May 20, 2015

Competitive Bidding for Therapeutically Equivalent Branded Drugs Josephine Mauskopf, RTI Health Solutions Susan Hogue, RTI Health Solutions David Miller, Biogen

ISPOR 20th Annual International Meeting

Competitive Bidding: Three Perspectives

• Economist perspective – Jo Mauskopf – Introducing competition – economic theory

• Payer perspective – Susan Hogue – Reducing prices – payer interviews

• Industry perspective – David Miller – Negative impacts – industry experiences

• We also hope to get your perspectives at the end of the session

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May 20, 2015

Competitive Bidding for Therapeutically Equivalent Branded Drugs: An Economics Perspective Josephine Mauskopf, RTI Health Solutions

ISPOR 20th Annual International Meeting

What Is Competitive Bidding?

• Competitive bidding (tendering) is a method used to introduce price competition to a market where there are only a limited number of suppliers • Sealed bids solicited for sole-source contract to supply goods over a specified period • Contract given to the supplier with the lowest bid, subject to quality and other constraints

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Why Competitive Bidding?

• Competitive bidding might be a valid option for a large purchaser of goods or services when: – The number of suppliers is small, so price/quality competition is limited – There is reason to believe that current price is higher than the minimum price suppliers are willing to accept

Klemperer P. Bidding markets. Occasional Paper No. 1. UK Competition Commission. 2005a. Hoerger and Waters. Med Care. 1993;31:879-97.

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Ideal Competitive Bidding Program

• Program results in winner obtaining an exclusive contract to supply goods or services • Contract is large relative to supplier’s total sales to the buyer in contract period • If repeated bidding over time, the incumbent supplier does not have any advantage over other bidders • Entry of new suppliers into the market is easy and/or losing suppliers do not exit the market • The bidding process is relatively costless, and criteria for selection of the winner are clear and readily measurable

Klemperer P. Bidding markets. Occasional Paper No. 1. UK Competition Commission. 2005a.

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Positive Outcomes From Competitive Bidding Programs

• Reduced prices for quality goods • An increase in competition in markets with limited number of suppliers • Example for infant formula for US government WIC program: mandatory competitive bidding program in 1994 – – – – – –

50% births eligible for free infant formula under WIC program Limited number of suppliers Prices significantly above marginal cost Competitive bids solicited for each state separately Discount of up to 85% wholesale price stabilized at about 70% Market shares of leading suppliers for the US (Bristol-Myers Squibb, Abbott) remained relatively constant

WIC = Special Supplemental Nutrition Program for Women, Infants and Children.

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Undesirable Consequences From Competitive Bidding

• Large contracts for specialized goods may give initial winner advantage at re-compete stage increasing their market power • Number of potential suppliers may decrease over time • Switching costs for the purchaser of goods or services; large switching costs may lock in buyer to initial supplier and result in higher prices over time • Implicit or explicit collusion may occur among bidders to keep the prices high

Klemperer P. Bidding markets. Occasional Paper No. 1. UK Competition Commission. 2005a.

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Undesirable Consequences From Competitive Bidding for Pharmaceuticals • Comparability of benefits with therapeutic substitution • Reduction in the number of suppliers over time • Switching costs upon initial choice of sole-source supplier and subsequently if there is a change in the sole-source supplier • Patient and physician concerns with changes in coverage because of changes in sole-source supplier leading to negative clinical outcomes

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Example for Direct Acting Antiviral Regimens for Treatment of HCV Infection in US • Was probably not a result of a formal competitive bidding process, but negotiations that took place with owners of competing regimens and solesource contracts agreed at price discounts – AbbVie contract with Express Scripts – Gilead contract with CVS Health with estimated discount of 46%

• What makes HCV treatment a good candidate for competitive bidding? – Treatment is for a short period, so patients do not have to switch from a current treatment regimen to a new treatment regimen – Two regimens with similar efficacy came to market at the same time limiting physician loyalty to first used regimen – Demand for these drugs will decrease over time as prevalence of HCV decreases

• Potential issues with competitive bidding for DAA regimens for HCV – Quality of data demonstrating that the new regimens are therapeutically equivalent – Concern about patient or physician choice based on efficacy, side effects, and convenience

• Is the HCV contracting story for two branded products an isolated event? DAA = direct-acting antiviral agent; HCV = hepatitis C virus.

