1. Ensuring Americans Access to Affordable Medicines
May 17, 2019

2. Policy Issue
High-cost treatments for conditions such as cancer and Hepatitis C have proliferated in recent years. They have been difficult for most health systems to pay for, but this has been particularly challenging in the safety net systems such as Medicaid programs. Recently, there has been a recommendation for drug companies to license their Hepatitis C drugs directly to the federal government in order to cut down on cost for these programs.
As science policy advisors to Congress, how would you advise they act on these recommendations?

3. Current Public Spending on Hepatitis C DAAs

4. Pricing Implications on U.S. Healthcare
Over 85% of Patients Diagnosed with Chronic Hepatitis C in the U.S. Are Currently NOT Receiving Treatment (source: I-MAK)

5. Landscape

6. Policy Options Proposal Budgetary Impact Short Term Benefit
Long Term Benefit
Administrative Feasibility
Political Feasibility
Equity/Social Feasibility
Legality
Status Quo
Low
High
Licensing/
Bidding
Medium
High?
Changing IP Laws
Low-Medium
Dropping Price After R&D Recouped
Value-Based Pricing
Medium-High

7. Drop Prices After R&D Recouped
Drug manufacturers set initial price.
Once R&D costs are recouped, prices then are dropped to a fair-return price.

8. Over long-term, likely high benefit.
Cost of drug set by Gilead and others not based on R&D, but rather what the market would bear.
Cost for drug R&D estimated to be $2.6 billion (including capitalized costs).
$1.1 billion accounts for preclinical R&D (completed by Emory/Pharmasset)
Between 2014 and 2015, global sales of Sovaldi and Harvoni (combination) totaled $31.5 billion.
In 21 months after approval, $20.6 billion in the US alone.
“R&D” recouped within 18 months.

9. “Gilead pursued a calculated scheme for pricing and marketing its Hepatitis C drug based on one primary goal, maximizing revenue.”
“There was no concrete evidence in s, meeting minutes or presentations that basic financial matters such as R&D costs… factored into how Gilead set the price.”

11. Administrative Feasibility Political Feasibility
Proposal
Budgetary Impact
Short
Term Benefit
Long Term Benefit
Administrative Feasibility
Political Feasibility
Equity/Social Feasibility
Legality
Status Quo
Low
High
Licensing/
Bidding
Medium
High?
Changing IP Laws
Low-Medium
Dropping Price After R&D Recouped
Value-Based Pricing
Medium-High
Low budgetary impact
Development of a regulatory structure to monitor drug prices and profits
Require manufacturers to provide cost-related data

12. Value-Based Pricing
Definition: setting a price based on perceived or estimated value of a product to consumer
For drug manufacturer, pricing medication based on value derived from patient/cost-bearer (i.e. insurance company)
this is a ‘pay for performance’ model for pharmaceutical companies
”value” can be calculated many ways

13. Walking Through Value-Based Pricing
So how do we calculate “value”?
Some considerations:
Consumer Quality of Life (QOL)
Burden-of-illness (BOI)
Avoidance of other treatment
Wider societal benefit
Convenience
There is no validated formula as of yet.

14. Walking Through a Possible Calculation
Sovaldi: How much is it worth?
Numerous ways to calculate.
Will choose patient years of life added method.
(Average # of quality years saved per person treated) X
(Number of people treated) X
(Average cost of a human life-year) =

15. Walking Through a Possible Calculation
Sovaldi: How much is it worth?
Numerous ways to calculate.
Will choose patient years of life added method.
HOW MUCH IS YOUR LIFE WORTH PER YEAR?
(Life expectancy of average American - Life expectancy with Chronic Hep C) X
(Number of people with Chronic Hep C) X
(Average cost of a human life-year)
( ) X
(3,000,000) X
(Average cost of a human life- year) =

16. Pricing a Human Life
According to the National Institute for Health and Care Excellence (NICE) in United Kingdom, the value of a good-quality year of life is £20,000-30,000.
Varies from country to country, sometimes as low as $9,000.
But as Americans, our lives are worth a lot.
So let’s say $50,000

17. Walking Through a Possible Calculation
Sovaldi: How much is it worth?
Numerous ways to calculate.
Will choose patient years of life added method.
(Life expectancy of average American - Life expectancy with Chronic Hep C) X
(Number of people with Chronic Hep C) X
(Average cost of a human life-year)
(45,000,000) X
($50,000) =
$2,250,000,000,000
750K per person

