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CONFIDENTIAL—NOT FOR FURTHER DISTRIBUTION

Value of Emerging Therapies:Industry Perspective on Valuing New Therapies

Laurel Todd

Vice President, Healthcare Policy & Research

ltodd@bio.org

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Financing Biotechnology: Biotech Innovation is Expensive & Risky

• Developing new treatments and cures is challenging.

• Success is measured in years andbillions of dollars.

It takes more than 10 years and more than $2.6

billion to research and develop a new medicine.

Source: Tufts Center for the Study of Drug Development (CSDD)

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Clinical Trials

1–2 years6-9 years

1 FDA

Approval

3-5 years

FDA

Review

100

1000s molecules

10 6 2 1

Discovery

Hypothesis

In vitro testing

In vivo testing

Source: BIO Industry Analysis, January 2016

Drug Development Timeline

Ph II Ph IIIPh I

10% probabilityof approval from

Phase I

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Biotech Funding Sources

Preclinical Phase I Phase II Phase III Market

Angels, Incubators

Patient Groups/ Foundations

Family Offices

Venture Capital/Corporate VC $3.7 B

R&D Collaborations with Pharma/Biotech $3.5 B

Follow-On Offerings $2.7 B

IPOs $1.0 B

Average Total Annual Funding of

R&D-stage Companies*

Gov SBIR/BARDA $1.1 B**

* Average 2004-2014 for Emerging Therapeutic Companies**2014: SBIR = $677M, BARDA = $415M

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Biopharmaceutical Research Continuum

Government FundingPDUFA (Company)

Government FundingAcademic/Private Funding

Investment CapitalPrivate Funding

Sources: BIO, 2015

Policy change

impacts entire

ecosystem

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Significant Impact of Federal/State Prescription Drug Payment Policies

Source: Drug Channels Institute, 2015 (December 10), Source of Payment for Outpatient Prescription Drugs, 2014, available at: http://www.drugchannels.net/2015/12/five-fun-facts-newest-prescription-drug.html.

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Value of Innovation

Innovator

Provider

Health SystemSociety

Patient

Payor

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CER and Value Frameworks

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BIO Principles on the Value of Biopharmaceuticals

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BIO Policy Platform

BIO Supports Policies that Foster a Holistic Approach to Strengthening the Healthcare System by:

Ensuring Patient Access to Innovative Biopharmaceuticals

Nondiscrimination Cost Sharing

Network Adequacy

Transitioning Between Plans

Sustaining Biopharmaceutical Innovation

Communicating Value

Recognizing Value

Financing ValueFacilitating a Robust

Marketplace

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Facilitating a Robust Marketplace: Aligning Incentives with Value

Value-based Insurance Design (VBID)

(e.g., lower cost-sharing for therapies that prevent

hospitalizations)

Value-based Arrangements

(VBAs)(e.g., payment based on

patient outcomes, and not necessarily payment-per-

unit). Alternative Payment

Models (APMs) (e.g., payments to providers based on the quality and cost

of the care they provide).

Payors

Patients

Providers

ManufacturersAPM

s

Alternative Financing

Models (AFMs)(e.g., annuity

mortgaging). AFMs can influence all

three of the other arrangement types (though primarily

VBAs).

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The U.S.

Relatively rare in the U.S., recent VBAs (between manufacturers and commercial payers) have grabbed headlines.

There is no one-size-fits-all approach, even in these nascent efforts.

EUROPE

A 2014 study by the University of Washington estimated there were 209 VBA-type arrangements worldwide, with the vast majority in Europe (led by Sweden, Italy, and the UK).

In the U.K., VBA-type contracts between manufacturers and the National Health Service have existed since 2002 (first was w/MS drugs).

Significant concerns continue to be raised with regard to:

Setting appropriate patient health outcome targets,

The ability to track patient health outcomes, and

The ability of the NHS to collect any additional rebates owed.

Existing VBA Examples

CONFIDENTIAL—NOT FOR FURTHER DISTRIBUTION

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Role of Value-Based Arrangements (VBAs)

Continued Innovation

Improved Outcomes

Mitigate risk

Improve Access

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What was contemplated?

– Referencing pricing: One payment rate for drugs CMS considers therapeutically similar.

– “Indication-based pricing”: Setting payments rates based on clinical effectiveness on a given drug.

– Risk-sharing arrangements based on outcomes: Agreements with manufacturers linking payment with outcomes.

– Variation on VBID: Discounting or eliminating patient cost-sharing for certain high-value therapies.

CMS is interested, but still learning, about Value Based Arrangements

– Policy gaps

– Operational challenges

What Did we Learn from Medicare Part B Proposed Demo: Phase II

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Potential Areas of Uncertainties

Areas of Potential Uncertainty (not comprehensive)

Federal Regulatory State Regulatory Other

Government Price Reporting

State insurance law Contracting Complexity

Anti-kickback Statute State fee-splitting laws Data Analytics

Off-LabelPromotion/Unsubstantiated

Claims

State corporate practice of medicine laws

Financial Accounting

Patient Privacy Tort liability risk Gross-to Net Impact

Areas of Current BIO Advocacy

CONFIDENTIAL—NOT FOR FURTHER DISTRIBUTION

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Potential Areas of Uncertainties (CONT’D)

GOVERNMENT PRICE REPORTING CONSIDERATIONS

• NDC and J-Code reporting• Interaction with Medicaid Best Price• Average Sales Price interaction• Accounting for future pricing

adjustments

ANTI-KICKBACK STATUTE CONSIDERATIONS

Scrutiny under existing interpretation and guidance, paired with the lack of sufficient protection under existing safe harbors.

COMMUNICATIONS CONSIDERATIONS

Concerns with regard to manufacturer communication with payers about product information relevant to the development and implementation of a VBA (e.g., data outside of the “four corners” of the approved label; information on an experimental therapy).

CONFIDENTIAL—NOT FOR FURTHER DISTRIBUTION

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Facilitating a Robust Marketplace: Aligning Incentives with Value

Value-based Insurance Design (VBID)

(e.g., lower cost-sharing for therapies that prevent

hospitalizations)

Value-based Arrangements

(VBAs)(e.g., payment based on

patient outcomes, and not necessarily payment-per-

unit). Alternative Payment

Models (APMs) (e.g., payments to providers based on the quality and cost

of the care they provide).

Payors

Patients

Providers

ManufacturersAPM

s

Alternative Financing

Models (AFMs)(e.g., annuity

mortgaging). AFMs can influence all

three of the other arrangement types (though primarily

VBAs).

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Example Alternative Finance Models (AFMs)

Managing…

– Risk?

– Liquidity?

– Duration of effect?

Annuity Payments

Debt financing

Reinsurance/Fund Payments

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Most relevant for curative therapies with significant short-term cost to the system and benefits realized over years.

To date, there has not been experimentation with AFMs among public or private payors on the broad scale. Considerations for payors include:

– Data availability

– Operational complexities

– Federal statutory and regulatory hurdles

Legislative vehicles related to ACA repeal and replace may provide an opportunity to address statutory and regulatory barriers to AFMs (many of which would also help to facilitate VBAs).

Several collaborations have been assembled to consider AFMs

Alternative Finance Models (AFMs)

Biotechnology Today

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