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National Pharmacy Practice
Gene Dorr Area Vice President, PBM Consulting Northeast Region and Southeast Region National Pharmacy Practice Eric Scott, CEBS Area President Title Slide 1b - Sneak peek at an alternate accent color
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Today’s PBM Industry There are nearly 50 different pharmacy benefit managers (PBMs) today, with the top three holding 80% of market share 80% 23% 2+ chronic diseases 52% Disease free
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How Do PBMs Earn Revenue?
Administrative fees “Spread” dollars through pharmacy network drug discounts Drug rebates Clawbacks Utilization management fees (e.g., fees for prior authorizations, step therapy, etc.) Disease management / clinical programs Dispensing fees Manufacturer Administrative Fees Selling claims data Owned mail-order facilities
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PBM Cost-Saving Strategies
Open pharmacy network Open formulary Plan design without incentives Drug utilization review Limited pharmacy network Hybrid formulary Incentivized plan design Prior authorization Step therapy Quantity limits Drug exclusions Disease management programs Retrospective drug review Highly limited pharmacy network Closed formulary Highly incentivized plan design Increased drug exclusions Increased utilization management and drug review Mandatory mail order Exclusive specialty provider Increased disease management
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70,000 pharmacies nationwide
Pharmacy Networks PBMs negotiate discounts off of prescription drugs with both chain and independent pharmacies The broadest national pharmacy networks typically have ~70,000 pharmacies Pharmacy networks may be reduced in size to yield additional savings Limited networks balance member convenience against more aggressive cost containment 70,000 pharmacies nationwide
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Formulary Management PBMs develop formularies that contain a list of brand and generic drugs that are approved for use Most formulary brand drugs drive rebate dollars from manufacturers which can be shared in full, or in part, with the plan There are four standards types of formularies Open Non-formulary drugs still available at a higher copayment. Lower cost savings. Closed Non-formulary drugs not covered. Higher cost savings. Hybrid Partially closed with a mix of drugs included/excluded for clinical or financial reasons. Moderate cost savings. Value-based Drug inclusion based on clinical effectiveness rather than cost. Moderate cost savings.
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Utilization Management
PBMs have multiple programs in place that supplement Rx discounts and rebates to further contain costs and promote safety Drug Utilization Review (DUR)—Provides “edits” at the point of sale to ensure appropriateness of medication. Prior Authorization—Before the plan covers a particular drug, a medical necessity must first be established. Step Therapy—Must first try a less expensive drug before moving up a "step" to a more expensive drug. Quantity Limits—Sets a limit to the amount of drugs covered for a certain period of time.
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Disease Management Programs
PBMs typically provide disease management programs for member with chronic conditions Strives to improve overall health and quality of life and lower cost of care Supports the provider-patient relationship and plan of care Optimizes patient care through prevention and proactive interventions based on evidence-based guidelines Incorporates patient self-management Continuously evaluates health status
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Mail Order and Exclusive Pharmacy
Most PBMs provide mail-order Rx services Medications offered at lower rates Order new medications / refills from home, via phone or internet (some also offer phone apps) “Mandatory Mail” programs offer significantly lower rates by requiring ongoing medications be filled through mail Exclusive pharmacy arrangements provide additional opportunities for savings Specialty medications offered at lower rates through exclusive specialty facilities and/or pharmacy networks 90-day traditional prescriptions through a retail network
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Contract Terms Review ●
Criteria PBM/HEALTH PLAN PBM1 PBM2 PBM3 PBM4 PBM5 Is your definition of BRAND drugs based solely upon a Medi-Span indicator of “M” (co-branded product), “O” (originator brand), or an “N” (single source brand)? ● Are single-source, dual-source, or triple-source generics included in your brand discount guarantees and/or reconcilitation? Does your contract provide the criteria for determining the classification of a specialty medication, including specifics about price, route of administration and site of care? If yes, please provide the criteria. For brand drugs on your formulary that earn rebates, are there any circumstances when a prescription is not rebate eligible (e.g., days supply) for any reason? Is anything excluded in your calculation of SPECIALTY drug rebates? Are contracted rebate amounts re-evaluated if there are significant changes to drug utilization mix or market conditions (e.g. generic launch, drug recall, etc.)? Is the client required to implement any of your programs (e.g., mandatory mail, limited network, utilization management, clinical programs, etc.) in order for any of your guarantees to be honored? If so, which programs are mandatory and which are optional? Do you define Average Wholesale Price (AWP) other than by prices regularly and independently indicated by Medi-Span? If so, please provide the source(s) used. Does the client receive 100% of any discovered money following an audit? Can the client terminate the contract without cause with 90-day notice? Is there a financial or other penalty to the client for early termination? If so, please provide the specifics regarding any and all client penalties. Do you intend to use over performance in any areas to subsidize underperformance in other areas regarding the financial guarantees (e.g., retail, mail, discounts, rebates, dispensing fees, generic dispensing rate, etc.)? Do your contract terms allow for periodic market checks during the contract period ? If so, how many and when? If not, please explain.
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Prescription Drug Challenges in 2018-2020
Substantial increase in Rx costs due to drug inflation and the rise of specialty drugs and orphan drugs Pharmacy now accounts for 20% of healthcare expenses Pipeline for new drugs at historic levels 43 New Actives Substances and 30 new brands recently introduced; 7,000 specialty drugs in development Increase in chronic disease Nearly half of Americans have one or more chronic diseases Poor service from PBMs Most plan sponsors give their PBM around a “C+” for service Contracting and pricing games Contracts and pricing are confusing which gives an unfair advantage to PBMs
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Rising health care costs
Employers’ Top Drivers of Rising Health Care Costs1 % indicating driver as one of their top three For the second year in a row, employers ranked specialty pharmacy costs as the top driver of health care costs. Expenditures for these drugs continue to grow faster than any other component of health care spend. SLIDE OWNER: SARA THACKER UPDATED: Feb 2018 MAIN POINTS: As we look at healthcare costs overall, including medical and pharmacy, you can see here that pharmacy plays a significant role in rising costs due to Specialty medications. Specialty drugs can also be covered on the medical benefit (infused, non-self administered injections), but this is primarily driven by specialty costs on the pharmacy benefit (oral and self-administered/injected drugs). It is important to note the difference in impact by traditional and specialty pharmacy to overall cost of care. Historically, pharmacy has made up a much smaller piece of the pie, yet with the increase in use of new Specialty therapies, pharmacy has become much more visible. High cost claimants tend to drive a large portion of spend for both medical and pharmacy, with a large portion on the pharmacy being specialty patients. (source: Large Employers’ 2018 Health Plan Survey, NBGH, Aug 2017) Over a quarter (26%) indicated specialty pharmacy was their top driver of rising health care costs, up from 6 percent in % of respondents cite specialty pharmacy as one of the top 3 drivers of rising healthcare costs. Overall, respondents cited the following as among their top three cost drivers: 1. Specialty pharmacy benefits (80 percent). 2. High cost claimants (69 percent). 3. Specific high cost diseases and conditions, such as musculoskeletal claims (55 percent). Despite skyrocketing specialty pharmacy costs, overall health care benefit cost increases at large U.S. employers are expected to hold steady at 6% again in 2018, according to an annual survey by the National Business Group on Health, a non-profit association of 425 large employers. The Large Employers’ 2018 Health Plan Design Survey, the industry’s first look at health benefit costs and plan design changes for 2018, also revealed that employees will not see major increases to their costs during this year’s open enrollment season. “Controlling health benefits costs remains a high priority for large employers,” said Brian Marcotte, president and CEO of the National Business Group on Health. “While employers have been able to keep increases in check for the past few years, costs are still running at more than twice the rate of inflation and general wage increases, thereby threatening affordability. These cost increases, while stable, are both unsustainable and unacceptable.” According to the survey, the 6% increase employers project for 2018 is identical to the increase they would have experienced in each of the past two years had they not made changes to their plan design. However, many employers expect to hold increases to 5% by making some changes to their plans. The survey is based on responses from 133 large U.S. employers offering coverage to more than 15 million Americans. Source: 1. Large Employers’ 2018 Health Plan Survey, NBGH, Aug 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Consumer engagement Healthy employees are a value to the business3 6.5 fewer missed work days 2x As likely to be highly engaged on the job Half As likely to report high levels of stress Half As likely to report financial issues Two-thirds of U.S. employees agree that employers have a role to play in encouraging them to live healthier lifestyles. Employers with a more comprehensive health strategy which includes programs and technology to target communications, are seeing reduced exposure to diseases like hypertension and high blood pressure, along with increased productivity. 