same level as seen in country B. Just like for their UEFA Euro 2004 surprise triumph, the Greeks are the undisputed champions at ERP, more agile and more creative than anyone else to constantly check that no product is more expensive in Greece than anywhere else. It is a bit like saying that as of today, by national decree, parmesan will replace feta in all greek salads by virtue of external referencing to Italy. Weird.
  • Internal Reference Pricing (IRP) – a mechanism by which product X gets the same price as product Y because it belongs – more or less – to the same therapeutic class. Important methodological note: the fact that product Y launched in 1946 is linked to often fatal renal toxicity is not factored in the decision, which is made by the country’s top-notch chemical engineers. As occasionally seen in Germany.
  • cost-based methods – the price of product X is set at the level of its cost plus a little something. The definition of what is included in “cost” varies. Less and less used by governments with some resistance in Asia, this heating fuel-inspired pricing method is oddly more and more self-inflicted by the pharmaceutical industry in a desperate attempt to use R&D costs to justify drug prices. See here.
  • PBM target rebate-based pricing – a sophisticated retro-engineered pricing mechanism by which the price of product X is set high enough so that Pharmacy Benefit Manager A can negotiate a substantial rebate from drug company B that he can pass on to his commercial Health Plan client C who will in return show their appreciation to PBM A. A US-only scheme and a strong competitor for the all-time winner of the value-denial grand prize, now that it’s getting more publicity. See here for instance.
  • CPI-based pricing – a mechanism that limits year-on-year price increases of Product X to the same level as the Consumer Price Index increase, also called “inflation”. Introduced by payers, this rule is being reinterpreted as we speak by the pharma industry as the “10% pricing pledge”. Another self-inflicted PR faux-pas from the industry ignoring the fact that this represents around 5x the inflation.
  • Profit-regulation pricing – a complex multi-year mechanism by which the price of product X will be cut by a factor Y if its marketing company’s profit exceeds a pre-agreed level Z, regardless of any benefit or harm to the patient. A European technocratic masterpiece and for all rugby fans, another England vs. France crunch. I’ve been trying to explain their respective “PPRS” and “accord-cadre” to my US colleagues forever.

Why a pharmaceutical product, instead of being priced based on its features and the value it provides to its customers, has to be priced according to these rules? If I believe that seeing my pictures in a larger format, and not having to worry about charging for a full day, justifies spending more money on a new smartphone, then so be it.  That’s value-based pricing.

The only silver-lining I can see in this mayhem is that the value-denial syndrome used to be broadly shared between payers and the industry, and now they both seem to come to the same realization that value-based pricing is the only way. Easier said than done, but that’s a start.

Three Reasons Why Value Definition Is The Ultimate Challenge for Pharma

My first client call when I started my second spin in consultancy went like this

We have a value dossier. It does a great job at linking our data to an exhaustive list of value messages [pause]. But we don’t have a story to tell.

I thought this was a bit weird and probably unusual. Six months down the road, it turns out it was a pre-recorded message that would keep repeating itself over and over.

The Care Affordability Index or How to Go Beyond the “# of Lives Covered” Metric

A Care Affordability Index could constitute a way more informative measure of patient-access performance than the binary “number of lives covered”. And it is not that complicated to implement. A post for dashboard lovers.

We all see our mailboxes bombarded by emails trying to sell us syndicated reports claiming that they will solve the key issues the life science industry is facing for us. Rather than seeing these emails as the annoying spams they probably are, I actually read them, and over time, I have even developed a genuine interest in them. Indeed, trying to charge me USD5,000 for something I know was true in 1996 is not email marketing, it is art. Here is a gem from a recent one –

“Physicians want efficacy, payers want cost-efficiency, and patients want access.” How 1996 is that?