18. Proposal
Budgetary Impact
Short
Term Benefit
Long Term Benefit
Administrative Feasibility
Political Feasibility
Equity/Social Feasibility
Legality
Status Quo
Low
High
Licensing/
Bidding
Medium
High?
Changing IP Laws
Low-Medium
Dropping Price After R&D Recouped
Value-Based Pricing
Medium-High

19. Brief History of Patent Origins
Concept of patents originated in Greece in the 15th century in order to protect the glass-blowing industry
First patent was granted in the US in 1790
Patent laws were created to encourage and reward innovation and research
Patent laws were not intended to be used when human lives were at stake

20. Prescription Drug Patent Laws
Patents and other forms of intellectual property are a key driver for high drug prices.
10% of all prescriptions dispensed in the US are brand-name, but they account for 72% of drug spending.
Median length of post-approval market exclusivity is 12.5 years for commonly used drugs and 14.5 years for novel drugs (Wang et al, 2015).

21. Current IP Landscape in the US for Prescription Drugs
-Extending patents causes a further delay in generic drugs entering the market
-extensions can be achieved by changing its coating, formulation (ex. isomers),method of administration, indications for drug

22. Possible Changes
“One and Done” - not allowing for patent extensions or patent thickets.
Change criteria for patents or extensions by not allowing changes that are not truly novel, therapeutically beneficial, or clinically relevant.
2. India - policy requires that a company who wants to extend a patent for a change, they show that the change enhances effectiveness

23. Changing IP Laws Proposal Budgetary Impact Short Term Benefit
Long Term Benefit
Administrative Feasibility
Political Feasibility
Equity/Social Feasibility
Legality
Status Quo
Low
High
Licensing/
Bidding
Medium
High?
Changing IP Laws
Low-Medium
Dropping Price After R&D Recouped
Value-Based Pricing
Medium-High

24. Licensing Medicines to Government and Bidding
5 years after introduction of new Hepatitis C medications, only 15% of the estimated population of more than 3 million individuals with HCV infection in the US had been treated.
Is there a plan that would allow for more people to be treated and possibly lead to eradication of Hepatitis C?

25. Rank in top 12 of high HCV infection rates, low median incomes, and high percentage of individuals within 125% of the federal poverty level
Net present value - based on current value, how much they would expect to make.
Prices will decrease over the next decade but sales also likely to decrease thus overall value decreases

26. Licensing/Bidding
The companies would bid and whoever offers the best prices would win the subscription
Government would pay a subscription fee in exchange for access to HCV therapy.
Contract would include number of years for subscription, amount to be paid (up front or annually)
One of the goals would be to streamline statewide efforts for elimination of HCV.
Other aspects of the agreement would also include public health performance targets.
Payer must be able to predict volumes in order to be able to identify lump sum amount that would yield adequate benefits (cost-savings) over traditional method.

27. Case Study: Australia and Chronic HCV
government officials negotiated contract
Paid 1 billion Australian dollars ($766 million US dollars) over 5 years to have unlimited amount of HCV medication
Between March 2016 to March 2017: 38,470 people were treated for hepatitis C.
More than tenfold increase on the approximately 3000 people treated per year during the decade prior to the new program.
Partnered with the following companies currently providing the HCV medications: Gilead, AbbVie, Bristol Myers Squibb and Merck
Patients have access to the medicine regardless of disease state, drug use or treatment history

28. The New England Journal of Medicine
Similarly for United States, treating about 240,000 Medicaid patients overthrew next 12 years — 10 billion dollars in revenue over the 12 years. Essentially 6.5 billions dollars today. So the option would be bidding to be able to receive that money right now.

29. Our recommendation Proposal Budgetary Impact Short Term Benefit
Long Term Benefit
Administrative Feasibility
Political Feasibility
Equity/Social Feasibility
Legality
Status Quo
Low
High
Licensing/
Bidding
Medium
High?
Changing IP Laws
Low-Medium
Dropping Price After R&D Recouped
Value-Based Pricing
Medium-High
Short term benefit - more people have more access to the medication
Long term benefit - more access and potential eradication of hepatitis C
Administrative feasibility - it would take some coordination to determine the bidding price, review the bids and determine one
Political feasibility - some may have a problem because may disagree with all having access to the medication.
Social - general population would want hepatitis eradicated
Legality - no rules broken, would not be forced on anyone but would be able to have the access to the medication.

30. Questions?
Thank you!