Kent RogersVice President, Managed MarketsAcorda Therapeutics

Pharmaceutical Pricing Strategies & Tactics: What’s

the Plan?

Agenda• Overview of Current Market

Trends• Analysis of Value Proposition• PPACA Legislation Overview • Wrap-Up/Questions

The Public/Payer Perception of Pharmaceuticals

Managed Markets Increasing Influence Over Corporate Revenue

Source: Health Strategies Group

Pharma Org Structure 1990’s – 200(7)

CEO

CFO CMO COO

Marketing

Managed Markets

Sales

General Counsel

CEO

CFO CMO COO

Marketing Sales Managed Markets

General Counsel

Pharma Org Structure 2009 & Beyond

Structure of Managed Care Departments Before 2000

Managed Markets

National MCOs/PBMGPOs/

Hospitals

Regional MCOs/PBMs Payer Contracting

Government Affairs Product Pricing

Structure of Managed Markets Today

Managed Markets

National MCOs/PBM GPOs/Hospitals

RegionalMCOs/PBMs

Payer Marketing

Trade & Distribution

Payer Contracting

Product Pricing HEOR

Business Development

Public Policy

Pharma’s Previous Approach to Payer Challenges

Questions to address…• What Current Market Factors Are

Impacting Price/Positioning?

• What Constitutes A “Value Proposition”?

• How Will The PPACA Legislation Affect Payer Strategy?

10 Mega Trends 1. M & A Continues

– Merck/Schering Plough– Pfizer/Wyeth– Roche/Genentech– Astellas/OSI– Celgene/Abraxis– Sanofi/Genzyme– Pfizer/King Pharma– Teva/Cephalon– Johnson & Johnson/Synthes– Takeda/Nycomed

2. Rise in Risk Evaluation & Mitigation Strategy 75 in 2010 vs. 21 YTD in 2011 (April)

3. The Impending “Patent Cliff” 100 Billion by 2016

4. Estimated Specialty Drug Pipeline 600 Molecules

5. “Designer Therapies” Biomarkers Specific Patient Populations

6. Biosimilars More questions than answers Exclusivity, pricing structure, etc.

 

10 Mega Trends

7. Co-Pay Mitigation Programs On the Rise & Under Fire

8. Outcomes-based or Risk Share Contracting

Cigna & EMD Serono MS Contract9. Patient Protection & Affordable Care Act

(PPACA) New Costs to Industry started in 2011

10.Accountable Care Organizations Scope & Relevance?

10 Mega Trends

What’s the “value proposition”?:

How do manufacturers price products?

TooHigh

TooLow

Offensive!

$$ Lost

Gov’t Intervention – Precedent?Is KV Pharmaceutical A Flat-Out Evil Company?

Check out the lead of this story in the Pittsburgh Post-Gazette about a drug that is going from costing $10 a dose to $1,500:The revelation this week that the cost of a popular drug to help prevent preterm labor is going to go up 100 times its current price has stunned pregnant women, their doctors and pharmacists in Western Pennsylvania. ”I’m ready to have a heart attack,” Janice Watkins, a Pittsburgh resident who is pregnant and has been taking the generic drug known as 17P, said Thursday after she learned of the price increase from her doctor’s office. “I’m nervous now because I have to go home and call my insurance company to see if they’ll cover me.”

Pressure mounts on KV Pharmaceutical to lower drug cost BY JIM DOYLE • jdoyle@post-dispatch.com > 314-340-8372 STLtoday.com | Posted: Wednesday, March 30, 2011 12:10 am |

Trying to fend off an onslaught of criticism, KV Pharmaceutical Co. officials met Tuesday with national medical advocates bent on persuading the Bridgeton-based drug marketer to reduce its $1,500 price tag for a prenatal drug.The medical director of the March of Dimes and top officials of the American Academy of Pediatrics and the American College of Obstetricians and Gynecologists were among those who conferred privately in Washington with KV representatives to discuss the pricing of Makena, an injectable drug that doctors have prescribed in recent years to prevent pre-term births.The meeting, which extended late into the afternoon, occurred days after March of Dimes President Jennifer Howse threatened in a March 23 letter to sever its partnership ties with the drug company unless KV's marketing arm, Ther-Rx Corp., significantly reduces the list price of Makena, among other things. The company has donated $1 million to the March of Dimes in the past decade.The Food and Drug Administration on Feb. 4 awarded KV Pharmaceutical the exclusive marketing rights to sell the drug, which up to this time has been offered by chemical compounding pharmacies for about $15 per injection. KV wants to mark up its FDA-approved version about 100 times that price, which would mean a full course of treatment would run between $25,000 and $30,000.

