Ensuring Americans Access to Affordable Medicines May 17, 2019

Policy Issue High-cost treatments for conditions such as cancer and Hepatitis C have proliferated in recent years. They have been difficult for most health systems to pay for, but this has been particularly challenging in the safety net systems such as Medicaid programs. Recently, there has been a recommendation for drug companies to license their Hepatitis C drugs directly to the federal government in order to cut down on cost for these programs. As science policy advisors to Congress, how would you advise they act on these recommendations?

Current Public Spending on Hepatitis C DAAs

Pricing Implications on U.S. Healthcare Over 85% of Patients Diagnosed with Chronic Hepatitis C in the U.S. Are Currently NOT Receiving Treatment (source: I-MAK)

Landscape

Policy Options Proposal Budgetary Impact Short Term Benefit Long Term Benefit Administrative Feasibility Political Feasibility Equity/Social Feasibility Legality Status Quo Low High Licensing/ Bidding Medium High? Changing IP Laws Low-Medium Dropping Price After R&D Recouped Value-Based Pricing Medium-High

Drop Prices After R&D Recouped Drug manufacturers set initial price. Once R&D costs are recouped, prices then are dropped to a fair-return price.

Over long-term, likely high benefit. Cost of drug set by Gilead and others not based on R&D, but rather what the market would bear. Cost for drug R&D estimated to be $2.6 billion (including capitalized costs). $1.1 billion accounts for preclinical R&D (completed by Emory/Pharmasset) Between 2014 and 2015, global sales of Sovaldi and Harvoni (combination) totaled $31.5 billion. In 21 months after approval, $20.6 billion in the US alone. “R&D” recouped within 18 months.

“Gilead pursued a calculated scheme for pricing and marketing its Hepatitis C drug based on one primary goal, maximizing revenue.” “There was no concrete evidence in emails, meeting minutes or presentations that basic financial matters such as R&D costs… factored into how Gilead set the price.”

Administrative Feasibility Political Feasibility Proposal Budgetary Impact Short Term Benefit Long Term Benefit Administrative Feasibility Political Feasibility Equity/Social Feasibility Legality Status Quo Low High Licensing/ Bidding Medium High? Changing IP Laws Low-Medium Dropping Price After R&D Recouped Value-Based Pricing Medium-High Low budgetary impact Development of a regulatory structure to monitor drug prices and profits Require manufacturers to provide cost-related data

Value-Based Pricing Definition: setting a price based on perceived or estimated value of a product to consumer For drug manufacturer, pricing medication based on value derived from patient/cost-bearer (i.e. insurance company) this is a ‘pay for performance’ model for pharmaceutical companies ”value” can be calculated many ways

Walking Through Value-Based Pricing So how do we calculate “value”? Some considerations: Consumer Quality of Life (QOL) Burden-of-illness (BOI) Avoidance of other treatment Wider societal benefit Convenience There is no validated formula as of yet.

Walking Through a Possible Calculation Sovaldi: How much is it worth? Numerous ways to calculate. Will choose patient years of life added method. (Average # of quality years saved per person treated) X (Number of people treated) X (Average cost of a human life-year) =

Walking Through a Possible Calculation Sovaldi: How much is it worth? Numerous ways to calculate. Will choose patient years of life added method. HOW MUCH IS YOUR LIFE WORTH PER YEAR? (Life expectancy of average American - Life expectancy with Chronic Hep C) X (Number of people with Chronic Hep C) X (Average cost of a human life-year) (79 - 64) X (3,000,000) X (Average cost of a human life- year) =

Pricing a Human Life According to the National Institute for Health and Care Excellence (NICE) in United Kingdom, the value of a good-quality year of life is £20,000-30,000. Varies from country to country, sometimes as low as $9,000. But as Americans, our lives are worth a lot. So let’s say $50,000

Walking Through a Possible Calculation Sovaldi: How much is it worth? Numerous ways to calculate. Will choose patient years of life added method. (Life expectancy of average American - Life expectancy with Chronic Hep C) X (Number of people with Chronic Hep C) X (Average cost of a human life-year) (45,000,000) X ($50,000) = $2,250,000,000,000 750K per person

