Biologics Beware

June 1, 2004
David Balekdjian

David Balekdjian is a partner at the Bruckner Group, (www.brucknergroup.com) a consulting firm assisting pharma and biotech companies with strategic, marketing, and development issues.

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Michael Russo

Michael Russo is a partner at the Bruckner Group, (www.brucknergroup.com) a consulting firm assisting pharma and biotech companies with strategic, marketing, and development issues.

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-06-01-2004,

Biologics and specialty pharmaceuticals, which typically target small patient populations, have historically necessitated a high per-patient cost to justify their R&D investment and expensive manufacturing and packaging processes.

Biologics and specialty pharmaceuticals, which typically target small patient populations, have historically necessitated a high per-patient cost to justify their R&D investment and expensive manufacturing and packaging processes.

But many in the industry are doing unintentional, but nonetheless significant, damage to their companies by perpetuating the belief that these features create a unique set of rules for their products. While that may have been the case in the past, recent market developments have created a different landscape. Still, many companies are not sufficiently taking into account what has changed, and nowhere is it more dangerous than during the development of payer coverage and reimbursement strategies.

In earlier Pharmaceutical Executive articles ("Show Us the Value," September 2003, and "Raising the Bar," November 2002), we forecast an aggressive shift in managed markets' policies, predicting they would demand that pharma companies develop and market products that deliver healthcare value commensurate with their cost. Extensive research conducted by The Bruckner Group ( www.brucknergroup.com) has measured a similar and increasingly critical tone in payer attitudes and strategies toward coverage of specialty pharmaceutical products. Unfortunately, the managed market strategies many companies are pursuing for their biologicals do not sufficiently recognize the subtle but unmistakable changes and fail to fully understand their markets and their markets' needs.

Too Much of a Good Thing

It's understandable that a history of success has led many companies to retain beliefs that have only recently been superceded by market shifts. In 1982, when human insulin was introduced as the first biotech product, and for many years following, payers saw biologics as a panacea, an opportunity to finally treat patients with chronic, progressive diseases. Those first treatments delivered excellent value even at high cost, in part because they addressed specific and targeted needs:

  • diseases with relatively small patient populations (under 20,000), such as Gaucher's disease, which lacked alternative treatments

  • chronic diseases (like hepatitis C and multiple sclerosis) that might be put into remission or possibly even cured

  • diseases (such as cancer and AIDS) that require rescue therapies and critical care.

Typically, a biological was welcome as either the only option available with a reasonable threshold of efficacy, or as a third-line or rescue therapy in the most refractory cases. Given that the patient populations qualifying for these treatments were relatively small, extremely sick, or both, their high cost-from $10,000 to $100,000 annually per patient-did not preclude usage.

The US healthcare system was also far less value- and outcomes-driven in the 1980s and '90s than in the present environment. Furthermore, because biologics are often delivered by injection or IV and require more medical oversight, they were typically paid for out of the payers' general medical benefit. By avoiding the intense scrutiny of payers' comparatively smaller pharmaceutical budget, growth of biologic use was relatively unimpeded.

Current Realities

Fast forward to 2004. Biological products have exploded into the medical therapeutic market: approximately 120 are available and 90 more are on the way. Biologics are now approved for widespread diseases such as psoriasis and rheumatoid arthritis, which affect millions of sufferers. Biologics are treating much wider patient populations than anticipated at an annual cost of $22 billion. According to AdvancePCS, up to 5 percent of a managed care organization's patients are prescribed biologic products. With an annual growth rate of 20 percent (twice as fast as that for pharmaceutical expenditures and three times as fast as overall healthcare) payers are targeting specialty drugs for greater scrutiny and cost control not for their failure to deliver, but because of their success.

In the last few years, biologics have gradually moved from the medical expenditure budget (where they constituted only 1–2 percent) to the drug expenditure budget (where it is a much more substantial 15 percent). The shift has created a new and obvious cost-cutting target for desperate healthcare insurers. Few in the biotech industry seem to fully understand the implications of having their products scrutinized for pharmacoeconomic robustness, forcing them to compete alongside a wide array of management options and treatment pathways. Regardless of the fact that these products offer something unique and are the result of biotech's high-risk R&D, payers are not willing to accept those noble pursuits as a reason for reimbursing their high cost.

Most pharma companies now understand that managed care organizations (MCOs) and pharmacy benefit managers (PBMs), in search of greater healthcare value, have changed the basis for how they make coverage decisions for new treatments. Under outcomes-based access (OBA), new treatments seeking to gain a high level of coverage must demonstrate compelling pharmacoeconomic value to receive preferred formulary inclusion or a robust position in a disease management program.

Since OBA became the decision making paradigm, it has driven the success (and failure) of many new drugs. It's not overstating matters to say that in most pharma companies OBA is driving decisions regarding product development, corporate development, marketing, and sales. But the biotech sector seems to still be lagging on this matter for a variety of reasons.

