Michael Kuchenreuther, PhD, is a research analyst, at Numerof & Associates, Inc.

Michael J. Kuchenreuther, PhD

	Over the past few years, the war on drug prices has intensified and been marked by a series of signal events-for example, oncologists publically refusing to allow a pricey new therapy such as Sanofi’s Zaltrap on their formulary, and pharmacy benefit managers (PBMs) (e.g., Express Scripts) and governments (e.g., the United Kingdom’s National Health System) refusing to cover breakthrough therapies such as Gilead’s Sovaldi. Moving forward, the pricing pressures manufacturers face from payers will likely only intensify, whether they be government or private, domestic or foreign.
	
	One therapeutic area that manufacturers can look to as a proxy for where this drug price war is likely headed is oncology, and more specifically immuno-oncology (I-O). Despite only a handful of I-O drugs currently on the market, the introduction of these drugs has already seemed to galvanize budgetary concerns and pricing resistance.

	This article explores some of the emerging trends likely to impact market access and pricing for I-O drugs.

	Manufacturers that understand these trends and their implications for drug development and commercialization will be well positioned to capitalize on the I-O market’s true potential. More broadly, manufacturers operating outside the I-O space should also consider these trends, as payers will likely pursue similar strategies in other therapeutic areas to drive down drug costs.
	
	


	The launch in 2015 of immune checkpoint inhibitors and the development of other immunotherapy assets for several difficult-to-treat diseases including metastatic melanoma, non-small cell lung cancer, and renal cancer represent great progress. The handful of I-O therapies currently on the market continue to show enormous potential to change the way these types of cancer are treated, offering patients a more rapid and durable response to treatment, longer progression-free and overall survival, lower toxicity, and better quality of life during treatment.
	
	Clearly, I-O presents a breakthrough for patients, and a commercial triumph for manufacturers. It’s not surprising that current I-O market leaders Bristol-Myers Squibb and Merck are seeing significant returns on their investments with Yervoy/Opdivo and Keytruda, respectively, or that other major pharmaceutical companies are queueing up their entry to this market (1). With government, private payers, and even select providers increasingly exposed to the budget and cost-effectiveness implications of these new drugs, however, manufacturers must understand that success in this space is not a guarantee. There will be winners and losers.
	
	


	Around the world, countries are facing constrained budgets along with rising healthcare costs and cancer incidence rates. Concurrently, treatment options for oncologists and their patients continue to expand with the approval of 28 new cancer indications in the United States alone since 2014 (2). Recognizing that not all drugs in this crowded class are created equal, countries such as the United Kingdom and Canada are increasingly making difficult decisions to exclude certain therapies that deliver only incremental value (3). It’s likely only a matter of time until payers and even healthcare providers in the US make a concerted push to remove certain cancer drugs from their formularies, particularly as hospitals continue to assume greater financial risk for care delivery.
	
	Against this backdrop, stakeholders across the industry are actively pursuing more systematic ways to assess drugs’ relative economic and clinical value and costs to inform market access and product adoption decision-making. The American Society of Clinical Oncology (ASCO), National Comprehensive Cancer Network (NCCN), and the European Society for Medical Oncology (ESMO) have focused their attention on how to best measure the benefits of new cancer drugs within clinical trials, proposing new scales that may form the basis for evaluation of all new cancer drugs (4, 5). The goal of these tools is to provide objective information that aids oncologists and patients in making value-based treatment decisions that reflect benefit as well as cost. Of course, several questions remain, including which framework (if any) will be used in access decisions by health technology assessment (HTA) agencies and payers moving forward.

	Nevertheless, with I-O therapies continuing to disrupt the budgets of payers and with more entrants in the wings, the attention given to value frameworks is likely to only expand. Against this backdrop, manufacturers should be prepared to present new and existing oncology products within the context of these frameworks, ensuring that the value of products is appropriately and fully characterized.  Alternatively, if manufacturers disagree with how these frameworks are designed, they can choose to either create their own or work with groups like ASCO or ESMO to modify them accordingly.

