Full article reprinted from "The Pink Sheet" DAILY October 27, 2009
For companies looking to license out a drug, negotiations with Big Pharma are increasingly challenging and could get even tougher with the passage of U.S. health reform, according to speakers at the recent meeting of the Licensing Executives Society in San Francisco. Read on...
Full article reprinted from "The Pink Sheet" DAILY October 27, 2009
Traditionally, milestones for drug licensing deals were tightly tied to filings of NDAs and FDA approvals. But the real test of a drug's potential now lies with insurers and governments - more and more, milestones will be tied to the type of labeling granted, the impact of risk evaluation and mitigation strategies and reimbursement prospects.
The situation is compounded by the economic turmoil engulfing the biopharma industry. The disappearance of public financing has given drug makers more leverage, deal values are plummeting and the upfront portion of payments is much lower than in the past. At the same time, hurdles are ever higher for proving a drug works.
In a recent survey of 55 licensing executives, more than one-third said they had already reduced up-fronts or increased back-loaded milestones, and about as many are currently considering doing so. Results of the survey, which was conducted by Compass Strategic Consulting in New Haven, Conn., were presented at the LES meeting during an Oct. 20 panel session titled: Implications of U.S. Healthcare Reform Legislation on Licensing, Valuation and Deal Terms.
"There really has been a shift over time. The big money comes later, downstream in the process," said Alexander Scott, vice president of Eisai, during the same session.
Freedom in pricing and marketing of drugs is eroding
As payers have gained more power, the freedom that drug makers and biotechs have had to position, price and market their products has been eroding and health reform, with its emphasis on cost-cutting and comparative effectiveness, is likely to accelerate this trend. A pharma sales force can be very successful at convincing doctors to prescribe certain drugs to their patients, but that doesn't mean the product actually gets to the patient. All too often, particularly for drugs targeting the primary care market, there is a switch at the pharmacy engineered by health plans.
"Plans have become very adept at enforcing therapeutic substitutions between products," said Scott. "The question for us is, will reform do it in such a way that allows us to adjust our models in a nice steady approach, or will it be a radical shift that would really impact our ability to respond?'
When considering in-licensing a drug, pharma is very focused on assessing its potential at the time of market introduction with the people who pay the bills - health plans. Health reform could wind up including a public option for insurance and will dramatically expand the number of patients covered.
"What are we doing with health reform? We are saying, 'let's create the biggest health plan we have ever seen.' All that's going to do is drive that [trend] faster and faster," said Merton Gollaher, a partner with the national law firm Wiggin and Dana, of New Haven, Conn.
Gollaher notes that though there is a perception that there are many disparate health reform bills, there are really only three serious contenders and they are fairly similar: the Senate Finance Committee's America's Health Future Act of 2009; the Senate Health Education Labor & Pensions Committee's Affordable Health Choices Act: and the House Tri-Committee's America's Affordable Health Choices Act of 2009. One major difference in the bills is that the second two include a public insurance option but the first does not.
Within these packages, there are 14 provisions with potential impact on the industry, including creation of a pathway for approval of biosimilars. Another big concern in health reform for industry is a proposal to require drug makers to offer Medicaid-level rebates for drugs provided to 'dual-eligibles,' or Part D beneficiaries who also qualify for Medicaid. Lawmakers are also considering expansion of the Medicare Payment Advisory Commission to include coverage and reimbursement policy decisions.
All three reform bills call for funding a commission on comparative effectiveness, long high on payers' priority list. Medco's Oct. 19 plans to launch a 14,000-patient trial comparing Sanofi's soon to be generic clot buster Plavix (clopidogrel) to Eli Lilly's newly-approved Effient (prasugrel) is a sign of the times.
When asked in the Compass Strategic Consulting firm's recent survey about actions taken in response to health reform, about 40 percent of licensing executives said they had increased investment in late-stage programs to include comparative effectiveness studies, reported Paul Gallagher, the firm's president. Two-thirds reported that they had already raised standards for differentiation of opportunities, according to the survey, which was conducted on Oct. 7.
Reimbursement liaisons get more say in deals
Organizational changes made by companies seeking to license drugs in response to a greater emphasis on government and payer relations will help meet the new challenges after health reform is enacted.
In recognition of the increasingly important role payers have been playing, Eisai has added created a department devoted to contracting with managed care, and last year it created a new department called 'Value and Access' to manage pricing and reimbursement.
"It's amazing how important these people have become in our organization. They are making very significant decisions about brands that used to be provenance of the brand managers," Scott said. "Marketers are losing real estate with respect to what they control in brands to other areas, like Value and Access. These folks are very strategically involved in a lot of decision-making."
That includes assessment of in-licensing opportunities.
"The number of approved products we have passed on in last 12 months that we could have gotten for very little money is staggering. I have never seen it before. The commercial folks say we can't sell it," Scott said.
Eisai also now has a government affairs department, which is involved in monitoring coding and ensuring coverage on state formularies.
With so many classes of payers to consider to create a commercial picture, evaluating a deal has become a lot more complex, particularly for primary care indications. Consequently, products targeted to particular segments of a primary care market are more in demand and licensing deals could be predicated on formulary placement, not just indications or outright approval.
"We are looking for very specific, identifiable groups to efficiently market, hopefully with data we can use to persuade payers that the value proposition moving forward is worthwhile," Scott said.
- Emily Hayes
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