Proposal Budgetary Impact Short Term Benefit Long Term Benefit Administrative Feasibility Political Feasibility Equity/Social Feasibility Legality Status Quo Low High Licensing/ Bidding Medium High? Changing IP Laws Low-Medium Dropping Price After R&D Recouped Value-Based Pricing Medium-High

Brief History of Patent Origins Concept of patents originated in Greece in the 15th century in order to protect the glass-blowing industry First patent was granted in the US in 1790 Patent laws were created to encourage and reward innovation and research Patent laws were not intended to be used when human lives were at stake

Prescription Drug Patent Laws Patents and other forms of intellectual property are a key driver for high drug prices. 10% of all prescriptions dispensed in the US are brand-name, but they account for 72% of drug spending. Median length of post-approval market exclusivity is 12.5 years for commonly used drugs and 14.5 years for novel drugs (Wang et al, 2015).

Current IP Landscape in the US for Prescription Drugs -Extending patents causes a further delay in generic drugs entering the market -extensions can be achieved by changing its coating, formulation (ex. isomers),method of administration, indications for drug

Possible Changes “One and Done” - not allowing for patent extensions or patent thickets. Change criteria for patents or extensions by not allowing changes that are not truly novel, therapeutically beneficial, or clinically relevant. 2. India - policy requires that a company who wants to extend a patent for a change, they show that the change enhances effectiveness

Changing IP Laws Proposal Budgetary Impact Short Term Benefit Long Term Benefit Administrative Feasibility Political Feasibility Equity/Social Feasibility Legality Status Quo Low High Licensing/ Bidding Medium High? Changing IP Laws Low-Medium Dropping Price After R&D Recouped Value-Based Pricing Medium-High

Licensing Medicines to Government and Bidding 5 years after introduction of new Hepatitis C medications, only 15% of the estimated population of more than 3 million individuals with HCV infection in the US had been treated. Is there a plan that would allow for more people to be treated and possibly lead to eradication of Hepatitis C?

Rank in top 12 of high HCV infection rates, low median incomes, and high percentage of individuals within 125% of the federal poverty level Net present value - based on current value, how much they would expect to make. Prices will decrease over the next decade but sales also likely to decrease thus overall value decreases

Licensing/Bidding The companies would bid and whoever offers the best prices would win the subscription Government would pay a subscription fee in exchange for access to HCV therapy. Contract would include number of years for subscription, amount to be paid (up front or annually) One of the goals would be to streamline statewide efforts for elimination of HCV. Other aspects of the agreement would also include public health performance targets. Payer must be able to predict volumes in order to be able to identify lump sum amount that would yield adequate benefits (cost-savings) over traditional method.

Case Study: Australia and Chronic HCV 2015 - government officials negotiated contract Paid 1 billion Australian dollars ($766 million US dollars) over 5 years to have unlimited amount of HCV medication Between March 2016 to March 2017: 38,470 people were treated for hepatitis C. More than tenfold increase on the approximately 3000 people treated per year during the decade prior to the new program. Partnered with the following companies currently providing the HCV medications: Gilead, AbbVie, Bristol Myers Squibb and Merck Patients have access to the medicine regardless of disease state, drug use or treatment history

The New England Journal of Medicine Similarly for United States, treating about 240,000 Medicaid patients overthrew next 12 years — 10 billion dollars in revenue over the 12 years. Essentially 6.5 billions dollars today. So the option would be bidding to be able to receive that money right now.

Our recommendation Proposal Budgetary Impact Short Term Benefit Long Term Benefit Administrative Feasibility Political Feasibility Equity/Social Feasibility Legality Status Quo Low High Licensing/ Bidding Medium High? Changing IP Laws Low-Medium Dropping Price After R&D Recouped Value-Based Pricing Medium-High Short term benefit - more people have more access to the medication Long term benefit - more access and potential eradication of hepatitis C Administrative feasibility - it would take some coordination to determine the bidding price, review the bids and determine one Political feasibility - some may have a problem because may disagree with all having access to the medication. Social - general population would want hepatitis eradicated Legality - no rules broken, would not be forced on anyone but would be able to have the access to the medication.

Questions? Thank you!