On the Chopping Block

In The Bruckner Group's 2003 study, payers consistently indicated that biologics are at the top of their lists for future cost-containment efforts. They see it as necessary because they experience a significant gap between biologics' costs-including acquisition, drug delivery, and additional medical testing-and the pharmacoeconomic value provided. AdvancePCS has publicly forecast that it is working to reduce biological expenditures by 30 percent.

Perhaps payer attitudes toward biologics are best summarized by a pharmacy director from a leading MCO, who stated in the study: "I cannot continue to spend $3 million dollars to treat 150 patients, only to find the 30 patients that will get three months of relief and the 10 that end up with expensive liver problems. It just doesn't make sense."

Payers are extremely concerned with noncompliance and early treatment termination resulting from the difficult dosing schedules, side effects, and safety issues associated with many biologicals. For example, in a recent BGI Academic Collaboration Program study of more than 1,000 gastroenterologists (in collaboration with Sean Hurley, MD, and Eric Lawitz, MD, both of Brooke Army Medical Center, and presented at 2004 Digestive Disease Week), The Bruckner Group found that 12 percent of hepatitis C patients who initiated a biological drug therapy do not complete it. Payers experience heavy losses when patients who initiate high-cost therapy discontinue it early or skip doses. The cost is not only monetary, but, more important, there is a simultaneous drop in healthcare outcomes and overall treatment value.

To improve biologicals' outcomes and value, companies need to provide additional support and educational initiatives, as well as side-effect management that will improve compliance and help patients complete therapy. A 2002 study at Northwestern University has shown an active intervention program for hepatitis C patients can decrease the treatment drop-out rate from 10 percent to 3 percent. Such programs create a clear path for companies to work with payers for mutual benefit, creating programs that solidify the biologicals' value proposition.

Yet as matters stand, payers clearly believe that the high cost of biologics will most often exceed any direct monetary benefit gained from using them. This doesn't mean that payers will set aside cost considerations when assessing biological therapeutics. In fact, they do just the opposite. Payers are making aggressive choices, relying on evidence-based disease management and pharmacoeconomics to minimize their losses. For example, they continue to seek out evidence that the management of a chronic disease by a biologic will keep the disease in check, alleviating high medical and emergency costs.

That approach leaves biotech companies facing the same issues as pharma-the need to produce sound, comparative value propositions for their products, backed by solid, rigorous proof. Biotech companies that fail to meet this standard are likely to encounter the same intense resistance and resulting revenue loss as Biogen did with its latest product, Amevive (alafacept).

Amevive Case Study

In 2003, Biogen introduced Amevive, the highly anticipated first biologic indicated for psoriasis. The product was poised to be a big hit with patients, physicians, and payers alike. Biogen, however, did not appropriately incorporate into Amevive's managed markets and pricing strategy the critical pharmaco-economic value arguments that are now at the heart of any substantive formulary submission dossier.

Biogen priced Amevive at a significant cost premium over Amgen's Enbrel (etanercept), the market leader with at least 75 percent share of the biological market for psoriasis. Biogen apparently assumed that Amevive could command a price premium for three main reasons:

  • It is the first biological with an FDA-approved indication for psoriasis. (Enbrel and other biological treatments are used off-label, although Enbrel was indicated for psoriasis in May 2004.)

  • Amevive uses a unique immunosuppressive method of action.

  • The product offers the possibility of a more durable response.

From payers' perspectives, however, Amevive's "value proposition" offers no meaningful pharmacoeconomic value over that of lower-priced competitors. Being the first biological for psoriasis, while a useful marketing message to garner grassroots support, is an attribute with no meaningful healthcare value. Although at the time, the other specialty pharma products for psoriasis were all being used off-label, such a designation was moot in the face of reported efficacy and physicians' successful experiences with those products. At Amevive's launch, Enbrel had already been treating rheumatoid arthritis patients for years and had been used by dermatologists for the treatment of psoriatic arthritis for more than a year. Doctors and payers were familiar with Enbrel and confident about its efficacy and safety.

The introduction of a new method of action is only as valuable as the new approach's ability to address market needs by improving outcomes (increasing efficacy, increasing safety, and/or reducing side effects) or reducing costs. Unfortunately, most payers consider Amevive's efficacy as equivalent to Enbrel's, yet Amevive requires a 60–90 day onset of action period compared with Enbrel's 14–21 days. Furthermore, payers consider Amevive's durability of response to be rather anecdotal and want more data to demonstrate a clinical and pharmacoeconomic significance with meaningful impact on the healthcare value proposition.

Amevive also comes with additional costs not encountered with Enbrel. Enbrel requires a subcutaneous self-injection at home; Amevive needs intravenous or intramuscular delivery by a doctor or nurse. Perhaps Biogen believed that administration would afford a Medicare advantage. But in reality, doctors must obtain the drug directly and have reason to fear that a shortfall or delays in reimbursement will cost them personally. Enbrel, meanwhile, is available at retail pharmacies at no risk to doctors. Amevive also requires regular monitoring of immune cell counts. In short, the therapy did not offer payers a meaningful value proposition.