	To date, biopharma industry and advocacy groups have applauded the concept of helping individual patients understand the evidence, innovation, and value of medicines to them. They have also, however, been outspoken on some of their concerns with these frameworks-most notably their failure to consider downstream cost reductions due to product use, patient preferences, or quality of life (6, 7). For example, it’s important to weigh the higher acquisition costs of I-O drugs against their impact on the whole care pathway, such as reducing the need for hospitalization or other types of care. Also, the potential for long-term survival-in terms of reduced morbidity, extended life, and enhanced productivity over many years-should be factored into the evaluation of all new I-O agents.

	To successfully position their products from a value perspective, manufacturers must ensure they have the data to back up their claims. Demonstrating both the clinical and economic benefit of these drugs to stakeholders across the continuum of care and factoring this evidence into market access strategies will be crucial.
	Frameworks such as the ones highlighted herein also allow payers and other stakeholders to assess and compare a drug’s value across multiple indications. This comparison opens the door to a new chapter in the war on drug prices-indication-based pricing.


	Indication expansion has been and will likely continue to serve as an effective lifecycle management strategy for manufacturers to maximize their products’ return on investment (ROI). This particularly holds true in the I-O space, where there is significant potential for these drugs to demonstrate superior efficacy in multiple tumor types. For instance, in the case of BMS’s blockbuster Opdivo, US regulators awarded seven approvals in 2015 for use against three different cancer types (8). Clinical trials for this product currently focus on more than 20 tumor types, and other major pharma players such as Roche and Merck are following suit with their respective I-O products (9).
	
	With a multitude of potential indications, the relative economic and clinical value a single I-O product delivers compared to current standards of care will almost certainly vary across tumor types.  Traditionally, therapeutic products have been given a single, uniform price across all indications. This is largely due to the fact that most national pricing and reimbursement systems across the globe are not equipped to handle differential pricing at an indication level.

	Improvements in data availability and an increasing focus on value-based payment, however, have made experimentation with indication-based pricing models possible. While the UK and other markets are still in a “brainstorming phase” on this issue, payers and PBMs in the US are implementing such pilots or have announced intentions to do so in the near future (10). For instance, Express Scripts is in the process of rolling out its Oncology Care Value Program, which features an indication-specific pricing model for drugs to treat certain cancers (11). In addition, CVS/Caremark is considering a similar program for late 2016, and CMS recently indicated that it too plans to test indication-based pricing (12, 13). While participation in Express Scripts’ program is voluntary, as more pilot programs are implemented, pressure on manufacturers who want to ensure their treatments are covered will continue to grow.

	A shift to indication-based pricing reinforces the need for a robust and consistent approach to evidence generation across all indications. It’s no longer sufficient for manufacturers to dedicate significant resources to a product’s initial indication, only to scale back these efforts for future indications once that product’s price has already been established. This is particularly relevant for manufacturers of I-O drugs, given the wide range of indications they’re currently pursuing.
	
	

Beyond monotherapies: Commercial opportunities and challenges


	Immunotherapies targeting programmed cell death protein 1 (PD-1), programmed T cell death ligand 1 (PDL-1), and cytotoxic T-lymphocyte-associated protein 4 (CTLA-4) have generated great enthusiasm following demonstration of clinical efficacy as monotherapies for a wide range of tumor types. There is now intense interest in leveraging these drugs in combination with other drug classes. For instance, combinations including chemotherapy, molecularly targeted agents, vaccines, and other immunotherapies are increasingly being pursued. Major pharmaceutical players including Bristol-Myers Squibb, Roche, Merck, and AstraZeneca are currently engaged in more than 260 clinical trials involving drug combinations either through sponsorship or collaboration (14). Based on this number alone, it is not surprising that combinations of targeted and I-O agents are expected to account for more than 90 new molecular entity launches and line extensions over the next five years (15).
	
