NEW YORK – Since payers have now replaced regulators as the Omega factor in the path to market success, the Holy Grail in drug development has transformed from regulatory approval to reimbursement – as evidenced by a trend in which some drugs have failed to live up to market expectations. Drugmakers must motivate payers to put a drug on formulary and most often the incentive payers are looking for is some kind of cost offset, according to a participants on a panel titled "It's Not Just About Reaching the Market: Payers are Critical to a Drug's Success," at the New York Biotechnology Association 21st annual meeting.

Dendreon Corp.'s prostate cancer vaccine Provenge (Sipuleucel-T) is a clear example of a breakthrough therapy that faltered at launch. Provenge is the first and only therapeutic cancer vaccine ever FDA approved, and it boosted survival by 4.1 months in a Phase III trial. But the drug is not succeeding commercially, which Dendreon blames on reimbursement challenges. (See BioWorld Today, Nov. 4, 2011.)

Jay Schechtman, chief medical director at Healthfirst, a New York-based HMO with approximately 500,000 members, said it's no secret that a primary objective of medical and pharma staff is to control costs.

Toward that end, he said payer organizations are quicker to react to changes in the market with regard to changing formularies and adding authorizations. They are prepared to change formulary statuses at any time now and not just on an annual basis, which could result in an immediate impact on a drug's bottom line.

Schechtman said adherence represents a big challenge for the payer industry and significantly factors into its formulary designations, principally in Medicare claims.

"In the Medicare program, the five-star rating plan drives everything we do. Adherence is the be-all and end-all and in some of our medication and disease states, we have only 30 to 40 percent of our patients in adherence. So, everybody is trying to find a solution to adherence in a low-cost way, based on pharmacotherapy applications."

The Medicare program rates insurers, as well as other health care providers, and offers benefits based on its ratings, such as the ability to enroll patients year-round.

It may seem as though the payers are fighting against the drugmakers, but that couldn't be further from the truth, according to Schechtman. "The good thing is that everyone on the medical side wants to firmly convince everyone else in managed care that pharmacotherapy, both large and small molecule, is the most cost-effective answer to treatment for most diseases," he said.

Schechtman doesn't foresee a huge amount of patient relief coming in the form of deep discounts whenever biosimilars come to market in the U.S. either. Echoing a general industry sentiment, he projects only a 15 percent discount off brand price and said a biosimilar will essentially enter the market as a brand drug with a slight price discount, so no one should be expecting a significant price salvation in that market comparable to pharma generics.

Traditionally, most costs wind up finding their final resting place with the patient, but that model is no longer sustainable and drugmakers must start addressing the impending issues associated with reimbursement while drugs are still in clinical trials, according to another panelist.

Add the Pre-Approval Component

Mike Weiss, VP, new business development of market research firm Reimbursement Intelligence, of Madison, N.J., said a primary challenge and consideration for payer groups is that the standard practice of basically pushing financial overcosts to the patient has reached its limit and is having a negative effect on the overall drug development process. And now, payers have begun to push back with increasing regularity, so drugmakers need to adapt by tackling reimbursement as a pre-approval component.

"A lot of what pharma, for example, has been doing is reactionary – co-pay cards, rebates, directly addressing the patient at point-of-sale, coupons and such. That means they weren't addressing the reimbursement and market access issue proactively in the earlier stages of the clinical trials. As early as Phase II would have been an ideal point at which to establish a reimbursement value proposition – which is very different from the clinical value proposition that field reps would go out and sell with," Weiss said.

It is imperative that reimbursement issues be addressed early on to insure that market access is there and the apt clinical benefit for the patient base and value proposition for payers is validated before market approval. That way, pharmas and biotechs will be able to forecast sales and market share, based on expected formulary ratings that will profoundly determine market access in the new model of drug development.

Stopgap measures such as rebates and coupons don't really help the drugmaker make up that area under the curve, Weiss said. Field reps regularly go out facing either upward tier movement or physician/patient exasperation due to patients being forced to pay higher prices because their managed care providers won't.

"And there's a ripple effect associated with incentives such as rebates and coupons for not only managed care organizations, but for the drug companies also, as the costs have to be adjudicated at the point of sale and are held against financial forecasts. That doesn't get offset under any post-marketing strategies, other than to pass the cost on to the patient. Consequently, there is no upside for payers to assign a favorable tier status to higher-priced drugs that exhibit no remarkable difference in efficacy, he said.