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`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:20) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`Today News Current Issue Digital Edition Editor’s Desk
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`
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`
`MANAGED CARE March 2013
`
`COVER STORY
`Tiger in the Fiscal Room: Beware the Increasing Cost And Number
`of Orphan Drugs
`While Congress worries about physicians’ salaries and employers bemoan
`the cost of imaging, it’s orphan drugs that might deserve most attention
`
`Ed Silverman
`
`(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)
`(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)
`
`(cid:55)(cid:90)(cid:72)(cid:72)(cid:87)
`(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)
`(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)
`
`(cid:19)
`
`Earlier this year, NPS Pharmaceuticals surprised nearly everyone who was eagerly
`waiting for the drug maker to start marketing its recently approved Gattex treatment
`for short-bowel syndrome, a rare disease in which nutrients are not properly absorbed
`because a large section of the small intestine is missing or has been removed.
`
`In remarks to Wall Street analysts, NPS executives unexpectedly announced that
`Gattex would cost $295,000 per patient per year, roughly three times what the
`company had signaled only weeks earlier. And instead of a potential patient
`population of as many as 15,000, the pool was now estimated to be between 3,000 and
`5,000.
`
`The price was increased after NPS compared the results of several prevalence studies
`with estimated patient headcounts at several large home-infusion companies. That
`left the drug maker with a much smaller universe of potential patients than forecast
`previously, although the lower number also placed Gattex in the so-called ultra
`category, which can command a higher premium.
`
`“Yes, it was very late in the game when we came up with this surprising number, but
`Gattex is not unique,” says François Nader, NPS chief executive officer and president.
`CFAD Exhibit 1081
`CFAD v. NPS
`IPR2015-01093
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
`(cid:55)(cid:76)(cid:74)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:53)(cid:82)(cid:82)(cid:80)(cid:29)(cid:3)(cid:37)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:3)(cid:36)(cid:81)(cid:71)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:85)(cid:83)(cid:75)(cid:68)(cid:81)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:86)(cid:3)(cid:95)(cid:3)(cid:48)(cid:68)(cid:17)(cid:17)(cid:17)
`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:21) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`“But it’s not unusual to have a dichotomy between what those [prevalence] studies
`give you and the actual addressable population” that was obtained after extrapolating
`patient data and updating forecasts.
`
`“But we don’t have the luxury of running comprehensive and multiple epidemiological
`studies. This is an art and a science. We talked to payers to estimate the burden of
`illness based on their data and tried to answer several questions: What does the drug
`offer to mitigate the condition and meet an unmet medical need? Does it help lower
`overall health care costs and improve quality of life?”
`
`Sweet spot
`These questions speak to the so-called value proposition, that hard-to-define sweet
`spot between cold calculation and actual benefit. And this proposition is increasingly
`being scrutinized and refined as more orphan drugs win approval from the Food and
`Drug Administration and are launched at ever-higher prices that are worrying
`managed care plans and employers.
`
`Last year, the FDA approved 13 new molecular entities as orphan drugs — one third of
`the 39 drugs approved that year. This was the largest number of drugs to win this
`designation in the past seven years. Already this year, two newly approved treatments
`were granted orphan status by the FDA.
`
`FIGURE 1 Orphan disease designation by the FDA, 1984-2010
`As of October 2011, a total of 1,795 projects with FDA orphan designations were in
`development
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
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`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:22) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`Source: PhRMA
`
`Significantly, five of the most recently approved orphan drugs will cost at least
`$150,000 per patient per year and three of these medications cost $300,000 or more
`annually. And the trend is raising hard questions about the ability of the health care
`system to absorb the costs and, therefore, about how third-party payers are going to
`make coverage decisions.
`
`This is a familiar concern, of course, but one that is expected to play out at an
`accelerating rate in coming years as big drug makers and small biotechnology
`companies recognize that pursuing orphan indications can fatten their bottom lines.
