First of all the good news; Biotech companies are the most important element of the pharmaceutical business. The myriad of Biotech companies, (especially in the US which has the best ‘ecosystem’ for Biotech in the world), are engaged in exciting new science, bringing life-saving and life-enhancing medicines, vaccines and devices to patients, treating diseases with very poor outcomes which take a terrible toll on individuals’ and families’ lives. In this new age of exciting science, the word ‘cure’ has been used to describe how we may be able to have a real impact on previously untreatable conditions with disruptive technologies such as CAR-T, TCR, CRISPR and other gene therapies.
The ‘investment money for is for clinical trials’ imperative:
Biotech companies depend on gaining investment to fund their clinical development plans, to demonstrate that their amazing ideas actually work in practice when real patients are treated. This investment is critical, as a 2016 report prepared for the US Department of Health and Human Services found that the average cost of a single Phase II study ranges from $7m to $19.6m and a single Phase III study from $11.5m to $52.9m.1.
With that investment gained for clinical development, the focus of the Biotech companies is to demonstrate clinical proof of concept, and build enough data in their pivotal trials to gain regulatory approval – especially in the US as the biggest market.
This is when acquirers (usually big Pharma) will pay the highest price for a Biotech company – either as a complete acquisition of the company, or the individual asset. Merck’s acquisition of Cubist in 2014 for $9.5 billion2, or the very recent bid of $12 billion by Gilead for Kite Pharma3 demonstrate the high prices companies may be willing to pay for exciting Biotech innovation.
This explains the completely myopic obsession Biotech companies have with conducting clinical trials aimed at gaining regulatory approval.
The world is changing. Fast:
In the US, many stakeholders, including Payers, PBMs, healthcare professionals, patients and policy makers now want to understand much more about what, exactly, they are paying for, and are willing to take a view on whether it is worth it.
State legislators are discussing plans for how they can limit prices of new medicines, which they regard as ‘excessive’.
‘Value Frameworks’ to assess ‘value’ are springing up everywhere, all with different methodology and criteria, just to add more confusion to the situation.
Throughout Europe, Canada and Australia, assessment of clinical and economic value through health technology appraisal (HTA) has been evolving since 1986, and is now firmly embedded as a way of determining price and reimbursement. More recently, we have seen HTA agencies such as NICE which have previously been more concerned with cost-effectiveness, take a view on also restricting budget impact4.
In Asia and Latin America, many countries are leapfrogging the traditional market evolution, and establishing sophisticated HTA agencies using methodology translated from European HTA agencies. These include Mexico (CENETEC), South Korea (NECA) and Japan (Chuikyo).
Therefore, regulatory approval is no longer any guarantee of commercial success, anywhere in the world.
The old-fashioned view of ‘market access’ still pervades, resulting in a risk of lower valuations:
For many in the Pharma industry, ‘market access’ (gaining pricing and reimbursement/coverage) was something to be tackled once regulatory approval had been gained. After all, “no point wasting money on an asset that may not make it!”
Unfortunately, this has led to a fundamental lack of understanding in the Biotech industry around the timing and investment for market access planning. Their view is that because this is all ‘late stage’ work, it should not be their responsibility as the acquirer will take care of all this.
Even within ‘big Pharma’, tales emanate from HEOR and market access teams of having to go to their leadership and plead for budget to fund early evidence development to meet market access requirements, while there is seldom any issue in funding clinical trials.
In our experience over 20 years, still the biggest issue in market access planning among the vast majority of companies is that it starts far too late to have any real impact. This is caused by a fundamental lack of understanding of what should be done and when by the teams charged with leading and funding the development and commercialization processes.
At the HTAi meeting in Rome in 2017, within the PhRMA-sponsored symposium, the panel on stage came up with the astonishing recommendation that ‘engaging with Payers on evidence requirements’ might be a good idea. As Early Scientific Advice with HTA agencies in Europe has been around since at least 20095, this demonstrates the problem in understanding among industry.