78% of employers cite lack of engagement as a top obstacle to a successful health and wellbeing program.2 SLIDE OWNER: SARA THACKER UPDATED: Feb 2018 MAIN POINTS: A lack of employee engagement is on of the most formidable challenges to the success of health and productivity programs. U.S. employers have struggled to get more workers to participate in these programs for more than a decade. 78% of employers cite lack of engagement as the top obstacle to a successful health an wellbeing program. Other significant obstacles include the lack of long-term measurable returns, inadequate program budgets and fragmented delivery. Even in a data-rich market like the U.S., demonstrating program effectiveness with actionable data is a challenge. Lacking convincing evidence, employers struggle to get the funding they need for strong programs. And without sufficient funds, it’s difficult for employers to create or buy a diverse range of segmented programs that meet the varied needs of their workforce, or even to adequately staff the most basic, companywide offerings. Thus, establishing a multiyear assessment process is crucial. Fragmented delivery is another challenge. The U.S. market offers the strongest, most diverse well-being products, packed with the latest creative tools and programs for helping employees live healthier lifestyles. But simply adding more programs may not close the participation gap. More than half (58%) of employers struggle to fit together the vast portfolio of programs to provide an enticing, easy-to-understand, accessible offering. How do employers overcome these barriers? The success of any well-being strategy depends on finding the triggers that prod employees to take action. Because motivation is internally driven, employers can only provide the supportive environment, triggers, resources and recognition that prompt action. While many employers have drawn a clear path for engaging employees in building and maintaining good health, others are having trouble motivating their workforce. An important question is whether employees want their employers to be actively involved in their health. The good news is that two-thirds of U.S. employees agree that employers have a role to play in encouraging them to live healthier lifestyles. Employer interest in improving employee health and productivity is higher than ever. For a large majority (84%) of U.S. employers, health and productivity is a core component of their organizational health strategy, and a majority plan to sharpen their focus on building workforce health and well-being in the coming years. The reason for this is employers are recognizing the risks associated with failing health, as well as seeing benefits of healthy employees as compared to those with higher health risks. Through a study conducted by Willis Towers Watson, it was found that healthy employees are twice as likely to be engaged on the job, and have on average 6.5 fewer missed work days. Furthermore, where employers are comprehensively promoting health through prevention, personal support, healthy workplace culture, and leveraging programs and technology to target communications, they are seeing reduced exposure to diseases like hypertension and high blood pressure. Their employee base is also more productive, with 50% higher revenue per employee. (Source: Willis Towers Watson 2015/2016 Survey) 86% of U.S. employers say health and productivity is a top priority for their organization.1 Sources: 1. Global 2015/2016 Survey, Willis Towers Watson, Improving workforce health and productivity– U.S. Report, Willis Towers Watson, Employers taking action on workforce health and wellbeing, Willis Towers Watson Infographic, 2016 Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Pipeline and Technology Biosimilars and Generics
Dynamics of trend National drug spending to reach $500B by 20221 price inflation is top contributor, outpacing utilization growth 4:12 82% of drug spend has price inflation rates between 7-10% annually 40% of drugs in the development pipeline are specialty3 46 new drug approvals in 2017 including initial gene and cellular therapies 14 drugs approved for new uses; first new treatment for liver cancer 10 years Competition drives down costs but biosimilars face unique challenges Slow progress for biosimilars due to litigation Generics for traditional drugs continuing to mitigate trend, but reaching saturation Pharma advertising to consumers reached new high in 2016 at $6.4B4 ~80 drug commercials every hour, focusing more on specialty conditions Top 10 drugs by DTC spend in 2016 were >$100M each; Humira DTC = $439M Price Inflation Pipeline and Technology Biosimilars and Generics Drug Promotion SLIDE OWNER: SARA THACKER UPDATED: Feb 2018 MAIN POINTS: Pharmacy trends continue to be driven by four primary factors: price inflation, pipeline and new technology, biosimilars and generics, and drug promotion. Price Inflation occurs on pharmaceutical products just like any other consumer good, but what sets pharmaceuticals apart is the rate at which the prices are climbing. Back in the early 2000s, price inflation increased at a rate similar to that of most other goods in the marketplace. The one caveat would be drugs that were nearing their patent expiration, for which more accelerated price inflation would occur, usually starting about 36 months out from the date of the patent expiration. There was a 5-6 year period where a large portion of the blockbuster drugs lost patent protection. With dwindling pipelines for new treatments – and very successful treatments already on the market for most common conditions – manufacturers began to scramble to try and recoup some of the revenue losses that resulted from generic competition. One of the most successful strategies was to increase the price of existing brands medications at a higher rate, which soon resulted in prescription drugs with double-digit inflation. Each year, prices keep going up and peaked at around 16-17% in 2015 for traditional brands and specialty drugs which, combined, account for 80% of all drug spend. What was different in 2015 is that some manufacturers increased the prices of select medications so aggressively (as much as 300% or more on a per/unit basis over 2014 prices), it resulted in media attention, public outcry, and even SEC investigations. Some of the drugs with the egregious price increases have lower-cost alternative products available while others do not. In the case of specialty drugs, there were excessive price increases on older products to align them with the prices of the new products within the same category – for no other reason than the manufacturer felt they should be able to charge the same as another company charges for their product. In early 2017, many pharma CEOs pledged an inflation cap of 10%. We have seen the impact of those caps in 2017 with specialty inflation at 9.5% (down over 40% (nearly 7.5% points) in 2 years) and 6.9% for traditional brands (down over 50% (9.2% points) in 2 years). The deceleration of price inflation is definitely a positive change, but specialty and traditional brands are still increasing at a rate that is 2.5x or more the CPI. The US Centers for Medicare & Medicaid Services are predicting the national drug spend to increase 40% by That trajectory is unsustainable. Pipeline and Technology: New Drugs: 2017 was a record-setting year in terms of novel (brand new - new molecular entity = NME or new therapeutic biologics) drug approvals with 46 being approved by the FDA’s Center for Drug Evaluation and Research’s (CDER’s) which is more than double the previous year (2016 = 22). Novel drugs are often innovative products that serve previously unmet medical needs or otherwise significantly help to advance patient treatments. The active ingredient or ingredients in a novel drug have never before been approved in the United States (details of those approvals are at the bottom of the notes section). We had historic approvals in 2017 with the first cell-based gene therapy approved in the United States, ushering in a new approach to the treatment of cancer and other serious and life-threatening diseases. Chimeric antigen receptor (CAR) T-cell therapy is a novel type of immunotherapy. CAR T-cell therapy involves engineering a patient’s own immune cells to recognize and attack tumor cells. A patient’s T-cells are collected through a specialized blood draw called leukapheresis and transferred to a manufacturing facility. The T-cells are genetically engineered to produce special receptors on their surface called CARs. CARs are proteins that allow the T-cells to recognize a specific protein on tumor cells. These modified cells are then transferred back to a treatment center where they are intravenously administered to the patient. The T-cells multiply in the patient’s body and, with guidance from their engineered receptor, recognize and kill cancer cells. Gene therapy is an experimental technique that uses genes to treat or prevent disease. In the future, this technique may allow doctors to treat a disorder by inserting a gene into a patient’s cells instead of using drugs or surgery. Researchers are testing several approaches to gene therapy, including: Replacing a mutated gene that causes disease with a healthy copy of the gene. Inactivating, or “knocking out,” a mutated gene that is functioning improperly. Introducing a new gene into the body to help fight a disease Repurposing/repositioning: By utilizing an existing drug pharma can repurpose or reposition a drug to treat a condition(s) other than that which it was originally approved. Once a new drug is approved, it is not uncommon for a manufacturer to submit an application with new data that demonstrate safety and effectiveness of the same product for an additional purpose or for use in a different population of patients. Applications to modify the use of an already-approved drug or to expand its use to other patients are in a category of supplemental applications known as “efficacy supplements.” Drug repositioning has emerged as a cost-effective and quicker alternative to traditional drug discovery and development. By mining existing drugs for new uses, researchers can focus instead on latter stage clinical trials. Here are two noteworthy examples: Stivarga (regorafinib), originally approved in 2012 to treat patients with a certain form of colorectal cancer. It was approved for a new use in April 2017 to include treatment of patients with hepatocellular carcinoma (liver cancer) who have been previously treated with the drug sorafenib. This was the first new FDA-approved treatment for liver cancer in almost a decade; Keytruda (pembrolizumab), originally approved in 2014 to treat patients with advanced or unresectable melanoma who are no longer responding to other drugs. Throughout , it was approved for many new uses to treat patients with various forms of