`In fact, PhRMA — the Pharmaceutical Research & Manufacturers of America —
`recently counted 1,795 orphan designations in the development pipeline.
`
`Right now, pharmaceuticals account for about 15 percent of health care spending, but
`the costs of orphan drugs and other biologics are rising 20 percent to 25 percent a
`year, says Ed Pezalla, national medical director for pharmaceutical policy at Aetna.
`And he adds that state insurance commissioners are not often willing to allow
`managed care companies to increase premiums by a commensurate amount.
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
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`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:23) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`For insurers, “what we need are numbers to understand how
`many patients are really helped,” says Ed Pezalla, national
`medical director for pharmaceutical policy at Aetna.
`
`“We do cover a number of orphan drugs, but we anticipate the
`pipeline increasing. And the costs are relatively high compared to other medications,
`so this is getting our attention,” he says. “The prices are growing faster than
`premiums can grow and there’s going to be a point where the costs will be an
`extremely serious concern, and this is a concern that the pharmaceutical industry will
`have to consider. They can’t hide by saying orphan drugs are only a small portion of
`our budget when we know that these are the fastest-growing part.”
`
`This means added strain on budgets as it becomes harder to accurately predict actual
`claims to be paid each year, which will cause increases in premiums to the extent
`allowable by state agencies and higher hurdles for patients to qualify for coverage.
`
`More than 1 of 4 orphan drugs had sales of over $1 billion. There
`are very many orphan diseases with no drugs — yet.
`But any payer that considers denying coverage will be in a bind because to do so is,
`simply put, to appear heartless. In the scheme of things, orphan drugs are used by
`relatively few people, so to refuse coverage — even when costs are rising — runs the
`risk of creating an enormous public relations problem, since alternative treatments are
`generally lacking.
`
`“The public, state agencies, and federal government are all in alignment for assuring
`full coverage and without any pre-existing condition rules,” says Randy Vogenberg, a
`principal at Bentelligence, a benefit consulting firm, and a member of Managed Care’s
`editorial advisory board.
`
`Until recently, though, the issue was largely overlooked, because there were fewer
`orphan drugs. Now, the recent spate of expensive medications is quickly appearing on
`more radar screens, raising fresh debate about the extent to which the trend can
`continue and whether it will engulf the health care system.
`
`New molecular entity approvals for rare diseases
`Calendar years 2006–2012
`NMEs and new biologics
`Rare (% of total approvals)
`(23%)
`
`7
`
`2012*
`
`31
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
`(cid:55)(cid:76)(cid:74)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:53)(cid:82)(cid:82)(cid:80)(cid:29)(cid:3)(cid:37)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:3)(cid:36)(cid:81)(cid:71)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:85)(cid:83)(cid:75)(cid:68)(cid:81)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:86)(cid:3)(cid:95)(cid:3)(cid:48)(cid:68)(cid:17)(cid:17)(cid:17)
`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:24) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`30
`2011
`21
`2010
`26
`2009
`24
`2008
`18
`2007
`22
`2006
`*Data as of Nov. 30, 2012
`Several NME applications for rare diseases have PDUFA goal dates before Dec 31, 2012.
`
`(37%)
`(33%)
`(35%)
`(33%)
`(33%)
`(29%)
`
`11
`7
`9
`8
`6
`6
`
`“The question is whether the pricing will threaten the whole system. I’m not
`convinced it does, but the problem with saying we’ll charge $300,000 is that the
`marketplace still requires you to conduct the right studies first,” says Steven
`Grossman, a former congressional aide who worked on the Orphan Drug Act before its
`passage in 1983 and now heads the HPS Group, a policy and regulatory consulting
`organization.
`
`“If you assume the pricing decision is made in the boardroom without being subject to
`scrutiny, then we’ll see pushback. So if there’s a drug that’s going to cost $300,000 or
`$500,000, we damned well better have a justifiable price. If the numbers work
`correctly, then it should be paid for. But that doesn’t mean that any CEO who gets FDA
`approval can or should arbitrarily charge that price,” says Grossman.
