This interview was first published on Pharma Boardroom on 25 September 2018.
This second installment of an exclusive two-part interview with Thomas Cueni, director general of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), defines ‘fair pricing’, gives IFPMA’s take on so-called “cost-plus” pricing models, and talks about access to medicine in developing markets.
The innovative pharmaceutical industry seems to be under unprecedented pressure as drug development costs rise, state budgets constrict and companies are being challenged to prove the value their therapies deliver to society. What does fair pricing look like?
IFPMA is keen to have a frank discussion of this topic. We feel that there are many misconceptions around the job that the pharmaceutical industry is doing and a lot of misunderstandings about why drug development and innovation can be so long and expensive.
We strongly contest the idea that the pharmaceutical business model had gone down a dead end and no longer delivers value for money. The facts on the ground demonstrate quite the opposite. If we take the example of Hepatitis C, we have seen the advent of some transformative cures, which, I think, showcase disruptive innovation at its very best.
Many governments were, quite naturally, caught off guard and were not immediately well equipped to handle such a game-changer. This is a disease that causes chronic liver failure and generally places a heavy burden on the public coffers because of the need to pay for expensive liver transplants and costly associated aftercare when the response rate for this type of conventional approach registers a lowly 40 percent. Suddenly, practically overnight, health systems were presented with a therapy promising a cure rate of as high as 90 percent within just 8-12 weeks of treatment.
While the upfront price tag may look deceptively high, this is precisely the sort of medication that will result in fewer and shorter hospital stays and therefore generate substantial savings over the long run. Moreover, when trying to calculate cost, it would be misleading to try and calculate the cost of the treatment by extrapolating the number of patients and multiplying that against the price tag, because that ignores the price competition that arrived upon the market within a very short space of time.
Initially there was a lot of fuss about the Hepatitis C cure’s propensity to bust healthcare budgets, but this turned out to be overblown. Even forecasts that there would be an exponential rise in the number of patients proved to be wide of the mark because some countries rationed access while other’s negotiated volume-value or managed access agreements with the drug developer.
In short, the issue of financial sustainability should not be determined via the price of an individual drug, but instead by looking at the aggregate cost. Meanwhile, long term cost savings should be factored into considerations of the face-price. Our view is very much that companies that are able to come up with truly game-changing, transformative treatments, should be commensurably rewarded through strong profit margins that will inspire others to take the gamble and invest heavily in R&D.
Is that why IFPMA opposes certain so-called “cost-plus” pricing models?
Yes. The important thing to remember is that the drug development model is not static, it is very dynamic. We are talking about a highly risk business that has to be incentivized through the promise of decent returns on investment commensurate to the amount of risk that a company has exposed itself to. If a company that manages to make a real breakthrough through discovering a cure for a disease like Hepatitis C or a game changing approach to tackling a disease like statins in the cardiovascular therapeutic area, then they need to be well rewarded for their efforts.
There are other matters to factor into the price equation as well. Firstly there are considerable costs pertaining to the R&D and regulatory process that will need to be recovered. We also have to bear in mind the fact that the exclusivity time when a company is on the market on their own with a product is generally very limited. Real exclusivity doesn’t always equate to the patent duration because, in many therapeutic areas such as cardiovascular, you will have numerous competitors arriving on the scene and forcing down prices well before patent expiry.
Fifteen years ago drug developers where being blamed for not coming up with enough innovation and for dedicating their time and resources to lifestyle blockbusters like developing drugs for erectile dysfunction and slimming. Now that there has been a real shift to biologics, we are not hearing that accusation anymore. In the last five to ten years we have witnessed companies investing strongly in high-risk frontier research involving stem cells and the harnessing of the immune system to attack the onset of a disease. We have seen the emergence of exciting CAR-T therapies in oncology, novel pathways for treating hypertension and a paradigm shift in the way that chronic conditions such as diabetes are managed. None of this would have been possible without the incentive structures of the prevailing pharmaceutical business model.
That is not to suggest that the classic business model is fit-for-purpose in all instances. Clearly there has been a market failure when it comes to coming up with new antibiotics or treatments for certain neglected tropical diseases and everyone needs to think outside of the box about how to effectively remedy this. Nevertheless, for the main part, the business model is not broken and has delivered big time.
How receptive are healthcare systems, governments, payers and patients to this message?
