David Balekdjian is a Partner with the Bruckner Group, which is a strategy consulting company that works with executives at pharma and biotech companies. As the industry leader in healthcare value strategy, the Bruckner Group assists company executives in developing business models, enterprise-wide processes, and individual product strategies that produce new drugs with high healthcare value, meeting the needs of payers, employers, physicians, and patients. In addition to healthcare value strategy, the Bruckner Group assists pharma and biotech executives on a broad range of strategy issues, including payer strategy, product development strategy, strategic marketing, pricing, and corporate development initiatives. David Balekdjian was a co-author of the article published in Nature Biotechnology in February 2008 entitled “Weighing the Outcomes”.How have payers made drug coverage decisions in the past?
Managed care formulary decisions in the past (before 2002) were based on: safety, efficacy, and adverse events (i.e. side-effects). A transition started to occur between 2002 and 2003, and acquisition cost began to be considered in formulary decisions as well. Managed care formulary decisions are now, beginning in 2005/2006, being made on the following factors: safety, efficacy, and healthcare/pharmacoeconomic value (i.e. real world effectiveness and based on evidence, not conjecture).
Mr. Balekdjian began his discussion by defining a drug’s healthcare value as the economic value of the improvements in patient health outcomes that the drug produces, compare to its incremental cost- all relative to standard of care therapies. Payers are providing broad market access to only those new drugs that deliver compelling healthcare value. Almost unnoticed by big pharma, in the last five years payers have constructed and implemented an elaborate enforcement infrastructure to ensure “appropriate” usage of drugs and especially to prevent pharma and biotech companies from subverting payers’ decisions with their marketing machines. Examples of biological drugs that have run afoul of payer’s healthcare value determinations include: Exubera (Pfizer), Fuzeon (Roche), FluMist (MedImmune), and Amevive (developed by Biogen, sold off to Astellas).
The Bruckner Group is able to anticipate and predict MCO’s next moves. Their extensive and ongoing characterization allows them to think like them. The Bruckner Group incorporates the following into their analyses: current and evolving roles, internal business goals, programs, infrastructure, capacity, beliefs, attitudes, skills, strengths, drivers and barriers of their revenue, short-and long-term strategies and targets, and tactical plans. In other words, they consider: “who are they and what do they want?” More importantly: “What are their plans? What are their areas of opportunity?”
Until 2005, biologicals were largely “off-limits” and payers were focusing their efforts largely just on small molecule therapies (traditional pills). Sine 2005, payers increased the application of OBA/healthcare value scrutiny to biologicals, with the exception of the “off-limits” diseases (i.e. cancer, autoimmune diseases, and HIV). Beginning in 2007, payers are extending healthcare value scrutiny to even the off-limits diseases.
Why is this happening?
Managed care decision-makers, almost without exception, believe that the value delivered by most new drugs in these areas adds cost to the system with little to no real gain in outcomes. The Bruckner Group believes that Erbitux is the biological equivalent of Nexium (i.e. “the straw that broke the camel’s back”).
Mr. Balekdjian stated that pharma and biotech companies do not see the coming clash. At the same time that payers are going after area where they believe the greatest “value abuses” are taking place, big pharma and biotech are, without exception, skewing their investment dollars toward intensifying their efforts into these same areas- largely cancer and autoimmune/inflammatory diseases. To properly understand how to proceed in the pharma and biotech industries today, you must assess produces, development opportunities, and commercialization strategies through a healthcare value prism. The bottom line is that the failure to do so likely leads to the wrong decisions.
Mr. Balekdjian presented a case study regarding Exubera (Pfizer). Exubera’s failure was predicted by Bruckner two years before it happened. An article was published by Michael J. Russo and David Balekdjian in BusinessWeek on February 15, 2006 entitled “Irrational Exubera-nce for Pfizer.” At the time the article was published, analysts were all in agreement that Exubera was an inevitable future blockbuster drug. Analysts only differed in magnitudes: $3-$10 billion per year. The Bruckner Group applied a healthcare value analysis to Exubera, determined that Exubera’s healthcare value proposition was uncompetitive, and predicted that Exubera would fail.
Exubera was the new inhaled insulin product from Pfizer, approved by the FDA in January 2006. Exubera delivers the same drug (insulin) through a new delivery system (inhalation) rather than by patient self-injection. This drug had been in development for many years. How did payers assess Exubera’s value proposition? It uses new technology to deliver the exact same drug. The device does not guarantee precise dose control, unlike injection, and this could have serious negative and costly repercussions (i.e. potentially value reducing). Exubera required regular and costly pulmonary function tests which is also value reducing. Payers also considered what long-term consequences there might be from inhaling so much insulin over time, which again, is potentially value reducing. The compliance benefit is conjecture and is completely unproven. Given the nature of diabetes and the need for tight glycemic control, any potential incremental improvement in compliance is unlikely to result in significant downstream cost savings for payers. In asthma, the clinical literature clearly indicates that inhaler non-compliance is rampant and a serious problem because patients incorrectly dose on 25-80% of days and 50% of patients use incorrect inhaling technique. In addition, the annual cost of insulin using Exubera is approximately $1,389 versus only $938 for injected insulin. The large value gap guaranteed limited coverage, very limited patient access, and ultimately a $3 billion charge against Pfizer’s earnings.
Next, Mr. Balekdjian briefly discussed CVBT’s healthcare value strategy. Use of CVBT-141H in zero/limited option coronary artery disease patients is projected to reduce treatment costs of these very expensive patients by 20% over a five-year period. This only measures outcomes from symptomatic relief, not disease-modifying outcomes. It is Mr. Balekdjian’s belief that the value proposition will only strengthen as data is collected.
Lastly, Mr. Balekdjian had an overview of the process of healthcare value development. The first step is to assess as early as Phase I trials and no later than Phase II trials. The next step is to enhance and expand. You must determine the clinically-attainable high(er) value targets and go after them. This must be done in Phase II to maximize value; the later this process is engaged, the less opportunity there is to expand value. The next step is to re-integrate the data iteratively into the value proposition. Next, you must determine the maximal value proposition based on Phase III data and back it up with the necessary proof to engage payers prior to launch. The last step, post-launch, is to leverage the drug’s value through marketing activities aimed at different stakeholders to define the marker on the terms of your product’s value and put competitors at a long-term disadvantage.
Mr. Balekdjian finished his discussion with “Bruckner’s Law”: There is a direct relationship between the amount of provable healthcare value a new drug demonstrates and the level of revenues it will ultimately generate. In other words, “The greater the drug’s healthcare value, the greater the revenues will be.”
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