`
`Says Vogenberg: “Ultimately, this kind of pricing is going to force more and more
`disclosure about what goes into pricing and methodology. At some point, there’ll be a
`review similar to what England, France, Germany, and Australia have done. They will
`look at the same questions: Are these prices justifiable and should there be coverage?
`There has to be more balance between the clinical significance and economic impact
`when determining reimbursement for new biologic or specialty products.”
`
`Certainly, there is a lot of money to be made selling an orphan drug. An estimated 25
`million people in the United States alone live with some sort of orphan disease, and
`spending on orphan drugs makes up 6 percent of total pharmaceutical sales, assuming
`a total market value of $880 billion, according to Thomson Reuters.
`
`“I would not be surprised to see more premium prices for orphan
`indications,” says Alan Carr, an analyst at Needham & Co.
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

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`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:25) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`The compound annual growth rate of the orphan drug market between 2001 and 2010
`was 25.8 percent, compared with 20.1 percent for a matched control group of non-
`orphan drugs. And the same report also noted that of 86 orphan drugs examined, 25
`were blockbusters, meaning that 29 percent generated annual sales greater than $1
`billion.
`
`A prime example is Soliris, used to combat a rare blood disorder known as paroxysmal
`nocturnal hemoglobinuria. Although the drug is targeted at treating only a few
`thousand patients, putting it in what is called the ultra-orphan market, Wall Street
`analysts believe Alexion Pharmaceuticals will reap $2.6 billion in annual sales by 2017,
`thanks to a cost of $440,000 per patient per year.
`
`“I would not be surprised to see more premium prices for orphan indications,” says
`Alan Carr, who follows biotechnology stocks for Needham & Co. “For biotechs, in
`particular, orphans are a way to be less dependent on doing deals with big pharma —
`their development and approval timelines can be shorter and their sales forces
`smaller. So it costs less to get out the door and commercialize.”
`
`There is another reason that such pricing may continue, and that is the promised
`growth in personalized medicine, which can be expected to segment existing disease
`states into more orphan designations, says Ted Driscoll, a director at Claremont Creek
`Ventures, a venture capital firm where he heads digital health investments.
`
`“By using rifle shots instead of shotgun blasts, we will actually be able to make
`medicine cheaper by capturing things earlier,” he maintains. “This personalization
`and reliance on big data will make certain things cheaper — and others more
`expensive — in the long run. Medicine will become more precise. But in this transition
`period, some will go up and some will go down.”
`
`FIGURE 2 Range of designated orphan drugs
`Through 2006
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
`(cid:55)(cid:76)(cid:74)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:53)(cid:82)(cid:82)(cid:80)(cid:29)(cid:3)(cid:37)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:3)(cid:36)(cid:81)(cid:71)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:85)(cid:83)(cid:75)(cid:68)(cid:81)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:86)(cid:3)(cid:95)(cid:3)(cid:48)(cid:68)(cid:17)(cid:17)(cid:17)
`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:26) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`Source: Food and Drug Administration
`
`Beyond the need to recover years-long investments and generate profits, though, drug
`makers argue that they are responding to cries to fill a desperate need, which of course
`was the impetus for the Orphan Drug Act. In their view, the rising price tags are
`justified and the marketplace is willing to accept this trend.
`
`“I do believe there’s a moral obligation to find treatments for these patients,” says
`NPS’s Nader. “The orphan space has become very trendy, but until three or four years
`ago, these were called neglected diseases. As a society, we have to think whether we
`should continue to neglect the disease and the patient. The answer, so far, has been
`no; we’ve seen a willingness to pay.”
`
`But the overriding reason that premium prices are expected to continue to rise is that
`drug makers and biotechnology companies are in the driver’s seat. They do not yet
`have competition that might prompt one or more companies to lower prices or launch
`at a lower price. It is a simple matter of supply and demand.
