Seeking Answers on How to Pay for Innovation in Biopharma
If cost was no consideration, retina specialists would first chose Eylea for their own anti-VEGF therapy, according to an American Society of Retina Specialists survey, but in the real world where costs are ever present, they overwhelmingly start patients on Avastin because it’s the cheapest.
Tarek Hassan, MD, the president of ASRS, shared the findings of the society’s Preferences and Trends survey to provide context on the dynamics of end-user costs in biopharma development as he moderated the “Paying for Breakthrough Eye Therapies” panel at OIS@ASRS. Panelists concurred that biopharma’s need for capital to develop biosimilars and gene therapies for retinal disease is running up against the health care system’s demand to curtail costs.
While starting AMD patients on Genentech’s cheaper Avastin off-label might seem altruistic, Joshua Schimmer, MD, a senior research analyst with Piper Jaffey, said it’s more a matter of economics for retina specialists. He cited “extremely small” margins of about 1% for administering the FDA-approved anti-VEGF treatments Eylea (Regeneron) and Lucentis (Genentech). That poses a dilemma for practices. “If your office is not extremely good at collecting that money, you’re going to lose your shirt,” Dr. Schimmer said.
So biopharma is challenged to develop drugs that make economic sense for physicians to use. John T. Thompson, MD, of Retina Specialists in suburban Washington, DC, interpreted what those small margins mean for drug developers. “Industry needs to make certain that the doctors can make a profit, because if doctors realize that they’re losing on a particular drug regardless of which drug it is, they’re going to be smart enough to stop using that drug,” Dr. Thompson said.
And physicians and biopharma companies have to look in their rear view mirror for changes in government regulations, like the proposed Medicare Part B demonstration project that would have severely curtailed anti-VEGF reimbursements. “That would have absolutely killed our use of FDA-approved anti-VEGF drugs, because we would have lost money on every dose we delivered,” Dr. Thompson said of the Medicare proposal. Fortunately, Medicare changed course to save reimbursements for anti-VEGF drugs.
How does all this influence investment in biopharma?
Dr. Schimmer stated that biopharma is in a “pinch” as payers push back on high drug prices and the population ages. While pharmacy benefit managers claim a lot of the increase in drug prices for their own bottom lines, “perverse incentives within all levels of the health care system in the United States drive overuse of more expensive drugs, which is making everyone fearful that the rules will change to realign these incentives more appropriately,” he said. Although changing public policy may be difficult given big pharma’s lobbying power, “there does seem to be a consensus within at least Wall Street that something is going to have to change to make all of this affordable,” Dr. Schimmer said.
Despite “tremendous innovation” in ophthalmology, he said, “The system is struggling to preserve the incentives to innovate and protect the rewards for innovation while also having affordable access to care for all patients.”
Dr. Schimmer cited data from IMS Health that showed prices of the brand invoice for drugs increased 14.3% and 12.4% in 2014 and 2015, respectively, but the estimated net price growth, after factoring in discounts and rebates, was actually 5.1% and 2.8%, respectively, for those two years. “Overall drug prices are still going higher, but the pharmaceutical companies are not reaping the rewards,” he said.
The rising prices of biological agents at the dispensing level may be creating an opening for biosimilars in most medical specialties, but the presence of Avastin as an ultra-cheap option to the FDA-approved agents makes anti-VEGF therapy for age-related macular degeneration (AMD) an anomaly in biopharma. “In the normal situation, if the biosimilar came out at $1,000 a dose and there was no Avastin, then I think there’d be a huge migration from the name brand to the biosimilar,” Dr. Thompson said. “But when you have Avastin available for $25 to $50 a dose the question is, ‘What can the biosimilar be priced at that would get people to use the biosimilar as opposed to Avastin?’”
But that dynamic could also alter the course of biosimilars in ophthalmology in a positive way, panelist Jay Duker, MD, director of the New England Eye Center, said. “What would drive biosimilars in ophthalmology are the new pathways, and when new drugs get approved for different pathways, packaging them together with a biosimilar makes sense,” he said.
Meanwhile, gene therapy in ophthalmology shows the promise of breakthroughs in the next year or so, Dr. Schimmer said, although paying for them gets even more daunting. “How can you ask payers to pay for 10 to 20 to 30 years of benefit all up front?” he asked. “Or can you create a new model that’s based around annuities or perpetuities based on performance-based milestones?” Public policy will have to change to “parallel the commercial market opportunity for these programs so they can be rewarded for success,” Dr. Schimmer said.
“We don’t have the answers, but we have a little bit of time to get some of them,” he said. “A lot of activity is going on behind the scenes to try to sort this out.”