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May 20, 2015

Competitive Bidding for Therapeutically Equivalent Branded Drugs: A Payer Perspective Susan Hogue, RTI Health Solutions

ISPOR 20th Annual International Meeting

Value of Competitive Bidding From the Payer Perspective

• There are increasing pressures to justify use of high-priced products, especially when there are several therapeutically equivalent or almost equivalent products • Significant cost savings might be achieved for drugs for common conditions while still allowing patients and physicians access to branded drugs

Express Scripts’ chief medical officer, Dr. Steven Miller, is quoted on the Internet as saying that he plans to continue to seek price discounts for drugs in other therapeutic areas (other than for hepatitis C), including chronic diseases:  PCSK9 class of cholesterol-lowering drugs  Drugs for asthma, cancer, and diabetes 12

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Payer Concerns With Competitive Bidding

• Switching costs upon initial choice of a sole-source provider and subsequently if there is a change in the sole-source supplier – The process of switching is likely to be cumbersome and have could have significant costs

• Patient and physician concerns with changes in coverage because of changes in sole-source supplier • Price creep over time (once contract in place) • Couponing “Sole-source contracting is a dynamic between savings and pushback. A lot of savings and limited pushback, then advantageous. If limited savings and a lot of pushback, then not advantageous. Also the cost of failure matters. … Would sole-source contract lead to more patients failing?” — US Payer ISPOR 20th Annual International Meeting

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Payer Needs With Competitive Bidding

• Health plans and pharmacy benefit managers expect: – The manufacturer to be a partner in switching members to the preferred product – A plan by the manufacturer to drive market share for their product as part of each bid – Education and information to convince providers and patients that the switch is beneficial – Confidence in the manufacturer to capture market share (help with switching) “If we are going to switch, then we want to know that this switch is a priority for the manufacturer” —US Payer “Sole-source contract for every disease area would be a daunting task … looking for solesource contracts in disease areas that lead to significant savings” —US Payer “[Payers] need transparency and multiple products to bid on” —US Payer 14

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Short-term Benefits Outweigh Long-term Concerns

• For a health plan or pharmacy benefit manager, the positives (costsavings) to competitive bidding programs are often immediate, while the negatives (cost-increases) are distant • Payers believe that competitive bidding for sole-source contracts is advantageous to the health care system

“[Payers] only consider cost implications out to 12-18 months … not 3 years. … We don't think that far in advance. … How are we are going to sell this to the CFO and tell him or her year 1 you lose money and year 2 still in the red [but there could be some savings by year 3]. This is a very hard sell. … [Payers expect guaranteed savings in year 1; the benefit must be immediate]” —US Payer “Makes sense to try to some contracting models to reign in healthcare costs” —US Payer ISPOR 20th Annual International Meeting

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New Paradigm in the US Health Care System

• Roles and responsibilities of medical and pharmacy directors in US health plans are changing – Medical and pharmacy directors are now more involved in “value” decisions

• As part of our payer research projects, we typically ask participants about their role in health care decisions. In a recent project, we surveyed 5 US payers: – 3 out of 5 US payers stated that they advise on whether a treatment is good value for money. Two years ago, few if any US payers would say this – 2 out of 5 US payers include “negotiating treatment prices” as part of their responsibilities. This also was not the case 2 years ago • US health plans are integrating value assessment into Pharmacy and Therapeutic (P&T) committee decision making or establishing a separate committee that assesses value – If a health plan establishes that two or more products are therapeutic equivalents, then cost and contracting enters the discussion

“Would like a value add offer with it [the competitive bid]” —US Payer 16

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Beyond Competitive Bidding: Belgium and the Netherlands to Jointly Negotiate Purchase of Orphan Drugs • First instance where countries have come together to negotiate prices of orphan drugs and therefore be able to bargain a lower price from the pharmaceutical companies – This agreement was made on April 20, 2015, during the European Council of Health Ministers in Riga, Latvia

• Working together will enable them to represent more patients and hence be able to “easily negotiate a lower price without sacrificing quality” • A test run will be launched next year

http://www.orpha.net/actor/EuropaNews/2015/150507.html#TOP ISPOR 20th Annual International Meeting

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Is the HCV Contracting Story an Isolated Event?