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
`(cid:55)(cid:76)(cid:74)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:53)(cid:82)(cid:82)(cid:80)(cid:29)(cid:3)(cid:37)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:3)(cid:36)(cid:81)(cid:71)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:85)(cid:83)(cid:75)(cid:68)(cid:81)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:86)(cid:3)(cid:95)(cid:3)(cid:48)(cid:68)(cid:17)(cid:17)(cid:17)
`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:27) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`“This means that right now, payers have no leverage. The manufacturer does not have
`to reduce its price or contract,” says Rhonda Greenapple, chief executive at
`Reimbursement Intelligence, a market research firm. “Most plans did not care, since
`these are small numbers of patients, but with the growth in approvals, it becomes
`much more costly. At some point, payers will have to say, Enough.”
`
`There may be one recent exception, though. In January, Sanofi and Isis
`Pharmaceuticals won FDA approval for their Kynamro injectable treatment for
`homozygous familial hypercholesterolemia, a life-threatening form of high cholesterol
`that can lead to heart attacks and early death. Just one month earlier, the FDA also
`approved a pill from Aegerion Pharmaceuticals to treat the same condition.
`
`Marketing battle
`The sudden emergence of two medications to treat the same ultra-orphan ailment —
`there are roughly 3,000 patients in the United States — suggests to some that a
`marketing battle may emerge and give payers some unexpected relief. The Juxtapid
`pill from Aegerion costs about $295,000 per patient per year; Sanofi’s injectable
`Kynamro is about $176,000. But whether a horse race develops is yet to be seen.
`
`Although both drugs carry great risk of liver toxicity, the Alegerion pill is more
`convenient and there is no concern about injection site reactions. There is also greater
`implied safety since studies showed lower levels of liver fat, according to Robyn
`Karnauskas, a biotechnology analyst at Deutsche Bank. For these reasons, she believes
`there will not be much of a contest.
`
`In a bid to appeal to health plan medical directors, Isis Pharmaceuticals Chief
`Executive Officer Stanley Crooke argues that there are important distinctions between
`the medications. “It really is very superficial to say that a pill is better than a shot
`without talking about the different properties of the drugs,” he says. “You have to look
`at the overall profiles and the challenges in using both.”
`
`At the moment, though, the tools with which to sort out the utility and value of these
`high-price medications remain limited. These include standbys: prior authorization,
`tiered benefit designs, ensuring proper use that matches approved FDA labeling, and
`shifting costs to the patients, although this approach has limits when the treatment
`costs hundreds of thousands of dollars.
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
`(cid:55)(cid:76)(cid:74)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:53)(cid:82)(cid:82)(cid:80)(cid:29)(cid:3)(cid:37)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:3)(cid:36)(cid:81)(cid:71)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:85)(cid:83)(cid:75)(cid:68)(cid:81)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:86)(cid:3)(cid:95)(cid:3)(cid:48)(cid:68)(cid:17)(cid:17)(cid:17)
`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:28) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`“Even if you’re generous in ascribing cost offsets and counting productivity gains,
`most of the prices far exceed the values,” says Aetna’s Pezalla. “But what we need are
`numbers to understand how many patients are really helped. At these prices, we have
`to focus on the population that will get the most benefit.”
`
`As some cost is shifted to patients, drug makers are relying on not-for-profit groups to
`pick up the slack. NPS, for instance, has enlisted the National Organization of Rare
`Diseases and Patient Access Network Foundation to help patients who lack insurance
`or sufficient funds to pay for Gattex. NORD President Peter Saltonstall, however, says
`that philanthropic donations are getting rarer.
`
`Patients may also find some relief from drug makers themselves, joining patient
`assistance programs created with corporate funds in exchange for tax breaks. Yet
`another boost for patients is the Affordable Care Act, which will cap out-of-pocket
`costs and lifetime benefits starting next year, says Bruce Leavitt, managing director of
`Core Access Group, a managed care consulting firm.