UPDATE 2-KV Pharma cuts price of premature birth drugFri Apr 1, 2011 2:13pm EDT * Cuts injection prices 55 pct* Will offer supplemental rebates along with list price

However, industry groups expressed disappointment with the price cut, saying it was not enough to bridge the gap between the branded drug and similar versions compounded by specialty pharmacies.The company, which has faced strong opposition since the drug price was announced, cut the list price of Makena by nearly 55 percent to $690 per injection."The cost for each pregnancy remains about $7,000 compared with $300 for the compounded drug," said George Saade, president of the Society for Maternal-Fetal Medicine, a nonprofit group of obstetricians and gynecologists."Makena has not been shown to be more effective or safer than the available compounded drug."Industry group America's Health Insurance Plans, which had urged the U.S. Food and Drug Administration to provide clearer guidance on the availability of the cheaper compounded drugs, called Friday's price cut "a modest step."The drug had been available for $10-$20 per injection, but reportedly rose to $1,500 after the Missouri-based company's version was granted orphan status. [ID:nL3E7EI28M]The nonprofit organization for pregnancy and baby health, March of Dimes, ended its current contract with K-V and called K-V's handling of the Makena launch and the list price "highly unsatisfactory and unacceptable."

March Of Dimes Ends Relationship With KV Pharma By Ed Silverman // April 1st, 2011 // 11:06 am

Despite the decision today by KV Pharma to lower the price of its Makena drug for premature births by 55 percent - to $690 (see this), the March of Dimes has ended a decade-long corporate relationship in which the drugmaker contributed some $1 million to help support various activities, such as a neo-natal family intensive care program.

Gov’t Intervention – Precedent?May 25, 2011, 5:16 PM ET

Lawmakers Aren’t Laughing About Avanir’s Price for By Katherine Hobson

Lawmakers are inquiring about the price tag of Nuedexta from Avanir Pharmaceuticals.

That drug is for a condition called pseudobulbar affect — severe involuntary, inappropriate emotional outbursts, i.e. uncontrollable weeping or hysterical laughing. The problem is associated with neurological diseases including Lou Gehrig’s disease, MS, Alzheimer’s disease and traumatic brain injury…

Avanir: Congress Gripes About Drug PriceBy Adam Feuerstein 05/25/11 - 09:43 AM EDT

WASHINGTON. D.C. (TheStreet) --Avanir Pharmaceuticals(AVNR) has been asked to justify the pricing of its newly launched drug Nuedexta by four members of Congress.

The U.S. Senate Special Committee on Aging, chaired by Wisconsin Democratic Sen. Herb Kohl, sent a letter to Avanir Wednesday in which it expresses concern about the high price of Nuedexta, a drug used to treat pseudobulbar affect, a neurological condition that causes involuntary emotional outbursts. Avanir shares fell 6% to $4.35 in early Wednesday trading.

Andrew Witty (CEO of GlaxoSmithKline PLC) comment in a press conference - Annual Meeting of the European Federation of Pharmaceutical Industries and Association.

"I think that the fact that you are seeing more drugs being approved by cost-effectiveness agencies such as England's National Institute of Health and Clinical Excellence[NICE] demonstrates to us that pharmaceutical companies are much more flexible then they have ever been in the past to create win-win pricing solutions. Companies are prepared to take more risks in putting the price for their reward at stake against the performance of the medicine.”

The GSK chief - claimed that new, innovative approaches to drug pricing, such as the value-based-pricing model being designed in the U.K, are appearing as a result of industry's having convinced E.U member states that slashing the pharmaceutical budget is no longer a reasonable way to control health care expenditures Source: NICE Will Have Key Role in Value-Based Pricing Under U.K Healthcare Reforms,''The Pink Sheet” DAILY, May 11, 2011.  

Inelasticity of Price PointsThresholds may be evident when the price

goes above $400 and $700 WAC per month.

12%12%12%12%

79% 56%56%56%

79%86%

21%32%32%

12%

2% 9%

32%

$1,083$900$700$600$400$200

2nd tier

3rd tier

4th tier

Step 1: Determine the perceived value of the product

• Clinical advance (dosing, delivery, etc.)

• Improved Safety• Improved Efficacy• Unmet Medical Need

Vested interests motivating perceptions

Brand Value• Product Attributes

(efficacy, safety, MOD)

• Unmet Need– Untreated Disease– High Volume Market

• Perceived Benefits– Clinical advance

Economic Value• Cost Effectiveness

– RxEcon Studies

• Cost Savings– Medical Cost Offset

• Budget Impact– PMPM Increase

PAYERSPHYSICIANS

Two Approaches to Pharmaceconomic Modeling

• Establish Predictability of Cost Outlay– Budget Impact Analysis

• Market Share Changes• Drug Volume/Market Penetration

• Provide Evidence for Potential Cost Offsets– Pharmacoeconomic Analysis

• Cost Minimization• Cost Effectiveness• Cost Utility• Cost Benefit

Step 2: Consider Market Factors• Traditional Customers

Changing Structure• Impact of Market Access

– Tier Placement = Market Share?• Distribution Models

– Wholesaler PPD and FFS rates on rise

– SPPs becoming more aggressive

3. They Expand Into New Lines of BusinessTraditional Classes of Trade Becoming Blurred…

MCO

SpecialtyPharmacy

PBM

Wholesaler

MCO

PBM

Retail

Wholesaler

PBM

Retail

PBM

SpecialtyPharmacy

Is Tier Placement a Function of Market Share Success?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Product A Product B Product C