Last year I attended the “Fair Pricing Forum”, organized by the World Health Organization, in collaboration with the Dutch Ministry of Health. where there was an important discussion about what constitutes a “fair price” in pharma. Is it one that reflects just the cost of research and marketing? Is it whatever is affordable for the healthcare system and market where the drug is being sold? Is it the price that best demonstrates therapeutic value? Interestingly there was a broad consensus for pricing structures that reflect the therapeutic value. Most people wanted a setup where you pay for what you get, rather than for a price that is correlated neatly to the cost of the R&D.
Some administrations in some countries have gone down the ‘cost plus’ pricing route and called for complete transparency on development costs. My fear is that this may will have unintended consequences such as encouraging less risk taking, and thus resulting in a decrease in the tempo of innovation. Take, for example, a disease like Alzheimer’s where drug development is notoriously risky and a cure has so far proved elusive despite a great deal of investment made by MNCs in this area. If a company is investing in cutting edge research on dementia, it knows that there is a 90 percent chance of failure during clinical trials, but it also knows that it would hit a goldmine if it managed to attain that, long hoped for, breakthrough. The ‘cost plus’ pricing route would clearly not be enough of an incentive, because companies would need to cover the costs of all the failures that they would make while trying to hit upon the winning formula. The end result would be that no one would invest in dementia research and the real loser would be the patient.
The industry recognizes that healthcare budgets have their constraints and that better pricing formulas need to be identified. Correspondingly companies are increasingly willing to talk about managed entry agreements and pay-for-performance. Ultimately most stakeholders, including industry, want to see value-based pricing pursued to the point in which there is a personalized precision medicine market under which medicines are optimally prescribed and there is a strong linkage between price and end-outcome. That is difficult right now because the requisite infrastructure to evaluate this – such as patient registries – is often still missing in many markets.
Nevertheless many of our members are keen to agree performance related payment. This is quite an audacious stance because end-outcomes can hinge upon many factors such as good prescribing by the doctors, good compliance and adherence by the patient. The fact that many of our members are willing to push forward with these kinds of contracts is demonstrative of how keen they are to participate in making health systems financially sustainable and how eager they are to transition to value-based prices.
What about for the healthcare systems of developing countries that simply don’t have the financial firepower to support this level of innovative medicine?
The big challenge is indeed that 60 percent of the world’s patients that pay out of pocket their health expenditures. In many African countries, even 20 cents for an insulin vial might be too expensive for many households. There has been a big shift of emphasis within the World Health Organization about how to go about tackling this issue. In the past, the focus was on countering infectious disease in the developing world and harnessing overseas development aid to better manage diseases like HIV. Nowadays, non-communicable diseases like diabetes are becoming much more prevalent which means that more effort has to go into strengthening the capabilities and capacities of public health infrastructures. This includes exploring alternative ways of public health financing such as the establishment of local insurance models that tap into the emergent middle classes in many of these countries. Being able to propose different prices across different markets is also essential to overall sustainability.
Industry is very supportive of these efforts and willing to play a proactive part through public-private partnerships and initiatives such as those being rolled out by the Bill and Melinda Gates Foundation. Obviously we have a right to defend our business model and patents, and we always have to be aware of any potential conflicts of interest. There have been some very notable successes. When you have 80 percent of African children being vaccinated against some of the most dangerous infectious diseases, it shows that these programs represent obviously much more than just a drop in the ocean.
When you talk about healthcare strengthening, what sort of practical steps are you envisioning?
Often the big hurdle to access is not the price of a medicine per se. Just as important as having an affordable antibiotic on the market is having educated physicians who know how to diagnose and properly prescribe treatments, as well as mechanisms for ensuring the quality of the medicines. Let’s not forget that – in some areas of Asia, Africa, and Latin America – up to 30 percent of medicines are thought to be fakes. Then there is the worrisome issue of antimicrobial resistance, which represents one of the biggest healthcare challenges on the radar right now and where stronger health systems on the ground will be essential if we are to make any headway against this issue.
I happen to be the chairman of the “AMR Industry Alliance” which was established in May 2017 encompassing more than 100 enterprises from across the entire life-science industry (R&D pharma, biotechs, generics, diagnostics). Ten million more people could die every year if we don’t somehow manage to prevent the spread. The numbers are literally mindboggling. Ebola frightens people, but AMR is more of a silent killer that doesn’t make the headlines. The numbers are so big that they just don’t resonate as they should. Antibiotics are a precious resource. Misuse puts us all at risk – since taking antibiotics when we don’t need them speeds up antibiotic resistance. Much more needs to be done to put in place the right infrastructures to safeguard them, including education of healthcare professionals and patients; appropriate promotional practice; integration of fast and accurate point-of-care and laboratory diagnostics; collection of surveillance data, etc.