Commercializing breakthrough drugs in a value-based market could lead to better outcomes

Americans often struggle with the cost-benefit tradeoffs created by costly pharmaceutical therapies. At the center of this struggle is a sometimes tricky balancing act: how to stimulate innovation without allowing profiteering?

Outcomes-based payment models, an increasing trend in the shift to value-based care, could be a partial solution to this dilemma.

A cynic may view the pharmaceutical industry's embrace of value as an industry ploy, engineering a scenario in which Big Pharma always wins. Yet outcomes-based pricing models are bringing transparency to the often-murky orphan drug market. And incentivizing drug development could help to deliver much-needed medications to patients who desperately need them.

It's a fairly new trend. John Kerins, director at healthcare investment bank Cain Brothers, said he's aware of perhaps a dozen products for which a pharmaceutical company has gone to payers and structured some value-based payment arrangement. The Centers for Medicare and Medicaid Services, as well as commercial payers, are signaling that they want to have some skin in the game, and want to be effective.

"There's some PR to what pharma's doing, but they also realize drug pricing is under some pressure and scrutiny right now, so they'll say, 'If it doesn't work, we'll give you your money back,'" said Kerins.

The trend toward drug commercialization in a value-based context is due partly to pricing pressure, but novel drugs currently in the pipeline -- many of them focused on oncology -- are also moving the needle. Increasingly, progress is being made on certain diseases due to new technology.

Pharmaceutical companies are being increasingly selective in where they spend their money. There are many effective statin drugs on the market that are designed to lower cholesterol, for example, but if the new statin that's being developed is only 4 or 5% better than what's already on the market, payers won't reward pharma organizations financially.

"Drug manufacturers have made a decision to say, 'We're going to target diseases that have no existing cure,'" said Kerins. "They're costly to the health systems precisely because they have no known cure, and if we create breakthrough products, we'll get rewarded for that."

Almost 60% of drug approvals last year had an orphan indication, said Kerins. About 30% were considered first-in-class, meaning there were no other drugs on the market that addressed a particular ailment. That has resulted in some big-ticket prices, but also the potential for better outcomes.

Take Novartis, which produces a drug administered to children under 2 years old to treat muscular dystrophy related to a gene abnormality. It carries a $2.1 million sticker price, but holds the potential for a cure. The alternative, currently, is a scenario in which patients may spend north of $10 million over a 10-year period to treat symptoms, with loads of comorbidities. Novartis has also offered a pay-over-time model.

"Pharma wants to tell the story that they're part of the solution," said Kerins. "It's a little self-serving, but they're making a compelling argument."

BRINGING DRUGS TO MARKET

When it comes to bringing a drug to market, pharma has typically retained that function in-house. But the industry is becoming more open to outsourcing. Ten years ago, there were 2,000 companies with active drug pipelines. That's more than doubled over the past decade, and many of these new companies are small biotech firms that don't boast big teams.

There have emerged a number of companies -- small consultancies and larger commercial contract organizations -- that are helping both big pharma and biotech bring products to market. It's a multifaceted process; medical communications, market access and pricing, economic research -- all are part of being able to articulate a value proposition to the payers and pharmacy benefit managers.

Some consultancies have even worked with pharma companies during the clinical trial phase, where the challenge is to prove that a certain drug is more effective than others.

"It's not just about when the product launches, but at the end of Phase 2 saying, 'What are the clinical endpoints you want to measure in the Phase 3 trial?'" said Kerins. "Then you can say, 'We're more effective on these measures, and have improved the patients' lives in these measures.' You have to have a real scientific grounding, but also some market expertise -- what's gaining traction in the market? You're making a case around comparing the effectiveness of the product."

Medical affairs teams can pitch in strategies to help with the commercialization of these drugs. These teams exist in a kind of middle ground between the commercial and clinical teams. While ultimate commercialization is typically achieved by handing it off to a true commercial organization, medical affairs can facilitate a more scientifically sound effort to educate both doctors and consumers about a drug.

And since many of these drugs can be complex, nurse educators often have a role in the product launch, informing stakeholders on how to use the drug and what the expected side effects may be.

"The value-based models around drugs are novel, and that probably is going to have the biggest impact on the healthcare ecosystem more broadly as that gains more adoption" said Kerins. "There's clearly traction around the idea, and I think it will gain momentum."

He expects the future will see more outsourcing in the pharmaceutical industry, which could grow my 10% or more over the next five to 10 years, and may attract more private equity investors. The question for pharma is how that will change their identity. If they outsource the commercialization of their drugs do they become drug holding companies? That's one question the industry will grapple with as value gains traction.

"It's a positive in my mind that you've got a lot of scrutiny at the market access level from pharmacies and PBMs -- what they reimburse, what they want on the formulary," said Kerins. "Companies using science … is a net positive. It's not necessarily a cost reduction, but hopefully it drives better outcomes for patients."

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com