Written by Mark Osterman, Senior Vice President, Kineticos
I recently published an article that outlined the issues surrounding value based pricing, and the majority of feedback I’ve received has been related to the role, or lack thereof, that innovation seems to have in these pricing models. Our industry continually stresses the need for innovative therapies, but if we, as an industry (and as a society), cannot figure out how to adequately reward innovation, we should not expect it to endure.
One way to look at rewarding innovation is within the scope of pricing and access1, which go hand in hand in today’s reimbursement environment. Biopharma companies are laser focused on establishing a profitable, yet fair price point. However, that price point becomes less relevant if it isn’t granted a certain level of access. Harvoni, the revolutionary hepatitis C treatment, is a prime example of a therapy that achieved tremendous success due to receiving optimal pricing and access.
There are also plenty of examples where companies have been able to achieve a favorable price but experienced challenges with access. One that comes to mind is Entresto, Novartis’ innovative CHF medication. The primary reason Entresto’s initial sales were lacking was because of the mandatory Medicare Part D six-month lockout on new medications. With patients on Medicare accounting for two-thirds of Entresto’s likely population, it would have been extremely difficult to achieve its forecasted sales targets. A dismal start was compounded by the fact that the lockout also delayed access to other formularies. It is now clear that Entresto’s access was equally, if not more important, than its pricing (approximately $4,500 per year).
Rewarding innovation is also illustrated well by the evolution of the oncology pricing models. There are 3 models for oncology pricing: ASCO Value Framework, NCCN Evidence Blocks, and Memorial Sloan Kettering Cancer Center Drug Abacus. These models all factor in safety, efficacy, and cost, but vary on other parameters, such as quality of life.
In only one of these models, Memorial Sloan Kettering’s Drug Abacus, is innovation specifically cited as a factor for pricing rationale. This framework uses molecule novelty, or uniqueness, as the innovation factor for pricing. However, it does not consider other innovation factors associated with the development of novel therapies, which include preclinical development, regulatory design, and clinical development. Unless innovation is incorporated and valued in these pricing models, then the true value of the product is not adequately rewarded.
The question of why innovation should be rewarded is an easy one to answer: innovation must be rewarded or it will not exist. How to reward innovation is a much more complex question and worthy of debate. Neither a fair price nor broad access alone should determine reward. Pricing and access both play a critical role in bringing innovative, life-saving therapies to patients, which is reward in itself.
1The use of a therapeutic by the widest or least restricted patient population
Mark Osterman, Senior Vice President of Kineticos’ Biopharmaceutical Practice, brings 25 years of experience in the biopharmaceutical industry to the team. His team is focused on helping growth-oriented biopharma companies realize their commercial potential at the corporate, portfolio and product levels. Mark’s therapeutic expertise includes cardiovascular, pulmonary, metabolics and cell/gene therapy.
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