cancer. In May 2017, Keytruda was approved to treat patients whose cancers have a specific genetic feature (biomarker). This was the first time FDA has approved a cancer treatment based on a common biomarker rather than the location in the body where the tumor originated. In 2017, CDER also expanded its approved use to include treatment of patients with refractory classical Hodgkin lymphoma, a particularly difficult-to-treat type of Hodgkin lymphoma in which the cancer returns after treatment. In 2017, Keytruda was also approved to treat certain patients with recurrent, locally advanced or metastatic forms of stomach cancer called gastric or gastro-esophageal junction adenocarcinoma. New formulations: In addition to new drugs, the FDA also approved new formulations that of already approved drugs which can offer significant advances in therapy. Three new formulations of already approved opioid pain medications were approved in oxycodone, hydrocodone, and morphine sulfate. These new formulations have properties that are intended to deter abuse of these highly addictive medications. Other notable new formulations include a new formulation of Abilify that contains an electronic sensor that allows the patient to track whether he or she has taken the medication via a smartphone or the cloud; patients can also allow their caregivers or physician to access the information through a web-based portal. Biosimilars are essentially the “generics” of specialty drugs. With specialty costs growing at a rapid pace, introduction of biosimilars would help create competition and provide some moderate price relief. However, manufacturing of biosimilars will be more difficult than simple-structure compounds found in traditional medications for many reasons including (1)they are made in living cells which increases the complexity in manufacturing, and (2)they are sensitive to variations in the manufacturing process meaning that each manufacturer would produce a slightly different product unique to the process and environment used. With known variability, an absence of final regulatory guidelines on how biosimilars will be interchanged with existing brands, and the higher cost and time investment needed for biosimilar development, some manufacturers are in a holding pattern. To date, nine biosimilars have already been approved but not all have reached the market due to patent litigation and manufacturer settlements. Humira is an example of a biologic for which a biosimilar has been approved but is not available in the marketplace. An approved biosimilar for Humira will be available in Europe at the end of this year, but not in the US until The average price of Humira has doubled in the past 5 years which is why biosimilar competition is so crucial to helping control costs in this space. Generic utilization for traditional drugs continues to tick upwards although probably nearing the saturation point (mid-to-high 80s). Inflation of generic drugs has also slowed. With generics accounting for roughly 85% of all drugs utilized, lower-costs and low inflation mean that generics play a large role in mitigating trend. Drug Promotion: The pharmaceutical companies spend a lot of time and money developing new drugs and they want to make sure you know about them. Promotion of pharmaceuticals to the public is called direct-to-consumer advertising (DTCA) and has only existed in the U.S. for a little more than 20 years. DTCA really does work in building marketshare for the promoted products. If it didn’t, then pharma wouldn’t spend $6B every year (and growing) to educate us about their drugs. TV is the primary avenue for DTCA, averaging out to about 80 drugs ads per hour, 24/7. The focus of these ads has shifted away from traditional conditions like high cholesterol and ED (Viagra/Cialis), and moved towards specialty conditions like RA, Crohn’s, HepC, and HIV. Humira, used for multiple specialty inflammatory conditions, is the top-selling drug in the world (by spend) and it far outpaces other products in it’s class. DTCA spend on Humira in 2016 was $439M, an increase of 20% over the prior year. Humira has the highest DTCA spend of any product in DTCA educates people about new treatment options and may lead people with untreated conditions to seek treatment, which is clearly a good thing. Treatment may stop or slow the progression of disease, which can actually lead to lower overall healthcare costs. The flip-side is that some practitioners, as well as the American Medical Association, believe that DTCA drives some people to ask for medications that they don’t need and/or request a new brand-name drug in a category where many lower-cost generics exist which contributes to higher overall spending on prescription drugs. Additional notes: ( Here are the details of those novel drug approvals (some of the drugs listed below may appear in more than one category): Fast Track designated drugs have the potential to address unmet medical needs. 18 of the 46 novel drugs (39%) were designated as Fast Track. Fast Track speeds new drug development and review, for instance, by increasing the level of communication between FDA and drug developers, and by enabling the review of portions of a drug application ahead of the submission of the complete application. Drugs designated with Fast Track status were: Aliqopa, Bavencio, Baxdela, Bevyxxa, Emflaza, Idhifa, Ingrezza, Mavyret, Mepsevii, Ocrevus, Prevymis, Rydapt, Solosec, Vabomere, Verzenio, Vosevi, Xermelo, and Zejula. 17 of the 2017 novel drugs (37%) as breakthrough therapies. A breakthrough therapy designation includes all the Fast Track program features, as well as more intensive FDA guidance on an efficient drug development program. Breakthrough therapy designation is designed to help shorten the development time of a potential new therapy. Drugs designated with Breakthrough therapy status were: Alunbrig, Bavencio, Besponsa, Brineura, Calquence, Dupixent, Hemlibra, Imfinzi, Ingrezza, Kisqali, Mavyret, Ocrevus, Prevymis, Rydapt, Verzenio, Vosevi, and Zejula. 15 of the 46 novel drugs approved in 2017 (33%) as first-in-class, which is one indicator of the drug’s potential for strong positive impact on the health of the American people. These drugs often have mechanisms of action different from those of existing therapies. Novel drugs approved in 2017 identified as first in class by FDA were: Besponsa, Brineura, Dupixent, Emflaza, Giapreza, Hemlibra, Idhifa, Macrilen, Mepsevii, Ocrevus, Prevymis, Radicava, Rhopressa, Rydapt, and Xermelo. 18 of the 46 novel drugs (39%) were approved to treat rare or “orphan” diseases that affect 200,000 or fewer Americans. Patients with rare diseases often have few or no drugs available to treat their conditions. Novel drugs approved in 2017 with the orphan drug designation were: Aliqopa, Alunbrig, Austedo, Bavencio, benznidazole, Besponsa, Brineura, Calquence, Emflaza, Hemlibra, Idhifa, Macrilen, Mepsevii, Prevymis, Radicava, Rydapt, Xermelo, and Zejula. Sources: 1. U.S. Centers for Medicare & Medicaid Services, “National Health Expenditures Data”. 2. Segal Consulting, “Segal Group Projects Lower Rx Cost Trend Increases in 2018”, Sept 22, US Food and Drug Administration, “2017 New Drug Therapy Approvals”, January Kantar.com, “Drug Advertising Booms to $6.4 Billion”, May 8, 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Drug utilization and cost
Dynamics of drug spend have changed: An expanding and evolving specialty market has driven costs up nearly 70% since 2013. Cost for traditional brand-name drugs is up 57% over the past 5 years. Average Retail Cost per Rx1 2017 Specialty $3,776 Brands $303 Generics $21 SLIDE OWNER: SARA THACKER CONTENT OWNER: DAN MOORE UPDATED: JAN 2018 MAIN POINTS: Prescription drug utilization and costs have shifted somewhat in the past 5 years. Generic utilization has increased by 10% points to 83% which is close to a saturation point (more than 4 out of 5 prescriptions dispensed is a generic), perhaps a few more points will be gained in the next couple of years. An unprecedented volume of blockbuster drugs, like Lipitor and Plavix, lost patent protection over the last several years, resulting in higher generic utilization, but also in more aggressive strategies by manufacturers to recoup some of the profits lost by those top-selling drugs. New traditional brand-name drugs continue to hit the market but very few are innovative, especially within classes that are saturated with effective treatments, many in a generic form. Price inflation continues to be a primary cost driver of both traditional brands and specialty, with an average increase in cost of 16-17% per year. Specialty spend is still being generated from approximately 1% of the population but, with new treatments available and the compounding effect of rapid price inflation, specialty drugs now account for 38% of all pharmacy spend -- a much different picture from 5 years ago when specialty accounted for ¼ of Rx spend. This is projected to increase to a potential 50% over the next few years. Specialty growth is attributed to new drug approvals, several of which are providing significantly better clinical outcomes, even cures, versus previous therapies. Biosimilar competition has begun to enter the market for a handful of specialty but the prospect of biosimilars for some of the best-selling specialty drugs may still be years away due to legal battles between manufacturers. With that in mind, manufacturers can continue to place a premium on these drugs. Since over 80% of all Rx costs attributed to traditional brands and specialty, proper management of these two categories is essential. RELATED MATERIAL: 2013 Specialty $2,235 Brands $193 Generics $21 Source: 1. OptumRx commercial clients, YTD October 2017 data. Note: Average ingredient cost can have wide variation based on drug mix within a specific population. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Brand and generic market dynamics