	Pharmaceutical companies developing these combination therapies recognize their potential to deliver multiple commercial opportunities, including protection of existing marketed assets, differentiation from their competitors, and the possibility for substantial price premiums. However, with new combination therapies come new levels of complexity--both in terms of development and marketing for these new molecular entities. Many of these potential combinations are likely to come from two or more manufacturers with more than 90 combination trial agreements reached between companies in 2014 and 2015 and several already announced in 2016 (16-18). Not only can this complicate trial and commercialization strategies, but pricing flexibility and product promotion can also be affected. For instance, because discounts will be expected and needed when drugs costing more than $100,000 each are combined, manufacturers with multiple in-house products will likely have an edge over those having to negotiate pricing arrangements with partners.
	
	


	While 2015 saw many advances in the I-O field, momentum for I-O drugs shows no signs of slowing down. This class currently makes up one quarter of the total 374 experimental cancer drugs in the pipeline, and numerous clinical trials are ongoing across a range of tumor types.
	
	Taken together, it is not surprising that analysts project more than $35 billion in annual worldwide sales for I-O drugs by 2024, which would account for half of all spending on cancer drugs (19). In addition, major pharmaceutical companies are all expected to spend nearly $1 billion a year on I-O research, early access, development programs, and clinical trials (20).

	What does this mean for manufacturers who find themselves in an operating environment that is scrutinizing more closely than ever before a drug’s value and costs to patients, payers, providers, and society as a whole? Simply put, manufacturers will need to re-examine how each of these products, either alone or in combination, are brought to market--from trial design, efficacy endpoint assessment and safety evaluation, to the role of health economics and outcomes research and, ultimately, how price is determined. Failure to give sufficient consideration to each of these areas may significantly jeopardize a product’s market access, not to mention corporate earnings and valuations.
	
	


	1. T. Staton, “Merck’s Keytruda Lines up Its Survival Data for Stepped-up Battle with BMS’s Opdivo,” 

”.
	3. Change ahead for cancer drug funding,” 

, Volume 2, No. 2, e47 (February 2015).
	4. N. Cherny et al., 

26 (8):1547-1573 (2015).
	5. L. Schnipper et al., 

 33 (23):2563-2577 (2015).
	6. A. Philippidis, “Measuring the Value of Cancer Drugs,” 

, July 27, 2015. 
	7. American Cancer Society Cancer Action Network, 

, Aug. 21, 2015.
	8. Barron’s, “Bristol-Myers’ Cancer Drug Could Push the Stock 25% Higher,” 

Multi-indication Pricing:  Pros, Cons and Applicability to the UK

16 (24) (Dec. 28, 2015).
	12. C. Kelly, “CVS Indication-Based Pricing For Cancer Drugs May Roll Out Later In 2016,” 

 (March 4, 2016).
	13. Centers for Medicare and Medicaid Services, 

CMS proposes to test new Medicare Part B prescription drug models to improve quality of care and deliver better value for Medicare beneficiaries

, December 2015.
	15. OncoTherapy Network, “

Trends in Targeted Therapies and Immunotherapies

,” June 21, 2015. 
	16. M. J. Laffler, 

Immunotherapy cancer combinations:  when, who and at what price? 

[video webinar] (2016).
	17. D. Garde, “BioLineRx Joins Merck’s Clique of Immuno-oncology Partners,” 

, Jan. 13, 2016.
	18. D. Garde, “Syndax Aligns with Merck KGaA and Pfizer on an Immuno-oncology Combo Project,” 

, Jan. 4, 2016. 
	19. A.S. Baum, “Citi Global Perspectives & Solutions: Immunotherapy-The Beginning of the End for Cancer,” 


	Michael J. Kuchenreuther, PhD, is a research analyst at Numerof & Associates, Inc., St. Louis, MO, 

Articles

Immuno-oncology drugs are demonstrating patient benefits, but growing resistance to the high cost has implications for patients, market access, and manufacturers.