Tarek Hassan, MD
Tarek S. Hassan, M.D. is Professor of Ophthalmology at Oakland University William Beaumont School of Medicine and Fellowship Director at Associated Retinal Consultants in Royal Oak, Michigan.
Gilbert H. Kliman, MD
Dr. Gil Kliman leads the medical device investment team at InterWest Partners and invests in a broad array of healthcare opportunities, with a special interest in ophthalmology and digital health.
Jay Duker, MD
Jay S. Duker, MD, is the Director of the New England Eye Center, Professor and Chairman of the Department of Ophthalmology at Tufts Medical Center and Tufts University School of Medicine in Boston, MA.
Joshua Schimmer, MD
Josh Schimmer is a Managing Director & Senior Research Analyst who joined Piper Jaffray in 2013 to cover biotechnology companies.
John Thompson, MD
John Thompson is a Partner in Retina Specialists in Baltimore. He received his medical degree, ophthalmology residency and retina fellowship at The Johns Hopkins University School of Medicine.
Trex Topping, MD
Trex is a retired vitreo-retinal surgeon. He was medical director of Ophthalmic Consultants of Boston, and of the Boston Eye Surgery and Laser Centers.
Gil Kliman: So if we can have our panelists come upon stage and take a seat, and Tarek and I will try to moderate. We have four very shy and retiring guys who have never done this before, so we’ll try to walk them through it, to have a panel discussion on who’s going to pay for these therapies. And it really is an interesting time. I was thinking about it. When I trained at Wills Eye Hospital in the 80’s, there were really no treatments for macular degeneration. Jay and I were residency mates there, and we were basically having to burn the retina with lasers in the 5% of patients where that might actually help them. And now it’s really a cornucopia of treatments, where there’s a lot of questions about who to treat and when, and looming ever larger is how are we going to pay for these very expensive treatments that are becoming, it would appear, increasingly high tech. So we’ve tried to assemble a panel of experts here, most of which we know. Trex Topping, John Thompson, Jay Duker, and from the financial side, Josh Schwimmer. Josh, thanks for joining us to keep us grounded in finance here, and in trying to get a little bit into numbers as well as clinical treatments. What we thought we’d do is start off with just an informal poll here. If it was your own eye, if we can advance to the first question slide, next please. If it were your own eye, and the cost of all the drugs were equal, what would you treat yourself with? How many people would treat their eye with AMD in it with Avastin? How many people would do that? Did I see anyone doing that? Apparently not. OK, Lucentis. How many people would treat your eye with Lucentis? OK, we’ve got a few takers there. And Eylea. How many people would choose Eylea? OK, the majority of people with Eylea. Tarek, why don’t you take us through your ASRS data?
Tarek Hassan: Sure. If we can advance to the next slide. So every year since 1999, ASRS has conducted something called the PAT survey, which is the Preferences and Trends Survey. And unlike any registry or any other source of big data, this actually does capture preferences and trends because the questions are worded in ways that sort of tease out really what’s behind our decision making process in a lot of things. So when asked the question from last year’s survey, because this year’s survey results won’t be released until the meeting actually starts, if Avastin and Lucentis and Eylea cost the same, which drug would you use, and we’ll look at just the US answers. But you can see that the majority of people in the survey answered like you, in fact, probably even less so than you, that they would choose Eylea. So Trex, you said Avastin. Can you tell us why you would choose Avastin as the only person?
Trex Topping: Tarek, yes. I like being by myself sometimes. The reality is over the years as a clinician I’ve treated my patients first with Avastin, and if they were not responding well, then I switched them to one of the other two drugs. All three are very effective. I think it would be immoral for me to want to be treated by something other than what I treated – retired – my patients with. But all three of them work very effectively, and not all patients behave the same with any one of the three drugs. So we as clinicians have often switched our patients from drug A to L to E or whichever. And I’ve switched people away from Eylea to other drugs when they were not responding so well.
TH: And Jay, why Eylea first, then? Why not follow that path? Why don’t we all follow that path?
Jay Duker: So again, in dealing with wet AMD, the 3 drugs are really very close in efficacy. But I think the science is clear that Eylea has a better drying effect on OCT, and since most of my patients are treated with a regimen called treat and extend, where we determine the next treatment based on the drying effect, I feel like I am extending my patients better with Eylea, and therefore giving fewer injections. So that’s why it’s my first choice drug.
TH: John, anything, any difference? Is efficacy the leading indicator, leading driver for what makes you decide on one drug or another?