NO!

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May 20, 2015

Competitive Bidding for Therapeutically Equivalent Branded Drugs: An Industry Perspective David Miller, Biogen

ISPOR 20th Annual International Meeting

Competitive Bidding (Tendering) as Payer Management Tendering for pharmaceutical products can be considered an extreme form of payer management used to tightly control cost

Basic Payer Restrictions

Pricing Level Controls

Commoditized Procurement

Less Extreme

More Extreme

Includes simple restrictions like step protocols, prior authorizations, etc.

Direct pricing control through methods such as price caps and reference pricing

Product selection through tendering process

Examples • Step edits for statins in the United States

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• Anti-TNF’s pricing leveled in France

• Molecule tenders for short-acting EPO • Competitive bidding for HCV products in the US

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Tendering is Rarely Universally Appropriate

Identical Small Molecule • Therapeutic equivalence is straightforward • Tendering provides significant cost savings when multiple manufacturers are able to supply identical molecule products

Biosimilars and Similar MOAs •

Given the complexity of biologics, therapeutic equivalence of biosimilars must be shown through clinical studies

•

Products with similar MOAs could have significant therapeutic differences for individual patients

Same Indication, Different MOAs •

Products with different MOAs are unlikely to be therapeutically equivalent

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Tendering – “Ain’t All That It’s Crack Up To Be” Quality, Safety, and Differentiation • Do the products have clinical data showing therapeutic equivalence?

Reliability and Security of Supply • Sole supplier increases the risk of supply or availability issues

• Commercialization less attractive as tendering increases risk

• Securing new source when the sole supplier has supply shortages is time-consuming and disruptive to treatment

• Innovator could drive potential biosimilar entrants out with price competition and regain pricing power

Physician and Patient Hassle to Switch to Tendered Product

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Potential to Stifle Biosimilar Entrants

Costs and Capabilities to Administer Tender

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Tendering by Therapy Class As tendering “lot structures” become more broadened towards therapeutic clustering, products with different mechanisms of action (MOAs) may increasingly be grouped together

Narrow

Definition

Examples of Avonex’s competitors by each definition

Brand

Molecule & Mode of Administration

None

Parallel Imported Avonex

Lot Structure Molecule (e.g. INN)

Biosimilar Avonex

Broad Mechanism of Action

Therapeutic Cluster (e.g. all 1st line therapies)

All other IFNs

All other IFNs + Copaxone

Lot structure determines how products are grouped together and therefore which products are direct competitors within the tender; varies across countries and indications ISPOR 20th Annual International Meeting

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Therapeutic Class Tendering is Tempting to Payers Payers’ rationale behind therapeutic tendering Different products within the same therapy class, even with different MOAs, can still be expected to have “similar-enough” efficacy and safety profiles

Manufacturers would then be expected to offer discounts to win the tender in order to have their products listed for treating the specific therapeutic group

Therefore, therapeutic tendering can be an effective approach to reduce drug spend while still providing patients the required effective treatment

…is this true? 24

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Concerns about Therapeutic Class Tendering There are a number of key concerns that make therapeutic tendering challenging:

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Therapeutic equivalence among different products cannot be assumed without data

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Switching patients to a different tendered product as payers renegotiate contracts raises clinical questions, including patient adherence

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Winning tender takes all and decreases physician and patient choice, particularly flexibility with treatment for complex diseases is often needed

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Sole provision raises questions about reliability of supply

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Biogen’s Experience Biogen has experienced each of these 3 key concerns through tendering in a number of situations

• Tendering of “biosimilar” Avonex in Russia

• Parallel imports from Greece during economic crisis

• Tenders grouping long and short acting hemophilic factor

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If Tendering is So Great…Why Don’t We See More of It?

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Concerns about limiting treatment options—physician and patient pushback

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Legal, compliance and administrative burdens—savings may not be worth it

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Concerns about therapeutic equivalence---limited data to suggest appropriateness of patient crossover

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Concerns about supply

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