The Evolving War on Drug Prices

Canada remains the ninth largest pharmaceutical market in the world, close to Spain and the United Kingdom. Drug makers operating in Canada have benefited from high per capita spending on pharmaceuticals and rising procurement as a result of the country’s aging population. In 2014 alone, the country spent an estimated $28.8 billion on prescribed drugs (1). Moreover, Canada’s private payer system, which covers as much as two-thirds of the country’s population, has been far less restrictive than market-access decision-makers in many European markets (2). These stats, taken together, show how the Canadian market has historically offered most manufacturers the potential for profitability.

	Moving forward, however, manufacturers may find it increasingly difficult to capitalize on this market’s potential, for a number of reasons. Scrutiny regarding drug pricing and questions about drug value continue to mount from a host of different stakeholders. Canada’s complex healthcare system, coupled with distinct differences between each of the country’s provinces and payers, is likely to continue creating hurdles for achieving optimal market access. At the same time, smaller emerging economies are now projected to have greater potential for growth than Canada in the coming years. For these reasons, some manufacturers may be tempted to overlook the Canadian market or simply treat it as an extension of the United States. Given the size and demographics of Canada’s patient population, however, this approach is unwise.

	Rather, manufacturers will need to understand specific nuances-both at a country level and at a provincial level-and prepare accordingly. The Canadian pharmaceutical market is changing against the backdrop of growing frustration over drug pricing and questions regarding sustainability. Key market themes include health technology assessment harmonization, more uniform pricing negotiations across providences, regulations regarding the price of generics, and a potential movement toward universal public drug coverage. This article provides an overview of the key aspects of the current Canadian pharmaceutical market and highlights some recent developments as well as their implications for pharmaceutical manufacturers.

Public and private insurance coverage and drug expenditure.

 Similar to many other industrialized countries, the Canadian healthcare system is a hybrid of both public and private health coverage, with elements of both single payer and private insurance models. However, two things make Canada’s public-private mix unique. First, Canada’s national healthcare system offers public funding for all medically necessary hospital and physician services. Second, there is rather limited public coverage for outpatient prescription drugs outside of seniors and people on social assistance. In fact, approximately 68% of the population obtains drug coverage through private insurers, either through their employers or purchased individually (2).

	In 2014, it is estimated that $12.1 billion (42%) of non-hospital prescribed drug spending was financed by the public sector, $10.3 billion (35.8%) by private insurers, and $6.4 billion (22.2%) by Canadian out-of-pocket expenditures (1). Canada’s public sector is fragmented into 13 provinces and territories with Ontario, Quebec, British Columbia, and Alberta making up the four most populous provinces. Given that approximately 86% of the country’s population lives in these four provinces, it’s not surprising that public drug spending is heavily concentrated in these areas as well (3–4).

	Canada, like many countries, is facing escalating healthcare costs, as payers everywhere are struggling to reconcile finite drug budgets with patient access to promising new health technologies. Canada ranks second among 31 of The Organization of Economic Co-operation and Development (OECD) nations with respect to expenditure on pharmaceuticals per capita (US$761 adjusted for price differences) (5). Taken together with the fact that drug costs represent 17.5% of their healthcare spending, growing concerns around economic sustainability have prompted stakeholders to propose a number of different strategies to curb drug expenditures in this market.

Private plan design and universal drug coverage.

 To date, employers and insurers have demonstrated little effort to implement cost-containment measures in private drug plans (e.g., mandatory generic substitution or restrictions on more expensive but not therapeutically superior new drugs) (2). This is in stark contrast to aggressively managed public plans that rely on strict formularies. These private, open insurance plans have been particularly attractive for pharmaceutical manufacturers over the years due to accelerated access and more flexible pricing regulations. However, as issues pertaining to cost and sustainability continue to come under the microscope, these “open-access” plans are no exception.

	In fact, it is estimated that private drug plans in Canada wasted $5.1 billion in 2012, which is money spent without receiving therapeutic benefit in return (6). There are now increasing calls for private insurers to consider more coverage restrictions and to place greater emphasis on effectiveness, safety, and value for money (7).

