BioWorld Insight Contributing Writer

It used to be that getting a drug approved was the most important thing a biotech had to do. Now, getting a drug paid for has become as important, if not more important, than gaining marketing approval.

Last week, Cadence Pharmaceuticals Inc. fell 13 percent after announcing the approval of its pain reliever, Ofirmev (acetaminophen). Investors were worried about whether there's a market for another injectable pain reliever, especially after the hard time Cumberland Pharmaceuticals Inc. has had gaining market acceptance for its I.V. NSAID Caldolor (ibuprofen). (See BioWorld Today, Nov. 4, 2010.)

The week before, Savient Pharmaceuticals Inc.'s shares plummeted more than 44 percent after the company announced that it hadn't found a buyer, despite the fact that its gout drug Krystexxa (pegloticase) is already approved. Savient plans to launch Krystexxa on its own, but Jefferies & Co. analyst Eun Yang believes the biotech might have some real problems getting the drug paid for, considering potential patients are largely in the Medicaid and VA systems where reimbursement could be 75 percent to 50 percent lower than the full price. (See BioWorld Today, Oct. 26, 2010.)

Reimbursement risk and competitive concerns also appeared to affect Somaxon Pharmaceuticals Inc.'s partnering prospects earlier this year for approved insomnia drug Silenor (doxepin). After a long delay, the company found a partner, Proctor & Gamble Co., but the deal looks more like a sales force for hire than a partnership deal, with P&G putting up nothing upfront and getting up to 15 percent of sales for its efforts. (See BioWorld Today, Aug. 26, 2010.)

Planning Ahead

The risk of having an approved drug that no one is willing to pay for has companies thinking about both reimbursement and comparative effectiveness earlier in the drug development process.

"Historically, companies have performed pharmacoeconomic analyses after filing their [biologic license application], for example, and in post-marketing studies. We are planning to gather those data in Phase III," said Sharon Watling, vice president of clinical and regulatory at Aastrom BioSciences Inc.

Aastrom is developing an autologous tissue repair cell therapy for the treatment of critical limb ischemia, a severe form of peripheral artery disease. Given the similarity to Dendreon Corp.'s autologous prostate cancer vaccine Provenge (sipuleucel-T), Aastrom is keeping a close eye on the Centers for Medicare & Medicaid Services (CMS) national coverage review of reimbursement for Provenge.

On its quarterly conference call with investors last week, Dendreon's management didn't seem worried. The question that the Medicare Evidence Development & Coverage Advisory Committee is addressing in its review next week is "ultimately around the medical necessity of Provenge and we feel our data absolutely underscore that point," said Hans Bishop, Dendreon's executive vice president and chief operating officer.

Still, it's clearly better to have Medicare reimbursement settled before a product launch, which might be possible under a joint review by CMS and the FDA that's being proposed. The agencies are already collaborating on the FDA's Sentinel Initiative to track reports of adverse events in Medicare population, and there has been talk of extending that relationship to the approval setting.

Antoun Nabhan, senior director of corporate development at Onyx Pharmaceuticals Inc., feels that companies can't explore reimbursement too soon. As early as Series A financing, companies should be thinking about reimbursement, especially if they'd like to be able to sell or license the asset.

"This is a topic that is really high on the list of priorities" when a company comes in to pitch a drug to his business and development office, Nabhan said last week during law firm Foley and Lardner LLP's annual life science conference.

Nabhan also noted that, "More risk is being absorbed and being shifted back to the young innovator companies." He pointed to Onyx's 2009 purchase of Proteolix Inc., in which the majority of the potential $851 million deal was tied to earn-out payments based on clinical and regulatory success of cancer drug carfilzomib. (See BioWorld Today, Oct. 13, 2009.)

It's safe to assume that sales milestones will become an increasingly large contributor to the earn-out payments. After all, an approval isn't valuable if patients can't be reimbursed for the drug, or if heavy competition makes them reluctant to buy it.

Vanda Pharmaceuticals Inc. licensed its already approved schizophrenia drug Fanapt (iloperidone) to Novartis AG earlier this year. The deal netted Vanda $200 million up front, but the other $265 million was tied to milestone payments based on sales. Novartis may have been smart in hedging its bet entering the crowded schizophrenia market: Fanapt sales through the first three quarters of the year totaled just $26.3 million. (See BioWorld Today, Oct. 14, 2009.)

Building a Better Mousetrap

From government programs to private insurers, payers are looking for value in the drugs they reimburse. While it was once possible to just assume reimbursement if a drug was approved, Nabhan said drug makers can no longer take it for granted.

WellPoint Inc., for example, has established comparative research guidelines that it plans to use to help determine the co-pay charged to members of its affiliated health plans. Companies with drugs that don't make the value-based cut could have a hard time finding and keeping patients on their drugs.

In addition to approval and reimbursement in the U.S., companies have to consider their international strategy for getting their drug paid for. In countries with a single-payer healthcare system, an approval is literally meaningless without reimbursement.

Further complicating matters, the required comparative effectiveness research may be different since the standard of care differs between countries. A Phase III trial demonstrating a new drug's superiority over an established drug may not be valuable in countries that don't use that established drug regularly.

"This definitely is the way that future coverage and reimbursement determinations are going to be made," said Judith Waltz, partner at Foley and Lardner.

Nabhan added that drugmakers need to show they don't just have a mousetrap that's better, but a "mousetrap that's demonstratively and comparatively better."

In order to compete, companies need to run clinical trials that compare the new drug to an active comparator rather than placebo. Endpoints used in the trials need to be centered on patient outcomes rather than surrogate endpoints.

That's a higher bar to jump over, but companies willing to generate comparative efficacy data can "generate multiple bidders and a bit of feeding frenzy" around their assets, said Nabhan.