Impact on cost Launch of brand extensions New 2 Brand accelerated price increases 1 High-price generics during exclusivity period 3 SLIDE OWNER: SARA THACKER UPDATED: JAN 2018 MAIN POINTS: Here is an illustration of the cost dynamics 2-3 years prior to a brand-name drug’s patent expiration. The blue line represents the brand drug’s price. Manufacturers begin increasing the cost gradually, and then push more drastic increases starting about 18 months prior to the patent expiration date. Often times, we can minimize the price inflation leading up to the patent expiration date through more aggressive rebate contract negotiations. In the meantime, manufacturers have been developing an “add-on” or “patent-extending” product (refer to orange line) that will be a replica of the product about to lose patent, but with a minor tweak. The minor tweak may be a different dosage form or a different strength, or other small changes that generally do not produce a significantly better clinical outcome, but could drive utilization towards the “new” product instead of towards generic versions of the drug about to lose patent. The manufacturer has already built a campaign around launching and marketing this “new” product as superior to the one losing patent, and will launch that “new” drug usually within 12 months prior to the original’s drugs patent expiration. When the patent expires for the brand drug, there will have been a single generic license or multiple licenses granted. If one manufacturer was granted the exclusive right to produce the generic version, that exclusivity period will last for 6 months. During that time, the generic manufacturer has no other competitors, so the price is usually set slightly below the price of the brand. This strategy will help to maximize profits for the generic manufacturer for those first 180 days. After the exclusivity period has expired, multiple manufacturers will join the supply chain and the price of the generic will drop substantially. In some cases, a generic will launch with multiple manufacturers and the price will be low right out of the gate. SUPPORTING INFORMATION: Our rebated brand price Patent expires -36 -30 -24 -18 -12 -6 6 12 18 MONTHS FROM PATENT EXPIRATION Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Brand drug price inflation
Brand drug prices increase months ahead of patent expiration Impending competition due to upcoming patent expirations While some alternative products exist for the drugs shown below, these are the category leaders. Limited competition and expanding indications SLIDE OWNER: SARA THACKER UPDATED: FEB 2018 CONTENT OWNER: MICHELLE KAMPRATH MAIN POINTS: As a growing driver of trend, price inflation adds tremendous pressure to healthcare budgets. Some drugs are increasing as a much faster pace. What is driving that? Upcoming patent expirations: As drugs begin to near the end of their patent, manufacturers understand the revenue will almost completely disappear for their product upon launch of generic competition. With very few innovative drugs to reclaim lost revenue, manufacturers have increased the pace of the price increases on their existing products, particularly those headed towards patent expiration. Beginning approximately 3 years out from the patent expiration, double digit price increases are commonplace. The three brand drugs Cialis, Viagra (both expected to go generic in late 2017/early 2018) and Lyrica (generic expected mid 2019) have shown significant increases in 2017, and the trend may continue upward as the patent expiration date approaches. 2. Limited competition and expanding indications: Some prescription drugs have limited competition because there are only a few products in the category, or because they have such strong marketplace presence, name recognition, and are very effective treatments, that competitors fail to successfully cut-in to the dominant product’s market share. A few examples of this is with Enbrel and Humira (the two most common products for specialty inflammatory conditions such a rheumatoid arthritis (RA)), and Humalog and Novolog (fast-acting insulins). Price inflation for these products have increased at a higher rate than the average over the past two years. ****It’s important to note on the graph that inflation is calculated using the average AWP/Rx for the entire year of 2016 and 2017. Price inflation in 2017 Source: 1. Based on OptumRx commercial clients over the time periods shown. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Specialty drug price inflation
Average AWP per Rx1 Drug Price Inflation Trend Over Past Three Years3 Prices for Enbrel and Humira have doubled in the past 5 years due to manufacturer inflation. 2 A single year of therapy per patient increased nearly $37,000 for Enbrel and over $43,000 for Humira from 5 years ago. 82% of all drug spend is for brands and specialty where price inflation, although slowing considerably, still far outpaces CPI inflation of 2.5%. Specialty now represents the largest portion of spend, out-pacing traditional brands, while still representing only about 1-2% of patients. SLIDE OWNER: SARA THACKER UPDATED: FEB 2018 CONTENT OWNER: MICHELLE KAMPRATH MAIN POINTS: Humira & Enbrel continue to drive specialty trend with increased price inflation, and accounted for 21.7% of overall specialty spend, and 17.1% of specialty utilization. The average cost per Rx for Enbrel increased $2,829 or 97% (essentially doubled from inflation alone!) from 2013Q1 to 2017Q4. The average AWP per Rx for Humira increased $3,314 or 102% over the same time period (same story as with Enbrel: in 5 years, the price per Rx DOUBLED due to inflation). Enbrel had decreased utilization in 2016 and 2017. Humira had increased in utilization, due to approvals for new indications and formulary placement Sources: 1. Based on OptumRx commercial client average AWP/unit for the time periods shown. 2. Based on OptumRx commercial clients over the time periods shown Enbrel and Humira are 28-day prescriptions, therefore an annual price increase calculation is based on 13 prescriptions. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Notable new generics in late 2017/2018
Common Name Therapeutic Use Possible Launch Date Annual U.S. Brand Sales ADVAIR DISKUS Asthma, COPD 2018 $4.8 billion CIALIS Erectile dysfunction $2 billion SENSIPAR Hyperparathyroidism, Hypercalcemia $1.5 billion PROAIR HFA Bronchospasm $1.4 billion VIAGRA ZYTIGA Prostate cancer $1.2 billion VIREAD HIV, Hepatitis B $833 million NUVARING Pregnancy prevention $773 million WELCHOL Cholesterol Q1-2018 $615 million REYATAZ HIV $558 million SLIDE OWNER: SARA THACKER UPDATED: FEB 2018 CONTENT OWNER: FARRAH WONG MAIN POINTS: A slew of impending patent expirations could take a significant bite out of several pharma giants' bottom lines this year. As Dickson notes, once a drug faces generic competitors on the market, its sales drop by a staggering average of 90% thanks to significantly lower-cost alternatives. Advair Diskus All patents are expired Advair Diskus is used to treat asthma and chronic obstructive pulmonary disease (COPD). Three manufacturers have submitted ANDAs. Mylan received a complete response letter (CRL) on 3/28/ The ANDA has been re-submitted; approval likely in June 2018 with launch sometime in Hikma/Westward received a CRL on 5/11/2017; approval likely to occur sometime in Sandoz is waiting FDA approval sometime in Cialis Settlement agreements signed with multiple manufacturers. Cialis is used to treat erectile dysfunction. Launch likely to occur sometime in Teva may have exclusivity. Sensipar Sensipar is used to treat Hyperparathyroidism Associated with Chronic Kidney Disease; Hypercalcemia Associated with Parathyroid Carcinoma; Hypercalcemia Associated with Primary Hyperparathyroidism. Patent expiration in 3/ If pediatric exclusivity granted, then patent expiration in 9/ Settlement agreements likely to allow launch sometime in Competitive launch. ProAir HFA Generic ProAir HFA availability: anytime after December 2016. ProAir HFA is used to treat bronchospasm caused by asthma. Perrigo expects to launch generic PROAIR HFA in Per a settlement agreement, Lupin likely to launch generic PROAIR HFA sometime in Viagra Settlement agreement allowed launch on 12/11/2017 Teva exclusively launched generic VIAGRA and Greenstone launched an authorized generic on 12/11/2017. Zytiga District court decision expected in 2018 Zytiga is used to treat prostate cancer. Numerous manufacturers could launch at the same time. Viread Generic Viread availability: December 15, 2017. Though pediatric exclusivity patents don’t expire until January of 2018, Teva has gained the right to launch its generic version of Viread 300 mg tablets on December 15, Teva has already received FDA approval of its generic Viread 300 mg tablets. Viread is used to prevent human immunodeficiency virus (HIV) cells from multiplying in the body. It is an antiviral medication. The drug is used, alongside other medications, to treat HIV. It is also used to treat chronic hepatitis B infections. Nuvaring Patent expiration is 4/8/2018 Nuvaring is a flexible birth control vaginal ring used to prevent pregnancy. Teva likely to receive exclusivity. Welchol Generic Welchol availability: H1-2018 Welchol is used for the treatment of Primary Hyperlipidemia and Type 2 Diabetes Mellitus. Reyataz Generic Reyataz availability: December 27, 2017. Though pediatric exclusivity patents don’t expire until June of 2019, Teva has gained the right to launch its generic version of Reyataz on December 27, Teva has already received FDA approval of its generic Reyataz. Reyataz is used to prevent human immunodeficiency virus (HIV) cells from multiplying in the body. It is an antiviral medication. The drug is used, alongside other medications, to treat HIV. The generic name for Reyataz is atazan Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Consumer Engagement/ Behavior
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Direct-to-consumer drug advertising
DTC media spend reached $6.4 billion in 2016, a growth of 64% since , 2 US DTC Media ($ millions) $3,908 $1,597 $516 $39 $26 $7 $6,093 US DTC Media ($ millions) $4,064 $1,700 $515 $51 $33 $11 $6,375 % Change vs. Prior Year 4.0% 6.4% -0.2% 30.8% 26.9% 57.1% 4.6% TV Magazine Digital Newspaper SLIDE OWNER: SARA THACKER UPDATED: JAN 2018 MAIN POINTS: Direct-to-consumer (DTC) advertising began nearly 20 years ago and has been a successful strategy for increasing brand awareness and utilization of the advertised products. Television, magazines and newspapers have always been the dominant channels of DTC because of the breadth of the audience that can be reached. In fact, a study by Nielsen revealed that, in the US, there is an average of 80 drug advertisements on TV every hour of every day. Members are continually seeing, hearing and reading about pharma’s blockbuster products and quite often asking their doctor about the medication if they feel it would pertain to a health condition or concern of theirs. Since the conception of pharma DTC advertising, debates have existed challenging the ethics of this practice. DTC advertising has yielded positive results such as reducing underdiagnosis and undertreatment by enhancing patients’ perceptions about treatments for certain conditions. For example, advertising to promote new hepatitis C treatments that could potentially cure a patient of the disease provides a positive public service. DTC advertising has also been credited with helping to remove the stigma associated with certain conditions like erectile dysfunction, helping to empower patients to feel comfortable discussing these with their doctor. Opponents argue that DTC advertising also have a negative effect by causing patients to feel as though medications alone can treat their condition and that no lifestyle modifications are needed. This is a fairly prevalent mindset – most people would rather “pop a pill” than exercise, diet, or actively work to reduce stress in their lives. Additionally, opponents of DTC argue that it can increase costs by encouraging a patient to use a brand-name drug in a category where equally-effective generics may exist, which can lead to increased costs for both the member and the plan sponsor. There are two primary positions on DTC advertising, that of the drug companies and that of the physician community (American Medical Association (AMA)): Pharma says that DTC advertising: Educates patients about under-treated conditions and encourages them to see a doctor Boosts demand for drugs that serve a preventive purpose which is less costly than leaving the underlying disease untreated Advertisements help patients remember to take their medications (increases compliance) AMA’s stance: Supports a ban on DTC advertising because of the negative impacts: Convinces people that they need a drug they might not actually need Drives demand for new, more expensive drugs despite availability of lower-cost options Wants drug companies to disclose prices in advertisements Transparency vendors: (source: As we watch the astronomical pharmacy price fluctuations, the market demands more transparency. Today there is little-to-no drug price transparency. Prescription drugs are difficult to shop for and few people are really sure how prices are set. Drug prices are based on a complicated combination of dispensing pharmacy, insurance company, and one’s prescription details. For the most part, you can’t simply comparison shop for drugs the way you can for almost every other sort of good by comparing prices on the web. But, we are starting to see websites and services out there aiming to fundamentally change the way people buy drugs, bringing the industry into the digital age by disclosing the lowest prices for generic prescriptions to allow comparison-shopping. Drug pricing practices have furthermore become a populist issue on the presidential campaign. And many Americans are struggling with insurance plans that demand ever higher out-of-pocket costs. The spotlight on drug prices could not come at a better time for at least two online ventures. One company, GoodRx, collects drug prices at pharmacies around the country and connects consumers to coupons to help them pay. Another, Blink Health, takes the process a step further by allowing customers to pay for their drugs online, then pick up the prescription at nearly any pharmacy. Companies like GoodRx and Blink Health often quote prices for generic drugs that are far lower than the prices that pharmacies typically charge customers paying out of pocket instead of through insurance. Instead, the sites and their apps are offering customers prices that are closer to the rate that is typically available — or even visible — only to insurers. Ten of the country’s 15 most commonly prescribed drugs, for example, cost less than $10 on Blink Health, including generic versions of drugs like Lipitor, which manages cholesterol, and the diabetes drug metformin. GoodRx and Blink Health get their prices by using the networks of pharmacy-benefit managers, which manage drug plans for insurers and large employers. GoodRx works with several benefit managers, while Blink Health has entered into an agreement with MedImpact. Blink Health also relies on MedImpact’s network of more than 60,000 pharmacies. Things to keep in mind though, these sites cannot help much with brand-name drugs, which are made by a single manufacturer and carry prices that can be as high as hundreds of thousands of dollars. Most patients suffering to keep up with medical costs typically need expensive brand name drugs, which this really doesn’t offer a solution. And the purchases also often do not count toward a consumer’s insurance deductible, which could be a problem for seriously ill patients with high medical costs. SUPPORTING INFORMATION: Drug makers have largely avoided involvement in social media due to FDA regulatory compliance. In fact, among the 50 largest companies, half do not use social media to engage consumers or patients. (Source: Forbes, “Tweet This: Pharma Still Fails To Embrace Social Media” 1/21/2014) With the key guidance on the use of social media from the FDA widely expected to be finalized in soon, there is a real likelihood that the FDA will increasingly step up its monitoring program and impose sanctions on non-compliant firms (Source: Forbes, 8/6/2014 FDA Readies Social Media Rules For Big Pharma) Besides regulatory compliance, drug makers are disengaged in this space due to a loss of content control, privacy concerns, and a lack of familiarity with social media. (Source: Forbes, “Tweet This: Pharma Still Fails To Embrace Social Media” 1/21/2014) Radio Out of Home (public spaces) TOTAL Sources: 1. 2.. “ Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Demographics and Non-Specialty Conditions
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Chronic disease among U.S. adults
Prevalence of adults with multiple chronic conditions by age group1: Health service use and spending: Prescriptions Average number of prescriptions filled SLIDE OWNER: SARA THACKER UPDATED: FEB 2018 MAIN POINTS: A chronic condition is a physical or mental health condition that lasts more than one year and causes functional restrictions or requires ongoing monitoring or treatment. When a patient has more than one chronic condition—for example, diabetes, hypertension, and mood disorders—treatment can be difficult to manage. Treatment strategies or drug regimens may be similar—but can be very different—and one chronic condition may be better managed than the others. Six in ten adult Americans had at least one chronic condition in 2014, the latest year for which data are available, and four in ten had more than one. Chronic disease is a burden not only for these patients but also for the health care system overall. Those with multiple chronic conditions have poorer health, use more health services, and spend more on health care—trends that have been stable since 2008. The data confirm that the prevalence of multiple chronic conditions—that is, having two or more chronic diseases simultaneously—is highest among older adults. It also shows that women are more likely than men to have multiple chronic conditions, as many women live longer than men do. The more chronic conditions people have, the more they use services of all types. As one example, those with five or more chronic conditions use twice as many drugs on average per year, compared with those with three or four conditions. As another, people with five or more conditions averaged 20 doctor visits per year, compared with 12 visits for those with three or four conditions. Source: Number of chronic conditions *includes all initial fills and refills, retail and mail order claims (mail claims counted as 1 fill even if 3 months of medication was dispensed) Source: 1.Rand Corporation, “Multiple Chronic Conditions in the United States”, 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Non-adherence is the leading cause of preventable healthcare costs
The costs associated with prescription drug non-adherence is nearly equal to the nation’s annual drug spend. Annual Drug Spend2 $329B Annual Costs of Medication Non-Adherence1 $300B of medications are not taken as prescribed3 50% patients do not fill their prescriptions3 1 in 3 deaths each year as a result of poor adherence3 125,000 of medication-related hospital admissions are linked to non-adherence3 Up to 70% SLIDE OWNER: SARA THACKER CONTENT OWNER: LISA SIEBERT UPDATED: FEB 2018 MAIN POINTS: Medication adherence refers to a person’s compliance with a prescribed medication regimen – is the patient taking the medication as prescribed? Non-adherence is a significant contributing factor to overall healthcare spend. Not taking medication as prescribed can lead to disease progression and, sometimes, hospitalization due to complications. In the US, it is estimated that non-adherence adds between $100-$300B in unnecessary costs to the healthcare system. Non-adherence can mean not getting your prescription filled at all (20-30% of newly prescribed meds are not filled), or getting it filled but not taking it the way your doctor instructed (such as skipping days/doses). Generally, people are more adherent to acute therapies (antibiotics, short-term use) versus long-term therapies for chronic conditions. In fact, according to the CDC, only about 50% of patients remain adherent to their medication therapy after the first six months of treatment. Typical reasons why member’s aren’t adherent to their medication: 27% - Poor health literacy 26% - Forgetfulness, disorganized 22% - Low motivation 14% - Financial barriers (surprisingly not one of the top 3 reasons!) 11% - Side effects Prescription medications are the primary treatment option for most disease conditions and illnesses. Remaining adherent to the prescribed regimen and recommended lifestyle changes can significantly slow or even stop the progression of the disease. Increased adherence will help reduce preventable high-cost claimants and even preventable deaths. The CDC cites that 125,000 people in the US die each year as the result of non-adherence, nearly the same number as those who die from strokes each year. And 70% of hospital admissions for medication are linked to non-adherence. Conditions where non-adherence may drive increased health care costs: Hypertension Coronary artery disease Congestive heart failure Anticoagulation therapy for stroke blood clot prevention Diabetes Asthma Depression Osteoporosis Epilepsy HIV/AIDS Multiple sclerosis Chronic myelogenous leukemia Ulcerative colitis Lack of medication adherence can lead to unnecessary disease progression and complications poor quality of life and even premature death. more ER visits longer hospitals stays increased absenteeism Sources: 1. Forbes.com, “ScriptDrop Leverages Blockchain To Combat $300 Billion Cost of Prescription Drug Abandonment”, October 9, Centers for Medicare & Medicaid Services, “NHE Fact Sheet”. 3. The New York Times, “The Cost of Not Taking Your Medicine”, April 17, 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Non-specialty conditions
Average per member per year costs Diabetes drug spend is more than double that of the next leading class. While there are many generic treatments, the majority of drugs filled are newer brands and insulins which continue to increase in cost. SLIDE OWNER: SARA THACKER CONTENT OWNER: DAN MOORE UPDATED: FEB 2018 MAIN POINTS: When looking at non-specialty (traditional) disease categories, the spend for prescriptions to treat diabetes is more than double that of the next category. Source: 1. Based on OptumRx commercial client data calendar year 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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11/8/2018 6:05 AM Specialty Drugs © 2016 Optum, Inc. All rights reserved.