	Perhaps a more serious threat to the private sector and to manufacturers operating in this market has been the renewed focus on overhauling the country’s health system to include universal drug coverage. Although not a new topic of discussion, efforts around a universal drug program have intensified-including a Pharmacare 2020 report prepared by some of Canada’s more renowned policy experts (8). This issue was also front-and-center in the lead-up to the 2015 federal election with certain groups expressing their commitment to making Pharmacare a reality (9). The results of the 2015 election, however, suggest that initial policy efforts to improve access and reduce drug costs will focus more on bulk purchasing for public coverage (10). It is too early to understand how these efforts will impact the private sector.

 Canada presents manufacturers with a unique and challenging pathway to market access. A report found 46 federal, provincial, and territorial drug programs in Canada’s public sector alone with each having its own administration, bureaucracy, timelines, and priorities (11). In addition, individual hospitals are responsible for developing their own formularies for government-funded drugs administered to patients on an inpatient basis. Finally, private payers are responsible for making drug coverage and pricing decisions for their members.

	This mosaic of entities responsible for public coverage, reimbursement, and pricing decisions has created hurdles for manufacturers in the form of market access delays and uncertainty on how different bodies evaluate product value. For instance, the wait time in Canada from market authorization approval to public drug plan reimbursement for the majority of eligible individuals was reported to be 462 days (ranked 16th among 18 OECD countries) (12).

	Over the past decade, steps have been taken to harmonize funding decisions across jurisdictions. The Common Drug Review (CDR) and the more recently established pan-Oncology Drug Review (pCODR) are tasked with performing health technology assessments (HTAs) and providing recommendations to provinces and territory drug programs. It’s important to note that Quebec, which represents approximately 25% of the Canadian population, does not participate in any national drug review and relies on its own HTA body.

	The impact of these harmonization efforts on listing decisions and timing has been mixed. By the end of 2014, 31 drugs had received positive or conditional approval by the pCODR. Uptake of these recommendations was more than 80% in six of the nine provinces with lowest adoption rates in Nova Scotia and Prince Edward Island (13). Unfortunately, time from market authorization to market access in the public sector remains an issue. The pCODR assessment process takes three to six months on average depending on whether the manufacturer engages pCODR before or after market authorization is granted (13). This figure does not take into account the time it takes for each province to make its final decision (five months on average).  Interestingly, a separate study found that cancer drugs reporting an incremental cost-effectiveness ratio (ICER) above 200,000 Canadian Dollars per Quality–Adjusted Life Year experienced significantly longer delays to provincial access (14).

	Making greater efforts to engage the pCODR earlier and demonstrating a certain level of cost-effectiveness may accelerate market access.

 Rising drug costs and a weakened economy have left policy-makers frustrated with the fragmented system, arguing that it diminishes overall purchasing power. In an effort to ease some of this frustration, an agreement was reached among provinces in 2010 that led to the Pan-Canadian Pharmaceutical Alliance (pCPA). Quebec announced its decision to join this alliance in October 2015 (15).

	All brand-name drugs reviewed by the CDR or pCODR are considered for negotiation through the pCPA. Through March 2015, the pCPA completed 63 joint negotiations on brand-name drugs and reduced prices on 14 generic drugs (15).

	These negotiations have resulted in an estimated $490 million in combined savings annually. There is also promise for the pCPA and a more centralized price negotiation process to reduce the time-to-listing in jurisdictions, though early findings have been mixed (16).

 For years, Canadians have paid among the highest generic-drug prices in the world (17–18). A 2007 study, for example, found that Canada had the highest overall prices for nearly 300 commonly used generic drugs in comparison to 11 other countries (19). These high prices have historically been attributed to the provincial governments’ predominant pricing strategy for generic drugs, which sets reimbursement using a fixed 60–70% of the equivalent brand name price (17).

	In 2013, as part of ongoing efforts to reduce the country’s healthcare-related costs, provinces structured the Competitive Value Price Initiative for Generic Drugs. Under this agreement, the prices of 18 heavily prescribed generic drugs are capped at a maximum of 18% of the branded price before patent expiry (15). To date, 14 drugs have been impacted including atorvastatin (Lipitor), omeprazole (Prilosec), simvastatin (Zocor), and metformin. Four more generic products will be identified and capped effective April 2016 based on the top-selling generic products at that time.

