December 11, 2013

Why Talk of a Hepatitis C Price War Should Act as a Warning to the Large Pharma Industry-at-Large

Provided by Forbes

Pharma & Healthcare 12/11/2013 @ 8:19AM |1,590 views

Bloomberg reporter Drew Armstrong may have broken one of the most important pharmaceutical news stories of the year on Tuesday when he revealed that a leading US pharmacy benefits manager (PBM) is to take an aggressive stance towards the pricing of new hepatitis C therapies.

The crux of the story is that Express Scripts ESRX -0.66% will not view the convenience of Gilead Sciences' GILD -2.8% proposed single-tablet, fixed-dose combination treatment – due to be approved in late 2014/early 2015 – as an adequate justification for higher pricing versus less convenient therapies (i.e. more tablets) that deliverer a similar level of efficacy.

Immediate reaction to the story saw Gilead’s share price fall (shares closed down 3.2 percent on Tuesday), primarily as the proposed convenience of its product is central to its entire hepatitis C strategy and is widely perceived to be a key factor in driving the company’s anticipated dominance of this market.

Express EXPR -2.12% Scripts has subsequently sought to play down the comments made by its chief medical officer Steve Miller, suggesting that they should not be viewed as being directed solely at Gilead. But it is not only Gilead – or those players competing in the hepatitis C space – that need to be concerned at the stance Express Scripts is taking.

The underlying narrative here has broader implications for the pharmaceutical industry, particularly as Express Scripts has already demonstrated itself to be taking an increasingly aggressive position towards the pricing of drugs that it believes offer minimal efficacy benefit over competing therapies, which it can secure at a cheaper cost.

Most significantly, the PBM announced earlier this year that from the beginning of 2014, Novo Nordisk's Novo Nordisk's diabetes treatment Victoza will no longer have a place on its preferred national formulary list. The decision to replace Victoza with AstraZeneca and Bristol-Myers Squibb’s Bydureon franchise also caused some consternation among industry commentators, given that Victoza is widely perceived to be a superior product.

“If you look at the actual primary efficacy and safety trial results, the gap between Bydureon and Victoza is modest, thus Express Scripts can fairly argue it is not providing an inferior medicine,” says Sanford C. Bernstein analyst Ronny Gal. “However, more refined arguments relating to factors such as the duration of side-effect, size of needle and physician experience are more debatable,” adds Gal.

Mirroring similar tactics that are emerging at other PBMs (such as CVS Caremark), the decision to block Victoza was not only a “shot across Novo’s bow,” says Gal, but a “testing tactic,” the success of which will likely be measured by both the Danish company’s response and the reaction of the market.

Novo Nordisk has provided a bullish riposte on a number of occasions, both indicating that it will not bow to unnecessary discounting pressure and suggesting that patients and physicians will rally against any significant lack of access to medicines.

Thus it is not surprising to see Express Scripts use the approval of new – and expensive – hepatitis C therapies as an opportunity to promote its stance. Indeed, while Armstrong’s article focused on the potential pricing competition of products that remain some 12 months from the market, payers face a more immediate concern in the hepatitis C market.

One element of Gilead’s proposed fixed-dose combination – Sovaldi (sofosbuvir) – was approved by the FDA on Friday with a wholesale price of $84,000 for a 12-week course. Its transition from regulatory to commercial arena has been supported by a somewhat laissez-fair attitude as to how the drug can be used by the FDA.

The administration has even signaled that use of sofosbuvir in combination with ribavirin (thus excluding interferon and its burdensome side-effect profile) can be used in “interferon-ineligible” patients over a 24-week period in the large genotype 1 population; a proposed use that simultaneously doubles the price of Sovaldi, but provides no real definition as to what constitutes interferon-ineligibility.

At FirstWord we polled 67 physicians this week and discovered that more than two-thirds would consider a patient ‘ineligible’ for interferon if that patient said they did not want to be treated with it. The message appears to be clear – physicians and patients are keen to use these new therapies, perhaps more aggressively than some analysts are forecasting, and this provides a real conundrum for payers, particularly given the level of patient warehousing that has preceded their availability.

The key statement made by Express Scripts’ Miller on Tuesday was arguably “we will identify which drugs can be pitted against each other and make some really tough formulary decisions” – rhetoric that clearly lays out how the PBM expects to assess drugs moving forward.

Also likely to strike fear into branded pharmaceutical manufacturers was Miller’s assertion that “when you look at the price of many new products coming to the marketplace, it’s just not going to be sustainable” – a statement that looks much more at home in the European pricing environment than the US.

Let’s not forget also the decision by Sanofi to reduce the price of its colorectal cancer treatment Zaltrap last year after a group of prominent physicians wrote a high-profile opinion piece in the New York Times saying that it was no more effective than an existing therapy available at roughly half the cost.

What appears to be a very aggressive stance towards the next generation of hepatitis C therapies indicates that Express Scripts is hardly holding fire on its strategy. The key question that the industry needs to ask is whether others will follow?


Also See: Express Scripts Pushes Price Competition for Gilead Drug

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