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The Institute for Clinical and Economic Review is launching an initiative to adapt its value assessment approach to orphan and ultra-orphan drugs, including a possible consideration of what should be a fair return on investment for manufacturers.


 Business HandShake

US payers are seeking tools for managing orphan drug costs in a way that more explicitly ties pricing to value. This is relatively uncharted territory in the US, where the prices set by manufacturers for drugs targeting few patients have generally been considered non-negotiable.


Cost pressures on payers are growing, driven by a significant acceleration in orphan drug approvals, as well as increasing prices (see box).


Orphan Drugs: A Burgeoning Market

  • 30 million Americans are affected by one of 7,000 rare diseases

  • Worldwide sales of orphan drugs expected to exceed $200bn by 2022

  • Average annual cost for orphan drugs is $140,443

  • Costs for orphan drugs are five times higher than non-orphan medications

  • 41% of drugs approved by FDA in 2016 carried an orphan designation

  • More than 25% of orphan approvals in oncology from 2009-2015 were for biomarker-defined subsets

  • 22% of the costliest drugs to Medicaid had orphan designations at some point


Source: ICER white paper on orphan drug pricing and reimbursement


So far, most US payers have not taken action to restrict access to drugs for rare diseases beyond requirements for prior authorization. (Also see "Few Clouds On High-Priced, Ultra-Orphan Drug Horizon" - Scrip, 28 Apr, 2017.)


But that may be changing. Increasing budget pressure and the prospect of more high-priced drugs to come has led to concerns among payers and other stakeholders that new pricing and reimbursement policies are needed to maintain the balance between providing financial incentives for continued innovation, patient access and affordability.

The Institute for Clinical and Economic Review is developing an approach to valuing drugs for rare diseases that could be used as a starting point for discussions between payers and manufacturers over pricing. The approach will adapt ICER's current value framework to suit the unique circumstances around orphan products. Because orphan drugs often have higher prices than non-orphans, they usually would not meet commonly-accepted cost-effectiveness thresholds that are used in valuing other drugs.


ICER plans to release a proposal on valuing orphan drugs for comment in mid-July and a final version later in the year.


The initiative is being driven by ICER's expectation that it will assess an ultra-orphan drug within the next 12 months or so, a spokesperson said in an email. The group has already reviewed some drugs with orphan indications, such as Intercept Pharmaceuticals Inc.Ocaliva (obeticholic acid) (Also see "Ocaliva In NASH Manageable With Indication-Based Pricing, ICER Roundtable Suggests" - Pink Sheet, 29 Jul, 2016.) and treatments for multiple myeloma. (Also see "ICER Questions Cost Effectiveness Of Empliciti, Kyprolis, Ninlaro" - Pink Sheet, 8 Apr, 2016.)


"We sensed that we're going to have to start to do more assessments in ultra-orphan drugs and we wanted to start the conversation with you all as we go into that area," ICER President Steve Pearson told a May 31 stakeholders meeting on pricing and reimbursement for orphan drugs. The framework for orphan drugs "is a work in progress but we know it's of real interest to consumers, to policymakers, to employers, to payers, to manufacturers, to everybody."


Express Scripts Holding Co. Clinical Solutions Director Harold Carter emphasized at the meeting that US payers are eager for solutions for managing orphan drug spending.


"We have to remember in the US we don’t have a single payer system. We have employers that know these patients who are sick. They want to get them the medication but at the end of the day they say, 'I'd either pay for this or I go out of business. What is my opportunity?'


"You can spread costs and manage your diabetes spend. You can manage your high blood pressure spend. But the reality is that [for orphan drugs] you can only cut costs elsewhere before it becomes too much."


Noting that manufacturers are negotiating orphan drug prices in other countries, Carter added, "We want you guys to have the same dialogue that you're having in these other countries" with payers in the US. "Or maybe it comes to the point that some employers, and many are getting there, say 'I just won't cover it.'


"I know you want to return an investment to your investors but you can't return a percentage of zero…if no one's going to fill your medication."


Manufacturers at the meeting argued the system in Europe is not working well for orphan drugs. (Also see "Lessons From Europe: Orphan Drug Valuations Show Limits Of Cost Effectiveness" - Pink Sheet, 5 Jun, 2017.)