	As a result of these reform efforts, the volume of generic prescriptions is increasing while total spending on generic drugs is actually declining. The generic share of prescriptions in Canada has grown from 58% in 2010 to a current high of 67.1% (20). During this same period, there have been reported reductions in the price of these drugs ranging from 56% in the first quarter of 2011 to 39% in the first quarter of 2013 (20).

	Although the price of generics has been markedly reduced in recent years, these prices are still high relative to other developed markets. In 2014, the Patented Medicine Prices Review Board (PMPRB) reported that generic-drug pricing in Canada was nearly double (79% higher than) the median of prices found in other OECD countries and more than four times (445%) higher than the best available prices (21). Canada also has a relatively low generic use rate by volume compared to the US (89%) (22). There is considerable room for expansion on this front, particularly as private payers are incentivized now more than ever to benefit from particularly low generic prices for top-selling drugs much like their public counterparts.


	Based on the complexities of the Canadian market, it’s no wonder that achieving Pan-Canadian access for drugs is often considered a daunting task for manufacturers. Unfortunately, recent developments are not likely to simplify this process; however, there are some important implications that need to be reinforced as manufacturers look to capture the long-term opportunities of this market and continue gaining coverage for new medicines in a timely manner.

	Securing funding in Canada often requires a multifaceted and carefully structured approach. Manufacturers should explore and determine the most effective path for each product. In some cases, based on the therapeutic area, it may be advantageous to initially seek access in the largest provinces-approximately 86% of Canadians live in British Columbia, Alberta, Ontario, and Quebec. In other cases, it may make sense to explore less populous regions before expanding. Another consideration for manufacturers is the extent to which the indicated population has private-/public-sponsored drug coverage. The results of the 2015 election suggest that both the provincial governments and private payers will continue to be critical determinants of market access across the country (10). Therefore, depending on the age group of the target population among other factors that determine the source of drug coverage, resources should be allocated appropriately between public and private payers when seeking market access and reimbursement.

	Given the fragmented nature of market access decision-making in Canada, manufacturers will require comprehensive submissions and strategies for CDR, pCODR, provincial drug plans, private payers, and hospital formularies. Manufacturers will need to understand and align a product’s economic and clinical value proposition with the drug’s target demographics (23). Canada is comprised of diverse populations both within and across provinces. These populations have distinct profiles related to epidemiology, unmet needs, and social demographics that should be factored into product messaging and communications with stakeholders.

	Infrastructure is another critical component for gaining market access in Canada. To expedite access, manufacturers will need to have the processes and capabilities in place to facilitate productive discussions and negotiations with key drug plan representatives within both the public and private markets (24). These relationships will need to be informed by a deeper understanding of each stakeholder’s economics, and discussions must be supported with data reflecting the product’s budget impact and cost savings potential. These are just some of the steps manufacturers will need to take to avoid downward pricing pressure.


	1. Canadian Institute for Health Information, 

Prescribed Drug Spending in Canada, 2013: A Focus on Public Drug Program

, 9 (1) pp. 35-43 (August 2013).
	3. Canadian Institute for Health Information, National Health Expenditure Trends, 1975 to 2014, October 2014.
	4. Employment and Social Development Canada, 

Poor patient decisions waste up to $5.1billion annually, according to express script Canada

, Press release, June 2013.
	7. A. Cassels, 

“Why Do Canadian Employers Waste $5 billion a Year on Inefficient Drug Coverage?”

, February 2015.
	8. S.G. Morgan, et al., 

Pharmacare 2020: The Future of Drug Coverage in Canada, Vancouver, Pharmaceutical Policy Research

, University of British Columbia, 2015.
	9. CMAJ, 

Election 2015 Party Platforms on Health Issues

, October 15, 2015.
	10. Wellesey Institute, 

What’s Next For Prescription Drug Coverage In Canada?

