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Former Head, EMA, Dr Thomas Lonngren Shares his View on US Payers and the Increasing Cost of New Drugs

  • June 10, 2014

  • In May, I was invited to speak at the Chief Medical Officer Summit in Boston, attended by chief medical and scientific officers from US biotech companies. In my speech, I covered the EU regulatory framework and new developments. This included raising the discussion of the increasing demand from EU payers to demonstrate the cost effectiveness of new drugs, which is a topic of increasing interest to US companies planning to enter the EU market with their new drugs.

    This interest is also shared by US venture capitalists wanting to learn more about what is needed to get drugs to the EU market. To my surprise, however, several other speakers highlighted the increasing pressure US payers are placing on companies to get new drugs included in their health schemes. I have had an ongoing assumption that the US market would be willing to bear a much higher price for new medicines and that the uptake would be greater than in the EU and other countries. Apparently, this is an assumption I now have to reevaluate.

    One of the reasons for this change is well exemplified by Gilead Sciences’ hepatitis C drug Sovaldi. Its price tag of $84,000 for 12 weeks of treatment may have been a tipping point. This case in particular has forced payers to make difficult decisions about drug priorities within their available budgets. With many newly introduced high-priced therapies on the market, and more to come, US payers are being forced to prepare themselves for how to manage this growing burden in the future.

    How private insurers/payers will manage the drug selection priorities within their available funds without raising insurance premiums will be a real challenge.
    In my view, one scenario could be where a small number of patients with orphan indications consume a disproportionate amount of an insurance company’s available funds.

    Another may be one in which ground-breaking therapies for a larger population deplete a major portion of the insurance fund, treating just one condition.

    It is necessary to question whether the private insurance system in the US will be able to cope with such a development. If, for example, they apply health economics data and comparative effectiveness criteria as instruments for prioritization, individual private insurance companies would probably be too small to cover reimbursement for some premium-priced drugs. Adding wider health and economical gains for the treatment would in many cases be outside of their scope and would not provide any additional benefits for the insurance companies themselves. In saying this, the US insurance companies will need to apply some methodologies and strategies to support these difficult decisions for the reimbursement of new and expensive drugs. Nonetheless, how this will be done and the priorities made will be brought to question.

    From my point of view, it is obvious that to achieve a premium price to cover the return on investment, the drug will need to show substantial added benefits over other available alternatives. Therefore, in the early stages of a drug’s development process, companies will need to build in assessments of a payer’s acceptability of a new drug with a high premium price alongside regulatory approvability. This has been the case for many years for drugs entering the European market and it now appears more prevalent in the US as well. What remains to be seen, however, is how this will actually be put into practice.

    Thomas Lonngren B&W
    With kindest regards,
    Thomas Lönngren
    (Thomas will also be speaking at the 5th annual Global Clinical Trials event on September 10th in Boston.)