The ever-changing, interwoven regulatory and drug-pricing landscape

Tangled roots
Drug approval is increasingly intertwined with pricing questions.

At last month’s BioPharm America conference, what I originally thought would be a run-of-the-mill panel wound up being a frank discussion about regulatory and pricing challenges that pharma and biotech companies are facing today. I hadn’t realized these two challenges are intertwined so closely.

The regulatory and pricing paths for new drugs in the United States have become increasingly difficult to navigate. Due to outside policy pressures, the FDA is scrutinizing drugs more than in the past, requiring much more data. Even when a drug is approved, there is no guarantee that payers will cover its full cost, as they are starting to consider the drug’s overall value—improving quality of life and decreasing costs—along with its effectiveness.

Meanwhile, in many European single-payer countries, pharmaceutical companies are being told how to price their drugs before they are considered for approval by the regulatory agencies. The likely effect is less return on investment on new drugs, which could in turn decrease the pace of innovation.

Vaughn Kailian, managing director of MPM Capital, a health care venture capital investment firm, led an eye-opening conversation around these topics. Panelists discussed how they’re adapting to the changing regulatory and pricing conditions.

Drug approval and pricing: Europe vs. U.S.

Companies must think about what the regulatory environment will be like three to four years down the road and work with payers while developing drugs years before they are approved, said John Maraganore, PhD, CEO of Alnylam Pharmaceuticals. His company is preparing ahead for the European regulatory process and thinking about European payers before starting Phase III trials, he said.

Historically, for regulatory approval, Germany posed the least resistance, followed by France, said Philippe Lopes-Fernandes, head of global licensing, business development and alliance management at Merck Serono. Now, pricing discussions take place in both countries before approval—companies are effectively told what the drug should cost.

While it’s financially risky to develop a drug for FDA approval, putting it in front of payers is even riskier, as they control access by the patients who need it the most.

Barbara Yanni, JD, VP and chief licensing officer at Merck, noted that France’s refusal to approve a drug before agreement on the price has sometimes prevented patients from getting the modern medications they need. In the past, Merck would not comply with these demands, said Yanni, opting instead to wait until the government agreed to their pricing.

However, according to Yanni, Merck sometimes seeks approval in Europe first before developing a drug for the U.S. market—depending on the molecule. A metabolite for ovarian cancer was filed in Europe, for example, because the bar for approval is much higher in the U.S. For that indication, the measurement of what is successful is different and shorter in Europe.

Valuing a new drug

In the U.S., private payers will cover new therapeutics if they improve quality of life over the standard of care. But according to Lopes-Fernandes, this is not enough for a drug to be covered in some European countries, unless that improvement is large and clearly greater than that seen with other drugs.

At this moment, the U.S. is still the most favorable market, even with the FDA’s increased scrutiny of drugs. The FDA is thinking about the risk/benefit of a drug and still thinks about safety first, rather than price or comparative efficacy, said Maraganore.

And when it comes to pricing, outside parties can influence payers’ decisions. In the U.S., companies benefit from the power of patient groups to convince payers to cover therapies, said Lopes-Fernandez. As he notes, you may be able to save money with cheaper drugs, but the overall treatment plan costs more because it’s less effective. Private payers in the U.S. sometimes are willing to have those discussions with these influencers.

But Yanni sees the U.S. going the way of Europe. The overall value of the drug is becoming more important than the efficacy, she said, and with increased outside legislative pressures, U.S. payers are demanding greater discounts.

The take-home from this panel is that while it’s financially risky to develop a drug for FDA approval, putting it in front of payers is even riskier, as they control access by the patients who need it the most. This is a shift in drug development thinking, and companies will have to adjust accordingly in this environment.