, October 29, 2015.
	11. Wellesey Institute, 

Low Earnings, Unfilled Prescriptions: Employer-Provided Health Benefit Coverage in Canada

, July 2015.
	12. Canada’s Research-Based Pharmaceutical Companies, 

Access to New Medicines in Public Drug Plans: Canada and Comparable

, 2015.
	13. Canadian Agency for Drugs and Technologies in Health,

Comparing the Value of a PCODR Full Approval Vs. an Approval Conditional on Cost-Effectiveness

5 (9) (2015).
	17. Competition Bureau Canada, 

. Ottawa, Ontario: Government of Canada (2007).
	18. Competition Bureau Canada, 

Benefiting from Generic Drug Competition in Canada: The Way Forward

, Ottawa, Ontario: Government of Canada (2008).
	19. PMPRB, 

Generic Drugs in Canada: Price Trends and International Comparisons

, 2007, Ottawa, Ontario: PMPRB (2010).
	20. Canadian Generic Pharmaceutical Association (CGPA), 

, 2014.
	22. Generic Pharmaceutical Association & IMS Institute for Healthcare Informatics, 

ECV as Marketing Strategy: What Payer Changes Mean for Your Business

Is Your Commercial Operation Ready for Healthcare 2.0?


	Michael Kuchenreuther, PhD, is a research analyst at Numerof & Associates, Inc., St. Louis, MO, www.nai-consulting.com.

 When referring to this article, please cite it as M. Kuchenreuther, “Market Access Outlook for Canada,” 

The author provides an overview of the key aspects of the current Canadian pharmaceutical market.

Market Access Outlook for Canada

	Payers across the globe are becoming increasingly assertive regarding products whose costs aren’t in line with perceived performance-a trend that shows no signs of slowing down. In fact, Express Scripts, one on the largest pharmacy benefit managers (PBMs) in the United States, recently announced a plan that would link the price of some cancer drugs to their real-world performance (1). Express Scripts’ action is significant, considering that the US has been slower than many European markets to implement new pharmaceutical reimbursement schemes.

	Managed entry or risk-sharing agreements (RSAs) represent another mechanism that payers use to mitigate the cost of new drugs based on real-world performance. Financial and performance-based RSAs (PBRSAs) have been widely employed throughout Europe to reduce drug expenditures. While these agreements may not be universally applicable or without challenge, they are gaining momentum in certain markets where they will likely play a role in enhancing economic efficiency.

	This article explores some of the driving forces behind RSA implementation, provides an update on the status of RSAs in the European Union, and discusses some of the inherent challenges manufacturers will need to overcome to achieve success under these types of arrangements.

	In most realms of commerce, if a product fails to deliver what’s been promised, consumers are financially covered through refunds and warranties. Consumers of pharmaceutical products and other stakeholders, however, have no such protections. Rather, the pharmaceutical industry has had a longstanding model of selling products and getting paid regardless of product performance. Perhaps that explains estimates that 90% of conventional medicines are not efficacious in 50–70% of cases (2). In therapeutic areas such as oncology, which is often characterized by high-priced drugs, the efficacy rate with standard treatment has been reported to be as low as 25% across all cancer types (3, 4).

	Against this backdrop, global spending on medicines is expected to grow to nearly US$1.3 trillion by 2018 (5). Government and commercial payers in most developed markets face aging patient populations and shrinking budgets. Not surprisingly, they are increasingly calling for manufacturers to “put more skin in the game” in return for broader coverage. Contractual arrangements directly linking reimbursement to a product’s effectiveness or budget impact clearly represent one mechanism through which risk can be shared between payers and manufacturers.

	In efforts to contain spending, public and private payers are also shifting risk to healthcare providers through alternative payment models such as bundled payments and capitation. As these changes progress, manufacturers must realize that they face a future in which they will increasingly be required to assume greater risks related to the performance of their products.