John Thompson: I think efficacy and also being able to stretch the treatments out is valuable. And one of the issues I would have with the Avastin, the reason I wouldn’t treat my own eye with Avastin is I’ve got lots of patients with little silicone droplets in their eye. There’s always the issue of what if your outsourcing facility is having an off day or whatever. And so if it were my eye, I would use one of the FDA approved drugs just because I think that there’s this very slight extra margin of safety with the way that Regeneron and Genentech produce their drugs.
TH: Should we try the next slide, Gil? What do you think? Let’s go to the next slide. So you heard from the panel, and you’ve heard from the audience what they would do for their own eye. And this is what the PAT survey shows that the members of ASRS do to their patients. And you can see that overwhelmingly in the top line, that’s the US answer, folks use Avastin as their first line therapy for new wet AMD patients. And we see this in all forms of big data that give us information on this topic. And you can see in second place is actually Lucentis, and in third place, the one that we all chose for ourselves is Eylea. So again, Jay, what do you think of that? Why – are we immoral as a specialty?
JD: No. I think that from the perspective of efficacy, we’re talking about visual acuity. And the studies are very clear that when used with the same regimen, the three drugs perform very similarly. PAT did show a difference in a PRN regimen between Lucentis and Avastin. Most of us don’t treat like that anyway. So from a visual acuity perspective, they’re equivalent. So we made our decisions based on other things. And I think the number one other thing, frankly, is economics.
JT: One thing, the ASRS commissioned a survey, cost accounting for 8 practices. We had to do this on short notice. And what they did is they looked at the cost of how much does it cost our practices to actually deliver these three drugs. And what they found out is that they cost of buying the drug and then keeping it on hand and having special refrigerators and all of this stuff we do was 98.9% of what we were reimbursed. So the margin on these expensive drugs is extremely small. And if your office is not extremely good at collecting that money, you’re going to lose your shirt. So I actually think part of the reason this question is answered the way it is I have a lot of colleagues out in practices, small practices, whatever, and they don’t want to deal with the expensive drugs for economic reasons. I’d love to say this is altruism and thinking of public health in the nation, and this is why people are picking Avastin. I think it’s economics that drives this.
TT: I think there is an economic issue, but I think part of the economics is that the physicians want to make sure that they will get reimbursed for the more expensive drugs, and therefore they go through the process of having their patients go through a financial issue to make sure that they will be covered and make sure that their insurance carrier will cover them, and after one or two shots of Avastin will switch over to the others.
TH: So John, you are involved with me in this Quorum project that we looked at that you referred to. What can our friends in the industry learn from that? What should they be taking away from that kind of information?
JT: I think that the interesting thing in this project also is that the profits were different for the three different drugs, both in terms of absolute dollars as well as percentages. And I think that physicians need to look carefully at this, and the industry needs to make certain that the doctors can make a profit because if the doctor realizes they’re losing on a particular drug regardless of which drug it is, they’re going to be smart enough to stop using that drug. So I think that reimbursement, this Medicare Part B demonstration project that was proposed months ago, would have absolutely killed our use of FDA approved anti-VEGF drugs because we would lose money on every dose we delivered. So we would have had to have stopped virtually immediately if industry had no, you know, come to the rescue in some way, shape or form, that didn’t violate the Part B demonstration project.
JD: I think it’s important to point out, though, this is a unique, historical event, the use of Avastin. And it does point out that retina specialists don’t read labels, and we’ll put anything into an eye once. And of course, it’s worked out great in a lot of ways for the middle and certainly patients around the world. But I wouldn’t expect that new innovations and other pathways were going to see this type of off label use again.
TH: Great. I think maybe we could talk about this for a long time. Maybe move forward a little bit about the impact. Clearly you can see that there are forces at work beyond the pure clinical indications for drug use. And maybe we’ll turn it over to Josh a little bit with the next slide, just to talk about drug pricing and some of the trends. And we were all glad to see Martin Shkreli thrown in handcuffs and walked around, but what really is going on with pricing and how much leverage is there from pharma over what we do with patients?
Joshua Schwimmer: Sure. So I think I get about a minute to summarize a topic that you can probably spend a whole conference on. But to be succinct, the biopharm industry has had tremendous success, right, in part driven by innovation, and in part driven by very high drug prices. And that success has led the payers to consolidate to increase their power to be able to push back on the drug pricing and control prescribing habits. And as the population ages and budgets get tighter and tighter, the pinch on the pharm industry is also getting tighter. There’s also increasing competitive dynamics within the biopharmaceutical industry that make them vulnerable to these pricing pressures, so the industry is losing its pricing power, and there’s this steady shift to now value based pricing, which is very loosely defined and uncertain. And the pendulum on drug pricing and drug access is swinging back towards the negative. We don’t know how far back it’s going to go. We see this in new product launches consistently in every physician community we talk to who says they’ve kind of lost a lot of their autonomy, and it’s the payers who have control. Ophthalmology is a very small part of the drug spend, but it exists in this broader world of biopharmaceutical reimbursements and the concerns at hand. On the other hand, there’s tremendous innovation within ophthalmology. It’s super exciting in ways that we’ve not seen before in gene therapy, orphan drugs, improved biological understand. And the system is trying to – is struggling with a way to both preserve the incentives to innovate and protect rewards for innovation, while also having affordable access to care for all patients. The next slide just kind of shows what’s happening in drug price trends. Overall, drug prices are still going higher, but the pharmaceutical companies are not reaping rewards.