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Specialty drugs continue to gain attention
Fortune The FDA Just Approved One of the Most Expensive Drugs in the World *Brineura treats a form of Batten disease, a nervous system genetic disorder. Brineura treatment costs $700,000 per year. April 28, 2017 Reuters AbbVie, Amgen Settlement Sets Humira U.S. Biosimilar Launch for 2023 *Amgen will begin selling its biosimilar of Humira in Europe on October 16, 2018. September 28, 2017 Washington Post FDA Approves First Gene Therapy for an Inherited Disease December 19, 2017 SLIDE OWNER: SARA THACKER CONTENT OWNER: SANDRA ERIKSON UPDATED: JAN 2018 The New York Times Humira’s Best-Selling Drug Formula: Start at a High Price. Go Higher. January 6, 2018 Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Dynamics impacting specialty trends
Specialty drug costs are predicted to exceed 60% of overall drug costs by Drug Pipeline Biotech Innovations 18 of the 46 novel drugs approved in 2017 for rare diseases. Annual cost for an orphan drug ranges from $140k to >$1M Price inflation is 10%/year Relief from biosimilars continues to be a slow process, with most approvals delayed due to legal obstacles 46 novel drugs were approved by the FDA in 2017; more than half were specialty Specialty pipeline classes to watch in 2018 include: Alzheimer’s Multiple Sclerosis Oncology (CAR-T) Migraine Cost Implications Individualized treatments: 7,000 rare/orphan diseases, most of genetic origin, affecting million Americans2 Initial cellular and gene therapies were approved in 2017; more than 1,000 gene therapies are currently in clinical trials3 SLIDE OWNER: SARA THACKER CONTENT OWNER: SANDRA ERIKSON UPDATED: FEB 2018 MAIN POINTS: When you combine the specialty drugs covered through the pharmacy AND medical benefit, specialty pharmacy accounts for nearly 60% of all drug spend. A combination of continued inflation and increased utilization (via new drugs or expanded indications) will drive this growth. The focus of many manufacturers is on innovation within the specialty space, whether developing easier dosing (oral instead of injectable), or a drug for an orphan/rare disease. With approximately 25m Americans living with a rare condition, there is a lot of opportunity available to manufacturers but the flip side being that rare conditions affect less than 200,000 individuals leaving a very small patient-base, which means the cost of the drug may be incredibly high to recoup the development costs (reference Brineura treats a form of Batten disease, a nervous system genetic disorder. Brineura treatment costs $700,000 per year). Novel drugs are often innovative products that serve previously unmet medical needs or otherwise significantly help to advance patient treatments. The active ingredient or ingredients in a novel drug have never before been approved in the United States. In 2017, CDER approved 46 novel drugs, either as new molecular entities (NMEs) under New Drug Applications (NDAs), or as new therapeutic biologics under Biologics License Applications (BLAs). oductsandTobacco/CDER/ReportsBudgets/UCM pdf The pipeline is filled with specialty drugs, and over half of the new drug approvals in the past three years have been specialty. There are many diseases with unmet treatments options, or the existing products are lacking in some respect. In the past few years, incredible advancements have been made for diseases where it seemed little hope remained. Five years ago, the treatments for chronic hepatitis C had a cure rate of only 40%. Today, all-oral treatment options exist that have up to a 100% cure rate. Similar stories can be told of other diseases as well. These advancements come with a hefty price tag, some for a short treatment period, and some for a lifetime. As manufacturers continue to develop new and better treatments for less-common conditions, specialty spend will continue in an upward direction. From Forbes, “Four Biotech Trends To Watch For In 2018” What are the most trending biotech related topics? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world. Answer by Praveen Tipirneni, CEO of Morphic Therapeutic Inc., on Quora: It can be hard to pin down definite megatrends in biotech, partly because progress can come from very unexpected places. For example, I remember helping my sister with her sixth grade science fair project in the mid-80s, entitled “Recombinant DNA and Advent of Gene Therapy.” After some setbacks a decade later, gene therapy research came to a halt. But 33 years after my sister’s science fair project, gene therapy is in the midst of a huge resurgence. Technological progress isn’t linear. We’ve recently seen other dramatic examples that would have read like science fiction just a few years ago, including the approval of a product to treat a rare childhood blindness. While some aspects of biotech are too difficult to call trends, there are four definite areas worth watching in the coming year. 1. Consumers As Customers The drug industry has gone through two eras so far: The era when doctors were the target customers, to the most recent era when payers (insurance companies) were the target. We’re now about to enter the third era—the consumer era. There are several forces driving this trend. More people are paying attention to the drug industry due to the rise in increasingly individual medicines. Let’s call it the “identifiable patient” phenomenon. A single child in trouble captivates the entire nation. Think of “Baby Jessica.” There is an outpouring of sympathy caused by the emotional nature an individual’s often heartbreaking story. Yet getting support for thousands of people suffering from an earthquake doesn’t get nearly the same response. In the drug industry, that response and personalized attention can work its way down to a single patient. Even now, some cancer treatments use drugs that are specifically made for one patient. And media coverage is honing in on these stories. The popular press also reported extensively this year on a 7-year-old boy with junctional epidermolysis bullosa—a devastating whole body blistering skin disease. After a bacterial illness caused him to lose two-thirds of his skin, a specialized gene therapy was used to grow compatible skin. This transformational story had “Baby Jessica” type impact. And we’re likely to see these biotech miracles accelerate. As drugs get more personalized—and stories about curing a child with a burdensome illness proliferate—it is capturing imaginations and piquing people’s interest in the sector. That type of individualized treatment is going to continue gathering steam in the coming years as “identifiable patients” are cured by the latest therapies. We will have more opportunities to create individual treatments as we gain a greater understanding of the human genome and our own biology. From Specialty Pharmacy Times, “ 3. New Specialty Products Our industry grows on the back of new drug approvals. Unfortunately, our industry often gets vilified because of the increasing cost of drug therapy. Drugs are frequently viewed as a commodity because there is a defined cost. The bigger picture, however, illustrates that new products are the best hope we have to improve outcomes and extend life. A look at the current pipeline shows that we should expect a flurry of drug approvals in key areas this year. If you are a specialty pharmacy, it is critical to get ahead of the curve and plan your operation around a new set of tools. Alzheimer disease affects over 15 million lives, yet we have few options to treat this debilitating condition. Keep an eye out for new products such as Biogen’s aducanumab, CNP520 from Amgen and Novartis, and AbbVie’s ABBV-8E12. Multiple sclerosis therapies continue to improve and have a long history of success, with Celgene’s ozanimod, Novartis’ siponimod, and Actelion’s ponesimod all looming on the horizon. For epilepsy, we have GW Pharmaceuticals’ Epidiolex and Zogenix’s ZX008 in the pipeline. Oncology continues to be the lead disease treatment provider in new drug approvals. Several products in the chimeric antigen receptor T-cell category are anticipated this year—including Novartis’ Kymriah (tisagenlecleucel) and Kite’s Yescarta (axicabtagene ciloleucel)—along with Incyte’s combination of epacadostat with anti–programmed cell death-1 products, Amgen’s Imlygic, Janssen’s apalutamide, Verastem’s duvelisib, and Loxo Oncology’s larotrectinib. From Wolters Kluwer, “In the News: When Will We See the Full Benefits of Biosimilars?” Monday, January 29, 2018 Since 2015, the healthcare industry has been tracking the progress and awaiting the wide-scale availability of biosimilars, a potentially more affordable alternative to biologic products. But the slow proliferation of these products continues to be the difficulty in getting them to market and navigating the many twists and turns of the regulatory and reimbursement process. These issues were discussed in the recent Drug Store News article, “Biosimilars poised to bring savings — if they get to launch”. The DSN article notes that, despite projections of billions of dollars in potential savings from biosimilar drugs as biologics lose patent protections, the hurdles these drugs have to overcome to make it to market delay release, eat into potential profits, and keep patients from having access to treatments that may be priced 10-15% lower than their reference drugs. Largely the obstacles these products face are legal, as biosimilars have to prove they are not violating the intellectual property rights of their reference products in order to secure approval. Litigation from the manufacturer of the reference product has impacted FDA approval and timing of release in several cases so far. Other issues that complicate the approval of biosimilars include: Naming conventions Interchangeability of biosimilars with their reference products Inconsistent payment rates for reimbursement The article quoted a RAND report: “We must put the patient at the center of the FDA’s guidance for naming and interchangeability to reduce confusion and unreasonable requirements that ultimately impact patient access.” Sources: 1. BriovaRx pharmacy book of business data U.S. Department of Health & Human Services, “FAQs About Rare Diseases”, updated Nov 30, American Society of Gene and Cell Therapy, “Gene and Cell Therapy FAQ's”. Thomson Reuters Cortellis database Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Tackling specialty medications