Payers supported the notion of developing a systematic way to value orphan drugs at the meeting. "It allows for an apples-to-apples comparison so at least we have a number to work with," Prime Therapeutics Senior Director Health Outcomes Patrick Gleason commented.


"We want you guys to have the same dialogue that you're having in these other countries" on orphan drug pricing with payers in the US. "Or maybe it comes to the point that some employers, and many are getting there, say 'I just won't cover it.'" – Express Scripts


Harvard Pilgrim Health Care Chief Medical Officer Michael Sherman agreed. "It's helpful for ICER to give us some guidance on what creates fair value….It's helpful to have that through a common data model."


The valuation could help guide discussions about outcomes-based contracts in some cases, he pointed out. "The information that ICER provides is really important to us. Some people here say 'It's academic. It's interesting intellectually,' which is all true. But for us, it helps us to do business."


Gleason pointed out that in recent months, a number of ultra-orphan drugs have been approved with list prices in the range of $700,000 per year, suggesting that could be the new benchmark price for such products. They include Sarepta Therapeutics Inc.'s Exondys 51 (eteplirsen), Biogen Inc. and Ionis Pharmaceuticals Inc.'s Spinraza (nusinersen) and BioMarin Pharmaceutical Inc.'s Brineura (cerliponase alfa)


The trend also suggests that pricing is based on what the market will bear and not on the value of the drug, Gleason noted. "It appears to me a $700,000 number has now been set and that's what they'll bring, no matter what the cost to deliver the product."


MassHealth Clinical Pharmacy Manager Kim Lenz also expressed interest in guidance on systematically valuing orphan drugs.


"We in the Medicaid program in Massachusetts use the ICER reports all the time," she commented. "In the end, if we don’t have anything else to guide us, we do have to struggle with the finance behind it and how do we afford it in the Medicaid system? We have a disproportionate number of patients affected [by rare disorders] so we're constantly struggling. Every week we're being asked, 'How can we do this?' And we're using all the levers we can."


A Fair Return On Investment As Part Of Valuation

One idea that emerged at the meeting was that a value assessment for orphan drugs should take into account how much in development costs manufacturers should recoup with pricing.


David Mitchell, president of the advocacy group Patients for Affordable Drugs and a patient with multiple myeloma, offered the proposal as a way to stop abuses of the incentives available under the Orphan Drug Act and the greater pricing flexibility available to orphan products.


Concerns with how the law has impacted the market has led the US Congress, FDA and the National Organization for Rare Disorders (NORD) to initiate separate evaluations of the issue. (Also see "Orphan Drug Act: Congressional, FDA, NORD Reviews Come Amid Pricing Debate" - Pink Sheet, 7 Mar, 2017.)


"Why don't we ask what is the ethical level of profitability that should come from the development of a drug?" Mitchell said. He suggested in some cases, the amount of development and investment that goes into an orphan treatment does not align with the high prices that are being set.


The orphan drug framework "is not working right now," Mitchell said. "We can find a biomarker that works on the gene for the disease I have, find it in a different cancer, move it over with no investment in research, no risk and the manufacturer not only gets all the benefits of the Orphan Drug Act but all the monopoly pricing power that involves."


"I want to suggest we move the discussion to, or at least include in ICER's criteria, what it costs to develop the drug and what is a fair return on investment for the investors and the company that brought the drug to market. Absent that, we're leaving out a huge factor in not taking that into account in deciding what is a fair way for the drug to be priced."


"We need to be careful today when we talk about different approaches to assessing value and make sure we're not curbing the innovation that's happening." – Sarepta's Berry


The idea was picked up by payers at the meeting.

Anthem Inc. VP Clinical Policy and Medical Pharmacy Alan Rosenberg said, "the issue of dis-equilibrium between rules around what is to be covered in benefit plans and Medicare and rules and regulations around pharmaceutical pricing brings the question of what does manufacturing cost and what are ethical returns to the forefront."


Anthem made waves last fall when it announced it would not cover Exondys because of a lack of data on efficacy. (Also see "Anthem Denies Coverage For Eteplirsen, Citing Lack Of Clinical Efficacy" - Pink Sheet, 7 Oct, 2016.)