TH: Can we go back one slide please?
JS: It’s actually the PBMs that are claiming much of that increase in price. And one last point to make, because it kind of came up with the discussion, is that there are so many different perverse incentives within all levels of this healthcare system in the United States that drive overuse of more expensive drugs in preference of the less expensive drugs, which is making everyone fearful that the rules will change to realign these incentives more appropriately. It’s going to be really hard to do because the pharma lobby is incredibly powerful, and everyone benefits from the high drug prices. And so changing the rules won’t be easy. There does seem to be a consensus within at least Wall Street that something is going to have to change to make all of this affordable. I think that was two minutes.
TH: That’s great. Well, maybe if we go to the next slide to just frame this up for the panel, so clearly there’s some dynamics of who’s paying for the drugs are going to dictate somewhat how the drugs are delivered to patients. And what – you could argue it both ways. Are the prices too high? Is this price gauging? Or is just people being too cheap that they don’t want to pay for new things because the old stuff is perfectly good? Jay, you’re always opinionated. What do you think?
JD: I actually think that the prices were set reasonably historically. We didn’t believe, when the anti-VEGFs first came out, that we would be treating patients every 4 to 6 weeks for the rest of their lives for wet AMD. I think that was a surprise to everybody. And that’s the reality is that on average, patients are living 12 years after the initial diagnosis of wet AMD. So in that respect, it seems like an awful lot of money. But when you look at the benefit that the patients have derived from it, it actually works out to be fairly cheap. Forty percent of them continue to job, where those patients would have been legally blind a year after the diagnosis. So that savings to the society is really tremendous. I’d say diabetes, a little different story because it’s clear that diabetics probably don’t need intensive treatment beyond 3 to 4 years.
TH: So Trex?
TT: I’m always enjoying being by myself somewhere. And I think one of the issues that has to be brought up here is that the cost of Lucentis, and I’m sorry, I just have some data on that, in this country is a little over $2000 a dose. It’s a thousand pounds in England, and it’s $240 dollars in India. Dot, dot, dot. Are they too expensive in the US is something for you to answer?
JS: The rest of the world kind of we subsidize the rest of the world for innovation. So I think that’s not necessarily a fair comp. I think 90% of the population outside the biopharmaceutical industry believes that drug prices are too high, including wet AMD. And so I think the reality is that there’s a strong case to be made that the drug prices are too high, and one segment of the medical community is highly profitable at the expense of others.
TH: John, if all three drugs cost $250, what do you think would happen to the dynamics of usage?
JT: I mean I think that I would stop using Avastin tomorrow, you know, on my patients. I would use the FDA approved drugs because I think they do have some distinct advantages. And so I think what we need to do is when I was talking with somebody high up in Genentech ten years ago, when Lucentis was just being released, and they thought it was going to be like photodynamic therapy, where as you said, you treat for a lot the first year and less the second year. So I think in reference to your answer, I think yes, the prices are probably a little too high, given that we have to continue treating this patient’s ad infinitum. The other thing is from the health insurers’ perspective, and Medicare’s perspective, the fact that Grandma Rose can still drive doesn’t matter a bit to them. That doesn’t save the health insurance company or Medicare a penny. It saves society a lot of money, and I think what we need to do is to turn the argument around to showing how it saves society money, you know, Grandma Rose doesn’t have to go into the nursing home, etc., etc. But unfortunately, the health payers are getting increasing control and they’re putting in step therapy policies and things like that that could determine what we as clinicians use in our patients. And I think that’s a bad trend.
TH: Great. You know, we should probably move on to some new therapies, to biosimilars and gene therapy. We’ve just got a few minutes left. So maybe – Josh provided this great slide on what’s coming next on biosimilars. And when you think about it, Avastin kind of is a naturally occurring biosimilar. So we see those dynamics. Josh, maybe talk through, just a minute or two, what are the impacts that you see of the coming wave of biosimilars?