Defining the category Specialty drugs now account for more than half of all new drug approvals, and these drugs come in many forms. Only 1-2% of members have medical conditions that require the use of high-cost specialty medications. These members often need intensive, ongoing care coordination, support and intervention. Traditional treats: Colds and flu, allergies, headaches, common infections Specialty treats: Cancer, Hepatitis C, Rheumatoid Arthritis and M.S. THE BASIC DIFFERENCES Oral Pharmacy Benefit Injectable Medical & Pharmacy Benefit Traditional is used for basic health and wellness Specialty is used for complex, chronic conditions SLIDE OWNER: SARA THACKER CONTENT OWNER: SANDRA ERIKSON UPDATED: JAN 2018 MAIN POINTS: Specialty medications are used to treat chronic and complex disease conditions such as cancer, multiple sclerosis, and rheumatoid arthritis. Specialty conditions and treatments are different from traditional medication therapy in a number of ways: Specialty conditions affect a very small portion of the population, only about 1-2% of all members. These diseases can be physically debilitating and, often time, the member is suffering from other conditions as well (depression being one of the more prevalent comorbid conditions). They come in many forms including oral medications (which are generally covered through the pharmacy benefit), infusions (administered by a health care professional, often in a doctor’s office, and generally covered through the medical benefit), and injectable medications (which may be covered under the pharmacy and/or medical benefit depending on whether self or assisted administered). Adherence to medication therapy is extremely important to slow or stop the progression of the disease. Medications may have intolerable side-effects or my be difficult to administer which can often lead to decreases in medication adherence. The majority of specialty drugs are considered “biologics” which means they are made from living cells and more complicated to manufacture, making them very expensive. The average cost per month of a specialty drug is over $3,500 but some drugs can have a monthly price tag over $10,000 or more. Although specialty conditions affect only 1-2% of members, there are still significant areas of opportunity for new and better treatments. Pharma manufacturers are investing heavily in this space and half of all new drug approvals are for specialty drugs. New drug approvals is just one piece contributing towards the rapid growth of specialty pharmaceuticals. Many specialty drugs are called biologics meaning they are derived from living cells and difficult to manufacture, which makes them much more expensive than traditional drugs. The average monthly cost for a specialty medication is $3,776.1 Infused (Physician/ Nurse Administered) Medical Benefit Sources: 1. OptumRx commercial client data total cost per prescription, calendar year 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Drug development pipeline
40% of drugs in the pipeline are specialty drugs.1 Of these, over one-half are indicated for treating cancer. SLIDE OWNER: CHERYL BORNSTEIN - UPDATED: FEB 2018 CONTENT OWNER: FARRAH WONG MAIN POINTS: Spend on specialty pharmaceuticals has been growing at double-digit rates for several years and has been a significant contributor to overall trend. This ongoing growth of spending on specialty pharmaceuticals continues to be a challenge for clients. The robust specialty pipeline is one of the major drivers of this growth. New drugs typically increase utilization, and high prices at launch are common, particularly for innovative products offering new or more effective treatments. Hepatitis C treatments are a good example of this. According to the U.S. Food and Drug Administration, by 2018, could approve 200 new drugs and 138 new indications. Some of these anticipated launches will be first-in-class therapies. Some will increase category competition. All are likely to impact drug spend. The 1995–2005 period was the quintessential blockbuster drugs era for big pharma, so much so that two of the largest mergers in the industry were primarily driven by single blockbusters: Lipitor® in case of Pfizer-Warner Lambert and Celebrex® in case of Pfizer-Pharmacia. Some of the biggest-selling drugs in the industry's history – Lipitor®, Plavix®, Nexium®, Abilify®, Seroquel®, Diovan®, Crestor®, among others – were launched during this period. Further, most of the top-selling drugs during the 1995–2005 period were primary care, small-molecule therapies. During this period, the primary care therapy areas accounted for ∼80% of revenues for most of the big pharma portfolios. Over the past decade, however, big pharma has been shifting away from developing primary care and small-molecule medicines, and progressively tailoring their pipelines to specialty medicines and biologics targeted for high unmet medical needs. The trend is driven by several factors such as: better understanding of the underlying disease biology to develop targeted medicines; science and technology innovation for biologics; personalized medicines and companion diagnostics; favorable regulatory framework and development timelines for such medicines; and pricing and reimbursement. As mentioned above, big pharma has bought or pursued joint venture deals with biotech firms to stay viable. Over half of new drug approvals have been for specialty medications for the past two years, and the pipeline continues to show a heavy investment in the specialty space, particularly for cancer treatments. While there are still investments in the traditional space, we see a steady rise of the % of the overall pipeline represented by biologics. Currently at 45%. Many of the cancer treatments in development focus on a specific sub-type of cancer, like peripheral T-cell lymphoma, or cancers/tumors with a specific gene mutation. Treatments are also focusing on a person’s genetic-makeup (known as pharmacogenomics) which would allow a doctor to know whether a patient would respond and whether they are prone to adverse side effects. These types of therapies would allow doctors to tailor a chemotherapy regimen that would be most effective to an individual. ADDITIONAL RESOURCES: 1. Thomson Reuters Cortellis database Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Pharmaceutical pipeline landscape
Biologic (Specialty) Non-Biologic (Traditional) SLIDE OWNER: CHERYL BORNSTEIN CONTENT OWNER: FARRAH WONG UPDATED: January 2018 MAIN POINTS: In the last 10 years, there has been a significant shift in the pipeline from focusing on chronic conditions (eg, asthma, COPD, HTN) to niche specialty areas that target smaller populations. Traditional drugs are still more prevalent in all phases of the pipeline; however, the # of specialty medications make up a substantial portion this trend has steadily increased through the years ~ 1/3 of drugs pending FDA approval for biologic drugs Looking at the entire drug pipeline, cancer is the most prevalent indication in development, followed by inflammatory disease, then pain Note: See talking points for slide 37, Biologic Drugs in Development Cancer is the most prevalent indication in the pharmaceutical pipeline, followed by inflammatory disease, then pain1 1. Thomson Cortellis database. Accessed December 8, 2017. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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TRADITIONAL MEDICATIONS
Biosimilars overview Biosimilars will provide less expensive versions of branded biologic drugs in the same way generic drugs do for branded traditional drugs. 51 biosimilar clinical trials underway in the U.S.3 737 medications moving through various pipelines4 Easily replicated and mass-produced FDA approval process ~50 simple tests2 Chemicals can be copied quickly and inexpensively TRADITIONAL MEDICATIONS Made in living cells = identical copies impossible FDA approval requires ~250 complex tests2 Complex: Take longer and cost more to duplicate BIOLOGIC MEDICATIONS SLIDE OWNER: CONTENT OWNER: FARRAH WONG UPDATED: FEB 2017 Biosimilars will essentially be the “generics” of specialty drugs. With specialty costs growing at a rapid pace, introduction of biosimilars would help create competition and provide some moderate price relief. However, manufacturing of biosimilars will be more difficult than simple-structure compounds found in traditional medications for many reasons including (1)they are made in living cells which increases the complexity in manufacturing, and (2)they are sensitive to variations in the manufacturing process meaning that each manufacturer would produce a slightly different product unique to the process and environment used. With known variability, an absence of final regulatory guidelines on how biosimilars will be interchanged with existing brands, and the higher cost and time investment needed for biosimilar development, some manufacturers are in a holding pattern. • Highly similar: The proposed biosimilar product meets the statutory standard for analytical similarity and the results of the comparative analytical characterization permit high confidence in the analytical similarity of the proposed biosimilar and the reference product, and it would be appropriate for the sponsor to conduct targeted and selective animal and/or clinical studies to resolve residual uncertainty; and • Highly similar with fingerprint·like similarity, which seems to be the gold standard of similarities: The proposed Biosimilar product meets the statutory standard for analytical similarity based on integrated, multi-parameter approaches that are extremely sensitive in identifying analytical differences. The results of these fingerprint-like analyses permit a very high level of confidence in the analytical similarity of the proposed biosimilar and the reference product, and it would be appropriate for the sponsor to use a more targeted and selective approach to conducting animal and/or clinical studies to resolve residual uncertainty and support a demonstration of biosimilarity. 2-3 years Development time $2-5 million Development costs >5 years Development time $100 million Development costs 15% expected average savings1 with biosimilars vs. 80% with typical generics. Sources: 1.Ventola CL. Evaluation of Biosimilars for Formulary Inclusion: Factors for Consideration by P&T Committees. P T Oct; 2. Buildingciologics.com. Manufacturing Matters with Biological Medicines: How Are Biological Medicines Different from Other Medications? Thomson Reuters: Cortellis online database. 2016; 4. Biosimilarspipeline.com. Biosimilars/Biobetters Pipeline Database – Top Level Data (3/8/2016). Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Upcoming biosimilar launches