As a result, Amevive has failed to achieve widespread coverage on preferred formularies, and many doctors became concerned when coverage was denied even after Herculean efforts. Patients also balked at the often 20–30 percent co-pay required for Amevive. As a result, physicians and patients largely ignored Amevive, and it suffered an essentially stillborn launch. Post-launch results were further hindered by anecdotal reports suggesting that Amevive's real-world clinical efficacy was less than the company's claims. Even as Biogen diligently attempted to address many of the issues, Amevive's first quarter revenues in 2004 plunged to only $13 million, down from $17 million in the fourth quarter of 2003-a fraction of Biogen's expectations.

More than a few Wall Street analysts believe that Amevive's poor launch-and the loss in projected revenue-drove Biogen's merger with Idec. As the theory goes, Biogen was compelled by the need to get a deal done with another company before its stock took a plunge, leaving Biogen as a wounded takeover candidate. This case study illustrates the very high price that biotech companies can pay for ignoring payer's OBA approach with its focus on healthcare value.

On the Other Hand

Roche's combo therapy for hepatitis C shows how incorporating OBA principles can produce an unqualified success. Before launch, Roche assessed the clinical outcomes of Pegasys+Copegus (peginterferon alfa-2a/ribavirin) compared with the standard of care and market leader at the time, Schering-Plough's Peg-Intron+Rebetol (peginterferon alfa-2b/ribavirin).

Roche understood that in the current payer climate, Pegasys' similar outcomes to Peg-Intron would not justify a pricing premium and that nothing could be gained by trying to do so by chipping at the margins of the co-therapy's clinical success. Realizing that a pricing premium had no basis in the evidence, Roche went with the theory that, with all else being relatively equal, a lower price would likely win market share.

At launch, Pegasys+Copegus was priced to offer similar patient outcomes at significantly better value than Peg-Intron+Rebetol. Coupled with an excellent, utilitarian, and focused strategy, Roche captured more than 40 percent share from Schering-Plough in just 12 months.

Guidelines for Getting It Right

The Bruckner Group's involvement in product developments and launches that successfully incorporate OBA strategies led it to develop a model and methodology that has been validated across therapeutic markets. The model consists of qualitative assessments, quantitative measurements and metrics, and a set of guidelines. Pharma and biotech companies can use the following principles from the model to successfully launch new products in an outcomes-driven world:

Be realistic and data-driven. It's okay to have high expectations as long as they are tempered by the realities of how a product actually delivers value to a true market need. All too often expectations are based on a heightened sense of what one hopes rather than on the data. Responsible assessment of clinical results, technology limitations, and market needs is essential in dealing with the practical aspects of an increasingly managed markets-centric drug industry. A plan should be guided by the data and its analysis, and not the other way around.

Creativity is good; evidence is better. But having both is the key. It is always tempting to try to leverage a snappy or compelling advertising message as the central focus of a marketing plan. Using the Amevive example, although being first to market with a specific indication might sound good, it is irrelevant if many players are already successful off-label alternatives. If you can't assign a dollar value or a direct clinical benefit to your message, neither can your customer.

Know your customers. It's important to pay attention to trends and market shifts in the company's customer base. For example, if payers are clearly assessing therapies with a specific value-based criteria, give them what they want to the best of the company's ability. With an explosion in the volume of sales detailing and ever-shrinking available time, physicians want useful, data-driven information, not flash. Make prescribing your product easy and anxiety-free.

Know your competitors. Who are they now, and who will they be in the near future? Always compare your product, in both development and marketing, to your true competition. Companies gain nothing from "strategically" comparing their product to inferior ones that are otherwise irrelevant in practice. Expect independent comparisons among payers, physicians, patients, and competitors that will render yours utilitarian or obsolete. Providing utility leads to good will, enhanced reputation, and ultimately support.

Create defensible value; price accordingly. Arriving at price has always been a painful process for the healthcare industry. Although it is still quite difficult, the concrete nature of pharmacoeconomics and activity-based costing provides a great deal of guidance for knowing what the current system will bear. The days of price premiums for quality of life or cosmetic advantages devoid of healthcare value are over. Prices should be set according to the overall cost burden a new therapy will place on the system, relative to the outcome it can deliver compared with competitors.

The Road Ahead

Biologics are different from pharmaceuticals in many ways, but their differences are minimized when it comes to payer reimbursement and coverage decisions. Pharma companies are further along in the process of adapting to OBA because they have by necessity understood the market shift sooner.

That affords biotech companies an advantage: They are in a position to learn from the mistakes some pharma companies made during the process of developing OBA strategies. Those mistakes, costing many millions of dollars, need not be repeated if biotech companies engage the process thoughtfully and, in particular, are attuned to the problems others have already experienced and solved.

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