Despite congressional mandates placing price outside the realm of drug approvals, the U.S. is far from immune to the pricing pressures dominating Europe's approval process.
Growing pricing/budget pressures and an increased need to demonstrate the cost effectiveness of new drugs were identified as the biggest challenges facing biopharma in both the U.S. and Europe, according to a new Booz & Co. survey.
Of the 150 pharmaceutical executives responding, 76 percent saw pricing/budget pressures as a major challenge, and 70 percent identified the need for cost-effectiveness data. Half of the respondents said patients' ability to pay for drugs is another looming issue.
Those challenges are already being faced in Europe, where drugmakers are experiencing a rapid escalation of price reductions of about 5 percent per year. That adds up to nearly half a billion U.S. dollars for GlaxoSmithKline plc (GSK), the company's CEO Andrew Witty said recently.
Even more concerning than the lost revenue, he said, is an emerging trend for European countries to delay approval of new drugs because of price. For example, promising oncology drugs are being systematically delayed in the UK and a whole series of new, expensive drugs for a range of diseases are being held up in several countries.
Given Europe's propensity "not to pay for innovation," Witty said GSK has halved its headcount there and will be staging fewer clinical trials in European countries.
"Europe is stuck in a bad place," Witty said. "We will still register drugs in Europe, but we won't [shape] them for Europe." (See BioWorld International, Feb. 8, 2012.)
Instead, GSK is looking to tailor future drug development for countries that are willing to pay the price for innovation. "We have to face the reality that's it's about the U.S. and excitingly about Japan in terms of where innovation should be driven," Witty noted.
Currently, the U.S. remains the largest center of drug innovation, despite a "subtle relative decrease" in biopharma innovation over the past few years, according to a Congressional Research Service (CRS) report released this month.
But given continuing pricing pressures in the U.S., many Americans doubt it will pay the cost of innovation much longer. In a recent Research!America poll of likely voters, 53 percent of respondents indicated that the country would not be a world leader in health care in 2020.
That decline could be exacerbated if the FDA and government payers follow European regulators in viewing drug reimbursement as a simple procurement process that can be used to lower costs, while ignoring the role innovative therapies can play in reducing other health care expenses.
The pressure to do that is likely to mount as the U.S. government's share of the health care tab increases when the expanded coverage provisions of the 2010 Affordable Care Act (ACA) kick in two years from now.
Overall spending on health care is expected to grow by 8.3 percent in 2014 (compared with 3.9 percent in 2010) due to those provisions, which are likely to increase the demand for prescription drugs and health care services, according to a study by the Centers for Medicare & Medicaid Services (CMS).
Consequently, the federal portion of health care spending is expected to hit 31 percent by the end of the decade, up from 27 percent in 2009, because of robust growth in Medicare enrollment, expanded Medicaid coverage, and premium and cost-sharing subsidies for exchange plans.
Price as Part of Approval Discussion
As a result, drug pricing will become a front-burner issue across the U.S. regulatory board. It's already starting to happen, even though the FDA, by law, is not allowed to consider the price of drugs in its approval decision – unlike several European countries where government reimbursement and drug approval go hand in hand.
Despite that prohibition, price is creeping into the FDA's approval discussion – at advisory committee meetings, public hearings and the exercise of the agency's enforcement discretion.
For instance, price was raised at a January advisory committee meeting on a preterm birth indication for Columbia Laboratories Inc.'s Prochieve (progesterone gel 8 percent). Noting that Prochieve has been marketed as Crinone for infertility and secondary amenorrhea, panelist Victoria Montgomery Rice, dean and executive vice president at Morehouse School of Medicine, wanted assurance the price would be comparable to that of Crinone, which is about $200 for a 15-dose application. (See BioWorld Today, Jan. 23, 2012.)
In another example of pricing pressures at the FDA, the agency exercised its discretion when it announced that it would not take enforcement action against pharmacies that continued to compound unapproved generic versions of hydroxyprogesterone caproate after KV Pharmaceutical Co. initially priced its brand version, Makena, at $1,500 a shot. Prior to that approval, which was based on a single trial that raised both safety and efficacy issues, the drug had been formulated for decades by pharmacists at about $10 to $20 a shot to prevent preterm birth. (See BioWorld Today, May 3, 2011.)
The cost of drugs also has been raised at public meetings of the Patient-Centered Outcomes Research Institute, another group that is prohibited by law from considering drug prices. And it's come up at public hearings the Patent and Trademark Office recently held on genetic diagnostics. (See BioWorld Today, Feb. 28, 2012.)
Perhaps more importantly, drug pricing issues are gaining traction with Congress and becoming a mainstay in CMS coverage decisions as lawmakers and CMS officials grapple with the rising cost of Medicare and Medicaid programs. One of the leaders of the legislative attack against high-priced drugs is Sen. Herb Kohl (D-Wis.), who has called U.S. drug prices a "drag on family wages" and a threat to the country. (See BioWorld Today, July 22, 2011, and July 25, 2011.)
Pricing pressure also is mounting in the private sector where payers are becoming more hesitant to add costly new drugs to their formularies without strong head-to-head comparisons and cost-effectiveness data.
"It's starting to get to crunch time for U.S. health care," Dean Tozer, senior vice president of corporate development at Advanced BioHealing Inc., told BioWorld Insight. Since payers don't have the money to continue paying high prices for new therapies that offer only incremental improvements, they are demanding more evidence, he added.
The result is what amounts to two approval paths – one to get the FDA blessing and the other to get reimbursement, Tozer said. Ironically, the increased demand for more data adds to the cost of drug development.
Further complicating the situation is the patent cliff that's claiming a number of blockbuster biologics and drugs. While opening those therapies to generic competition and, thus, lower prices, the patent expirations mean major pharma companies will have less money for R&D. In the past, companies compensated for that loss of revenue by raising the prices on other drugs. That won't work today, the CRS said. (See BioWorld Today, March 16, 2012.)
Instead, drugmakers must be strategic and innovative in their pricing. More than half the executives responding to the Booz survey predicted pricing and economic strategies will play a bigger role in their company's future: 59 percent expected more reliance on innovative pricing, 56 percent on payer collaborations and 55 percent on pharmacoeconomic studies.