2nd Tier Access Mkt Share

Focus on Net Revenue vs. Access At All Costs

21%

15%

5%

0%

5%

10%

15%

20%

Tier 2 Tier 3 Tier 4Gross $210.00 $150.00 $50.00Rebates $52.50 $0.00 $0.00Net $157.50 $150.00 $50.00

Focus on Net Revenue vs. Access At All Costs

20%

16%

5%

0%

5%

10%

15%

20%

Tier 2 Tier 3 Tier 4Gross $200.00 $160.00 $50.00Rebates $50.00 $0.00 $0.00Net $150.00 $160.00 $50.00

The Supply Chain Has Become Multi-Layered

WarehousingRetailChain

SpecialtyDistributors

Chain Drug StoreMail OrderPharmacy

Food/Mass MerchDrug Store

IndependentDrug Store

HHC

Long Term CareAcute Care

Hospital PharmacyHMO

Government

Physician

Clinic

SPP

Manufacturer D

istribution Centers

Patient

Health Care Professional

Full LineWholesalers

Mail Medical Groups

VA & DoD

Prisons

Bergen Brunswig Drug Co.Trent Drugs Ltd.Alco Health Services Corp.C.D. Smith Healthcare Inc.General Drug CompanyJames Brudnick Company Inc.Walker Drug CompanyAlbers, Inc.Coleman, Meadows, Pate Drug Co.Skyland Medical Supply, Inc.Gulf DistributionNewbro Drug CompanyEagle Drugs Inc.J.M. BlancoDr. T.C. Smith CompanyDurr Drug Company, Inc.Owens and Minor Inc.South Bend Drug Co.

F. Dohmen & Co.Par MedBindley Western Drug CompanyTennessee Wholesale DrugAlabama Wholesale DrugSuperior Wholesale DrugKendall DrugJ.E. Gould & Co.Behrens, Inc.Humiston-KneelingWhitmire Distribution Corp.Solomons Company Inc.Chapman Drug Co.

D&K Healthcare ResourcesMedis Health & Pharmaceutical ServiceV.F. Grace, Inc.FoxMeyer CorporationHarris Wholesale

McKesson Drug Company

Cardinal

AmeriSource Bergen

0 200 400 600 800 1,000 1,200

F. Dohmen

Walsh Dohmen

Smith Drug Co.

H.D. Smith Wholesale Drug Co.

D&K Wholesale Drug Inc.

Kinray Inc.

Morris + Dickson Co. Ltd.

Sales $ Millions

AmeriSource Bergen

Cardinal

McKesson Drug Company

Consolidation Brings Pricing Disadvantages

The Retail Channel Shortfall

Use of Specialty Pharmacies by Insurance Plans Nears 100%

Source: EMD Serono Injectibles DigestTM 5th Edition

What’s the right price?

Designer Therapies/BiomarkersMedicare, SelectHealth Create CoveragePolicy for Test to Identify Tumor OriginWith health plan spend in oncology care accelerating, more payers are takingsteps in managing this therapeutic category to make sure that the right patient gets theright drug at the right time. But getting the right drug can be a problem when it’s notclear exactly what kind of cancer is causing tumors. Recognizing this, Medicare andSelectHealth, the health insurance unit of Intermountain Healthcare, recently createdcoverage policies for Pathwork Diagnostics, Inc.’s Pathwork Tissue of Origin Test.

Healthcare Reform Impacts?

Key Organizations Driving Quality

PQA

AQA

AHRQ

NQF & SupplierCouncil

QIOs

CMS

AHIP

NCQA(& HEDIS)

Quality

Healthcare Reform Highlights• Increase in Federally Mandated

Rebates 15.1% to 23.1%– Medicaid Eligibility expanded

• Medicare Part D Donut Hole 50% share

• PHS Program participation will expand Federal Ceiling Price legislation

• Accountable Care Organizations

Medical Loss Ratio (MLR)• Under the Affordable Care Act (ACA), insurers are

required to disclose the amount of premium dollars on care and coverage

• Small health plans required to have an 80% MLR

• Large health plans required to have an 85% MLR

• Definition of plan based on number enrolled consumers

• In 2012, Insurers that do not meet requirements will provide rebates to consumers (based on 2011 data)– 2012 rebates paid to consumers in 2013 MEETING NAME HERE

Summary

Questions to address…• What Current Market Factors Are

Impacting Price/Positioning?– Rise in Specialty Products– Pharma Embracing Reimbursement Strategy

• What Constitutes A “Value Proposition”?– Predictability for 1st in class products– Cost Offset for all products

• How Will The PPACA Legislation Affect Payer Strategy? – Government is THE PAYER– Outcomes vs. Rebates

Questions (cont.)• How will payers determine what is

considered a specialty product?• Why do some payers put specialty

products in the 2nd tier while others do not?

• How will government intervention (PPACA) affect formulary contracting?

• How will pharma manufacturers produce innovative products if the investment is above the market potential?

• How will a manufacturer make Business Development decisions in light of the evolving payer landscape?