Top spend medications anticipated to launch as a biosimilar. BIGGEST POTENTIAL BIOLOGIC CURRENTLY IN DEVELOPMENT Humira® is the #1 drug by total spend. Biosimilar versions (Amjevita™ and Cyltezo®) were approved in 2016 and 2017. One version is likely to launch in January 2023. Brand Name Therapeutic Use 2016 U.S. Sales* Estimated Launch Date Humira® Inflammatory Conditions $10.4B Q Enbrel® $5.8B Q Rituxan® Cancer $4.0B Q Avastin® $3.0B 7/2019+ Herceptin® $2.6B Epogen/Procrit Anemia $2.0B SLIDE OWNER: SARA THACKER CONTENT OWNER: SANDRA ERICKSON UPDATED: JAN 2018 MAIN POINTS: One of the most highly-anticipated new drugs in recent years recently took a huge step towards public availability. In September, the U.S. Food and Drug Administration (FDA) approved Amjevita™ (adalimumab-atto) as a biosimilar to Humira® (adalimumab) for multiple inflammatory diseases.1 Both Humira and Amjevita are aimed at treating conditions like rheumatoid arthritis, psoriatic arthritis, and plaque psoriasis.1 Amjevita in particular has been eagerly anticipated. The reason is because this drug is meant to compete with Humira, one of the biggest-selling drugs in the world. Rheumatoid Arthritis is a monster drug category, accounting for 25% of all specialty drug spending. Humira alone takes up one quarter of those costs Currently, Humira costs ~$1800 to $2400 per month before insurance coverage. Amjevita has settlement agreement allowing launch in January Cyltezo doesn’t have a settlement agreement – launch likely not to happen until at least 2022. BI is conducting an interchangeability study for Cyltezo with results expected in H Sandoz has also filed a biosimilar for Humira; PDUFA expected 11/2018. Apotex, Sandoz, Coherus, Mylan – all received CRLs for Neulasta. Pfizer received a CRL for Retacrit (biosimilar for Epogen/Procrit) in June 2017 – no information about response yet. Sandoz and Teva/Celltrion have both submitted biosimilar Rituxan. Herceptin – first biosimilar, Ogivri, approved 12/1/2017 – settlement agreement allowing launch in Q Teva/Celltrion, Amgen/Allergan, Pfizer and Samsung Bioepis/Merck have all filed biosimilar Herceptin – PDUFAs from March thru August 2018. Biosimilar Enbrel (Erelzi™) was approved on 8/30/2016. Biosimilar Herceptin (Ogivri™) was approve d on 12/1/2017. Biosimilar Avastin (Mvasi ™) was approved on 9/14/2017. Biosimilar Epogen/Procrit (Retacrit) was approved May 2018. Sources: * BioMedTracker (internet database). Updated periodically. Sagient Research Systems, Inc. Available by subscription at: Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Biosimilar launch delays
Enbrel and Humira will likely be protected for several more years Enbrel biosimilar availability in the US, depending on outcome of pending litigation (final court decision expected Q4 2018) Primary patent expires, secondary patents approved in and 2012 may allow 16 more years of protection Enbrel® approved by FDA 1998 2003 2012 2016 2018 2023 2028 $6.3 B Humira® approved by FDA Primary patent expires. Patent litigation results in a delay of biosimilars in the US until 2023. Expected date of Humira biosimilar availability in the US Biosimilar version expected to launch in Europe. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum. 34
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Biosimilars Current state Currently in the Marketplace
Biosimilar for Neupogen Manufacturer: Sandoz Physician administered Zarxio Biosimilar for Remicade Manufacturer: Pfizer Inflectra Manufacturer: Merck Renflexis Biosimilar for Enbrel Manufacturer: Sandoz Self Injected Erelzi Biosimilar for Humira Manufacturer: Amgen Self Injected Amjevita Biosimilar for Remicade Manufacturer: Pfizer Physician administered Ixifi* Approved by FDA, but not in Marketplace CONTENT OWNER: FARRAH WONG UPDATED: JAN 2018 MAIN POINTS: The Average Selling Price (ASP) environment in the B&B space presents unique challenges for biosimilars entering the market where lower prices are a disincentive from a reimbursement perspective. The delays for the two self-administered products (Erelzi and Amjevita) are evidence of one of the many barriers to entry for biosimilars – another term that’s been coined in the age of biosimilar launches – the “Patent Dance”. Currently, estimates range from and beyond before either of these products will be launched commercially. Amgen has signed a settlement agreement with AbbVie allowing launch of Amjevita on 1/31/2023. Mylan has signed a settlement agreement with Genentech allowing launch of Ogivri sometime in Q or later. Amgen/Allergan likely to launch Mvasi some time in July 2019 or later. Ifixi by Pfizer likely will not launch in the U.S. because Pfizer is currently promoting Inflectra. Biosimilar for Humira Manufacturer: Boehringer Ingelheim Self Injected Cyltezo Biosimilar for Herceptin Manufacturer: Amgen Physician administered Ogivri Biosimilar for Avastin Manufacturer: Amgen/Allergan Physician administered Mvasi * Pfizer likely will not launch Ifixi in the U.S. Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Biosimilars Barriers and actions Barriers Actions
Estimated > $225M cost to bring to market Bitter patent disputes Perverse reimbursement construct in the buy-and-bill environment Lack of Interchangeability legislation Manufacturers are launching biosimilars with incomplete market strategies Branded products can easily leverage additional rebates to protect payer access and market share Note: On barrier removed - the Supreme Court ruled in 2017 that biosimilar manufacturers can launch commercially upon approval vs. the 180 day delay. SLIDE OWNER: SARA THACKER CONTENT OWNER: KENT ROGERS UPDATED: JAN 2018 MAIN POINTS: Along with the legal challenges of the “Patent Dance”, additional barriers exist for the biosimilar market which have a direct impact on the potential for market success with these products. The investment required to research and develop these agents is well into the hundreds of millions – that’s just to get to FDA approval. Once a company achieves FDA approval, the patent challenges continue in earnest and can be prolonged with continuous appeals and patent claims that present an overwhelming obstacle course for attorneys. A game-changing component of the legislation surrounding biosimilars is the notion of interchangeability. This is essentially a pathway for comparing pricing among biosimilars (not the innovator) in a reference pricing construct. If a manufacturer chooses to enter the biosimilar market with a disruptive pricing strategy, they could drag down the reference price across all biosimilars – furthering the disincentive for providers in the buy-and-bill space and putting significant downward pressure on the profitability for the manufacturer. In the end, all of these challenges require the biosimilar manufacturers to have a solid patient, provider, payer and channel strategy to launch successfully into this market where entrenched incumbent competitors will be tough to displace. Therefore, OptumRx is continuing to engage with all biosimilar manufacturers in an effort to determine which company has the best opportunity for success based on a viable commercial strategy that includes all four stakeholder groups. Actions OptumRx is making a substantial commitment to know and understand the abilities and competence of companies bringing biosimilars (Sandoz, Amgen, Pfizer, Merck) across what we call the biosimilar pillars for success: Patients Strategy, Provider Strategy, Payer Strategy and Channel Strategy Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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Cellular and gene therapy
Cellular Therapy Gene Therapy Cancer cells detected; immune system doesn’t view them as bad Step 1 Healthy gene prepared within a lab Healthy T-cells taken from cancer patient and reprogrammed Gene commonly inserted into an inactive virus, which carries the gene into a cell Step 2 Altered cells can now recognize and destroy cancer cells Healthy gene injected into patient Step 3 SLIDE OWNER: SARA THACKER CONTENT OWNER: FARRAH WONG UPDATED: JAN 2018 CAR-T Chimeric antigen receptor (CAR) T-cell therapy is a novel type of immunotherapy. CAR T-cell therapy involves engineering a patient’s own immune cells to recognize and attack tumor cells. A patient’s T-cells are collected through a specialized blood draw called leukapheresis and transferred to a manufacturing facility. The T-cells are genetically engineered to produce special receptors on their surface called CARs. CARs are proteins that allow the T-cells to recognize a specific protein on tumor cells. These modified cells are then transferred back to a treatment center where they are intravenously administered to the patient. The T-cells multiply in the patient’s body and, with guidance from their engineered receptor, recognize and kill cancer cells. Gene therapy Gene therapy is an experimental technique that uses genes to treat or prevent disease. In the future, this technique may allow doctors to treat a disorder by inserting a gene into a patient’s cells instead of using drugs or surgery. Researchers are testing several approaches to gene therapy, including: Replacing a mutated gene that causes disease with a healthy copy of the gene. Inactivating, or “knocking out,” a mutated gene that is functioning improperly. Introducing a new gene into the body to help fight a disease. *infographic in slide refers to this approach* Altered cells infused into patient Step 4 Virus releases gene into dysfunctional cell Confidential property of Optum. Do not distribute or reproduce without express permission from Optum.
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