JS: Yeah. I think we’re all waiting to see just how quickly biosimilars will penetrate into the market and the extent to which they’ll reduce spending. The reality is we need these to reduce spending of the large, more mature drugs to make room for the more, for the new wave of innovation and to be able to continue to incentivize the new product development. There are a couple of programs, and some large targets have many, many biosimilar programs evolving, which introduces its own set of risk, but also its own set of opportunity to really help curtail the spend on these drugs so that we can spend on the gene therapies and the next wave of therapeutics.
TH: That’s great. So will this be a much cheaper therapy? And what do you guys think, if we had biosimilars widely available, is that going to dramatically change things? How do you view it?
JT: I’m not sure it will change things because we have this very inexpensive biosimilar sort of with Avastin. I think under the normal situation, if a biosimilar came out at a thousand dollars a dose, and there was no Avastin, then I think there’d be a huge migration from the name brand to the biosimilar. But when you have Avastin available for 25 to $50 a dose, the question is what can the biosimilar be priced at that would get people to use the biosimilar as opposed to Avastin.
JD: Because of the unique aspect of Avastin in the argument, I think what would drive biosimilars in ophthalmology are the new pathways. And when new drugs get approved for different pathways, packaging them together with a biosimilar, then that makes sense. So that I think that the impact would be small. I agree with John, at least at the beginning, as monotherapy.
TH: Interesting. Well, let’s move on. We want to touch on gene therapy. So I think we could just move on to that. Because this is now a whole different treatment paradigm. And Josh, maybe you can talk through a few of the things here, and what the business model is, which is might be a one and done, very expensive thing, but very high efficacy.
JS: So we’re still learning. There’s a lot of innovation within ophthalmology, within retina, and then within retina gene therapy. What’s particularly interesting about gene therapy is that ideally you’ve de-risked your target. You might have increased a little bit the delivery risk, but one thing that the ophthalmology community seems to be very good it is innovating through delivery to solve that challenge. A lot of the programs are still early. The most advanced is Spark with the LCA RPE 65 gene therapy product that they’ll likely be filing for approval next year after positive phase 3 results. And there is a whole wave of and a really exciting opportunity. Most of it’s still preclinical, but that’s going to change in the next year or so. The idea here is yeah, it’s one and done, or one and done for a very long period of time. And that creates an entirely new paradigm of reimbursement. How can you ask payers to pay for 10 to 20 to 30 years of benefit all up front? How can you charge that? Or can you create a new model that’s based around annuities or perpetuities based on performance based milestones? It gets really complicated within the framework of our current healthcare system, where any insurer is going to be very reluctant to accept the lifetime cost of the patient, knowing that they may not have that patient for their lives. And we haven’t fully figured this out. The goal is that Spark will help lead the way and create solutions so that the industry can thrive and the reimbursement model works so that companies are rewarded, payers are not overburdened by a single patient’s, and there may need to be legislative changes or legislative incentives to kind of parallel the commercial market opportunity for these programs so that they can be rewarded for success, because we want more of these, and lot more of these, given the power of the franchise. But also make it reasonably affordable for all parties concerned. We don’t have the answers, but we have a little bit of time to get some of the answers, and a lot of activity is going on behind the scenes to try to sort this out.
TH: I think one thing we should talk about briefly before our panel ends is the impact that the government is going to have on all of this. And as Trex and John certainly know a lot about what the government has planned for us relative to alternative payment models, and if indeed we head in the direction of getting a single lump sum of money, for example, to manage AMD or manage one patient for X number of years, how do you think, Trex, for example, innovation would be affected by all of these alternative payment models that are going to be under study the next few years?
TT: I think it’d be very adversely affected. I think that the reality is that we all want to give the very best we can to our patients, and yet if we’re given a single lump sum to deal with a patient, and we’ve had huge possible expenses with gene therapy or very large expenses with certain of the anti-VEGFs, we would find a big change in what physicians actually do in taking care of their patients. I think it’s a very sad situation that the government is going to force this on us.
JT: I think it’s also very negative because what it does is hearkens back to the 1980’s where you got a set amount of money to take care of a patient, and basically doctors became therapeutic nihilists. The doctors that worked for some of the most aggressive HMOs, as you try to ignore things, and become a wall – don’t let the patient in your door when they have flashes and floaters – because you’re economically incentivized to deliver as little care as possible. The problem is right now we’re incentivized to deliver as much care as possible, and that’s the exact flip side where you’re strongly incentivized to give very little care to your patients. And that’s bad.
TH: That’s great. Well, we would love to keep going. Unfortunately, we’re going to have to wrap up. I’d like to thank all our panelists for a great discussion.