Even now, after almost 30 years of HTA in Europe, we have seen a lack of market access planning ahead of Phase III commencement in the majority of companies.
This means assets may come to the market with regulatory approval, but lack the right evidence requirements to gain rapid and sustained market access (price, reimbursement and funding approval).
Due to this obsession with regulatory approval among Biotech companies, this problem is magnified many fold – with very few Biotech companies having the expertise, willingness or manpower to plan effectively for market access requirements. This has a direct negative impact on the value of the asset, (and therefore the value of the company), and can be used by acquirers to drive acquisition valuations lower for Biotech assets.
Even if competition between ‘big Pharma’ acquirers keeps M&A prices high, it still means that assets will not reach all the patients who need it, due to the lack of appropriate evidence – which poses an ethical dilemma for Biotech founders.
Payers Perspectives on Evidence Requirements and The Risks for Clinical Trial Investment:
Payers have very specific clinical and HEOR data requirements in terms of endpoints, comparators, PROs and Quality of Life measures. Clinical trials don’t usually meet all these needs, especially for innovative Biotech medicines within rare diseases, small patient populations or with disruptive technology with new, unproven endpoints.
By failing to take the payers’ perspective into account, Biotech companies take a very significant risk that their trials will not meet payer requirements, resulting in the potential for delayed and restricted access, thus driving the value of the asset down and depriving patients access to these innovations. The impact of every lost week/month/year at time of launch is magnified hugely through loss in lifetime NPV through loss of peak sales & profit at the end of the life-cycle, especially now that life-cycles are becoming shorter (i.e. if peak sales were forecast to be $1.2b then a single month delay at the beginning of commercialization results in $100m loss at the end).
Finding out Payer requirements for evidence development is a straightforward task, involving early scientific advice consultations with Payers in the major markets (US, EU, Canada). This should be done to design the Phase III clinical program, so needs to take place during Phase II. In fact some HTA agencies such as HAS in France will not engage if Phase III has already begun.
Payer requirements cannot be fulfilled from the clinical development plan alone, so Payer engagement helps inform the evidence gap analysis (i.e. those requirements that cannot be met from the Phase II and III programs) and so informs the HEOR evidence development plan – to supplement the clinical program. This way a more complete package of evidence can be developed in time.
Understanding the Biotech Dilemma:
It is, of course, entirely understandable why Biotech companies have this obsession with clinical trials for regulatory approval. In the past, this was all that was needed.
It is also the case that many innovative Biotech companies are very lean organizations, operating a ‘skeleton crew’, closely scrutinizing the ‘burn rate’ on their investment cash to make sure they survive. They prioritize hiring clinical development and regulatory experts and CROs to implement their trials; understandably.
So, I completely ‘get’ the quizzical look from Biotech leaders when I suggest they invest some of their time and money in developing the right evidence set for Payers from Phase I onwards. They believe they have neither the time, money, staff, or perceived need to invest in market access planning so early.
The world is changing fast; not only because of European/Canadian-based HTA which is spreading to many developing markets in Asia & Latin America, but also because fundamental change is taking place in the US, driven by organizations such as ICER, and likely legislative change on pricing.
To be successful in the future, Biotech leaders and their investors need to know that this is not optional. Failure to get the market access strategy right may well mean that your asset doesn’t ever get a chance to prove itself commercially. It may also mean that any potential acquirer puts a lower value on the asset because they know they may not be able to make up for lost time and effort. This is too important to ignore or get wrong, because patients’ lives and wellbeing are at stake. The most savvy Biotech companies are now realizing this and taking action now while they can still make a difference.
- Sertkaya, A., et al., Key cost drivers of pharmaceutical clinical trials in the United States. Clin Trials. 2016 Apr;13(2):117-26. doi: 10.1177/1740774515625964. Epub 2016 Feb 8.