`
`“This means that plans will have to pay the difference. They’ll have to require more
`genetic testing and confirmation of diagnoses and become more restrictive to
`determine who benefits.”
`
`One consumer advocate offers a suggestion about the pricing dilemma — have payers
`create payment funds and require drug makers and biotechnology companies to
`compete for shares.
`
`Such an arrangement would encourage investment and innovation while rewarding
`additional indications for the initial new chemical entity, says Jamie Love of
`Knowledge Ecology International.
`
`“The current system doesn’t make any sense. Why don’t we have a drug that costs $1
`million a year? That could be a possibility,” he says. “The best thing would be to
`eliminate the [marketing] exclusivity [which is seven years for orphan drugs] or make
`it easier to break exclusivity if the price is too high. And in exchange for doing this,
`there could be a payment floor for that category of drug.”
`
`What it delivers
`“Exclusivity is a double-edged sword,” Love says. “It’s used to encourage investment
`and development, but then it’s abused. You don’t want to leave people out of the
`insurance system, but on the other hand, you can’t be locked into allowing companies
`
`(cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:70)(cid:68)(cid:85)(cid:72)(cid:80)(cid:68)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:68)(cid:85)(cid:70)(cid:75)(cid:76)(cid:89)(cid:72)(cid:86)(cid:18)(cid:21)(cid:19)(cid:20)(cid:22)(cid:18)(cid:22)(cid:18)(cid:87)(cid:76)(cid:74)(cid:72)(cid:85)(cid:16)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:16)(cid:85)(cid:82)(cid:82)(cid:80)(cid:16)(cid:69)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:16)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:68)(cid:81)(cid:71)(cid:16)(cid:81)(cid:88)(cid:17)(cid:17)(cid:17)
`
`

`
`(cid:55)(cid:76)(cid:74)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:53)(cid:82)(cid:82)(cid:80)(cid:29)(cid:3)(cid:37)(cid:72)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:3)(cid:36)(cid:81)(cid:71)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:85)(cid:83)(cid:75)(cid:68)(cid:81)(cid:3)(cid:39)(cid:85)(cid:88)(cid:74)(cid:86)(cid:3)(cid:95)(cid:3)(cid:17)(cid:17)(cid:17)
`
`(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:20)(cid:19) (cid:82)(cid:73)(cid:3)(cid:20)(cid:22)
`
`to have carte blanche on pricing. Unfortunately, there’s insufficient disclosure of drug
`development economics. The answer is not to cap revenue at a ridiculously low level,
`but we all need better data to understand the pricing.”
`
`Ed Silverman is editor of Pharmalot.com, a popular Web site that covers the pharmaceutical
`industry. Contact him regarding this article at ESilverman@ManagedCareMag.com
`Personalized medicine can be expected to segment existing
`disease states into more orphan designations.
`
`Facing a diminishing patient headcount
`So how exactly did NPS Pharmaceuticals come up with the $295,000 price for Gattex? At first,
`the drug maker believed that there would be as many as 15,000 eligible patients and expected
`to charge about $100,000 per patient per year, based on three prevalence studies. But after a
`close examination of patient headcounts, the results looked very different.
`
`NPS Chief Executive Officer François Nader says the drug maker approached the top five home
`infusion therapy companies, which believe that they manage a combined 20 percent of the
`market for treating short bowel syndrome. Together, these providers estimated they have
`roughly 1,000 patients. Suddenly, NPS was looking at a much lower potential pool of patients.
`
`Nader acknowledges that this revelation occurred “late in the game.” To make sure NPS had
`not missed anything, the drug maker approached others and learned that “it was not unusual
`for companies to rely on prevalence studies in their external communications until they were
`able to count patients.” For this reason, he says, the discrepancy was not unique.
`
`As Needham & Co. analyst Alan Carr notes, this sort o