Premara Blue Cross Formulary Manager John Watkins also felt the risk involved in developing an orphan drug should be taken into account in valuing a drug. "I think it should be….Until relatively recent times, that is how health care has been priced."


ICER's Pearson pointed out that orphan drug pricing can lead to billions in annual revenue, depending on the size of the patient population, and indicated that ICER may handle valuations of orphan drugs with smaller targeted patient populations differently from those with larger ones.


"Some people would be surprised that if you take a drug costing $45,000 and you treat an orphan population of 100,000, you stand to make $4.5bn per year," he said. That raises the question of "what's too much? How do we help decision-makers grapple with what affordability means?"


Manufacturers Cite Threat To Innovation

But pharmaceutical manufacturers were skeptical about the notion of identifying a fair return on investment as part of the contextual considerations around valuing an orphan drug.


"There are many drugs in the orphan and ultra-orphan space that come after decades of investment in research, billions of dollars spent, lots of time. And many of these companies aren't profitable for many years," Sarepta VP Government Affairs and Global Health Policy Diane Berry cautioned.


"So I think we need to be careful today when we talk about different approaches to assessing value and make sure we're not curbing the innovation that's happening and dis-incentivizing some of that innovation."


"I want to push you a little bit off that talking point," Pearson responded. "We don't want to dis-incentivize innovation." But "I'm hearing from patients and others that they do view [R&D costs] as part of the context. David [Mitchell] is not alone. It's a big discussion about transparency around R&D costs."


Nevertheless, Parent Project Muscular Dystrophy Senior VP Legislation and Public Policy Annie Kennedy expressed concerns with how research and development costs would be calculated. She noted that the 21st Century Cures Act provision on platform technologies allows for extrapolation to develop ultra-rare mutations of a rare disease.


"How would that play out when you're talking about pricing considerations?" she asked. "I would think that subsequent trials and development using that technology would cost less money and wouldn't factor in the decades of developing that platform. So would a company be able to take into consideration what went into that platform" in describing its development costs?


Orphan Drug Returns Well Below Non-Orphan Products – Pfizer

Pfizer Inc. Payer Insights & Access, Global Rare Disease & Neuroscience/Pain Cluster Lead Donald Han pushed back on the idea that manufacturers view the orphan drug space as a profit center. "If you take a snapshot of the average revenues that these orphan drugs are generating, I would argue it's probably $250m to $300m. Is that a fair return on investment? When you look at the non-orphan space, returns are around $500m to $600m on average.


"These [orphan drug] incentives not only allow companies to invest the dollars and innovation in rare versus other diseases, they are leveling the playing field for investment," Han argued.


GlaxoSmithKline PLC Senior Director of Healthcare Delivery and Payment Innovation Matt Rousculp suggested the focus should be on finding new approaches to payment rather than on potentially curbing pricing for rare disease treatments. "There is this reality where we know there are gene therapies, CAR-T, even areas in anti-infectives where the current payment system, current financing approach doesn't seem to make sense," he said.


These are "21st century therapies with a 16th century approach to paying for them," Rousculp added. "We need to rethink the direction we need to go."


Aristotle, Freud And Drug Pricing Policy?


Pearson noted the cost pressures fueled by orphan drug pricing could lead to pitting patients with rare diseases against those with more common diseases in terms of how resources should be divided.


Harvard Medical School professor and ethicist Jim Sabin agreed but suggested the challenge of balancing the needs of both groups is the right path and achievable.


"If we could bring Aristotle into the room from 2,500 years ago he would say there is justice in each of those…perspectives. Is it right to seek medication for David [Mitchell] so he can be here in the meeting? Absolutely. And is it right to be concerned about the invisible people who might suffer in ways we don't see directly? Absolutely….Aristotle had a rather practical idea that has come down as the 'golden mean,' which essentially says that we have to pay attention to both and an ethical society will not choose one over the other."


Sabin acknowledged "while that's nice in principle, we have to take action. There, my own specialty is psychiatry, so I bring in Freud and his concept of how change occurs. It doesn't occur in a linear lightning bolt strike with the right answer. It occurs in the slightly sloppy process he called 'working through.'"

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