	The benefits of RSAs for payers are quite apparent-cost containment, efficiency (i.e., improved value for money), and/or improved outcomes for the covered population. There are, however, potential benefits for drug manufacturers as well, including earlier market access, differentiation, and the opportunity for a premium price. Taken together, it’s not surprising that RSAs continue to gain attention from payers and manufacturers and are becoming a more integral part of leadership objectives for both parties.

	For years now, national health authorities in European markets have “hedged” their reimbursement decisions with pricing controls and negotiated price cuts and RSAs to control costs. To date, RSAs have been largely confined to Europe, where payers have been more restrictive in their coverage, particularly of cancer drugs, and have used value calculations based on comparators and quality adjusted life years. For instance, in addition to successfully negotiating the lowest price in Europe for Gilead’s Sovaldi, the French government secured a volume-based discount as well as a money-back guarantee if treatment doesn’t work (6).

	Financially based schemes (e.g., price-volume agreements, price-capping, volume capping, and rebates) have been more widely employed throughout Europe compared to PBRSAs because they are easier to implement and track (7). In contrast, the design and implementation of PBRSAs has historically been more complex due to the need for patient follow up, lack of reliable data generation/registration (e.g., lack of infrastructure to track drugs or non-responders), and increased administrative burden for payers and manufacturers alike. These were just some of the clinical and operational complexities that largely characterized the United Kingdom’s multiple sclerosis scheme in the early 2000s, which proved to be both costly and rather ineffective.

	Nevertheless, RSAs, including performance-based arrangements, continue to be explored and implemented in select EU markets (see Table I). A recent review of RSAs established between 1993 and 2013 identified 148 arrangements, the majority of which were initiated within in the past six years (8). Italy, the UK, the Netherlands, and Sweden accounted for approximately 71% of these arrangements. In contrast, the prevalence of RSAs in other major EU markets such as Germany, France, and Spain is markedly lower (2–3%).

	Of the 148 arrangements, approximately 36% included a component that linked product reimbursement to clinical outcomes observed in the real world. Not surprisingly, oncology was the most active area for RSAs, likely due to the number of new cancer drugs, the high disease-related costs, and the premium price tags typically associated with these products.

	A closer look at some of these markets reveals certain nuances that are important to call out. In the UK, there has been a trend away from more complex arrangements toward increasing adoption of financial-based arrangements. In fact, the majority of recent arrangements were implemented as simple confidential discounts (9). In Italy, RSAs have often consisted of both financial-based and performance-based components; however, more recent arrangements have included one or the other, not both.

Table I: Examples of performance-based risk-sharing agreements (PBRSAs) from Italy and the United Kingdom.

					Myelodysplastic syndromes/chronic myelomonocytic leukemia/acute myeloid leukemia

					Manufacturer provides an 11% rebate for patients not responding to three cycles of the treatment

					Manufacturer pays for patients not responding after 24 weeks of treatment

					Manufacturer pays for patients not responding after 26 cycles of treatment

					Manufacturer provides an initial 12.5% rebate with the possibility of future rebates based upon the results of a head-to-head trial against Sutent*

					Manufacturer refunds the full cost of the drug for patients who experience less than a partial response after  four cycles

	*Note: The National Institute for Health and Clinical Excellence (NICE) revised this agreement in 2013, removing the head-to-head trial component.
	Source: Ernst & Young Biotechnology Industry Report 2013 and “List of Technologies with Approved Patient Access Schemes” from the official site of NICE (9–10).

	In France, the aforementioned Sovaldi example is just one sign that the government is willing to expand the use of performance-based arrangements. In fact, Celgene committed to the French government on the effectiveness of their multiple myeloma drug Imnovid in exchange for a higher price (11). The agreement required Celgene to build a registry for collecting real-world efficacy and safety data.

	Payers’ concerns with pharmaceuticals in the current healthcare environment include rising budget impact, differential value, large patient populations with difficulty in identifying responders, and the uncertainty regarding duration of treatment. At the same time, manufacturers are concerned with delayed market access due to prolonged price and reimbursement negotiations, demonstrating differentiated value in crowded therapeutic areas, and earning a premium price that is in-line with the value their products create.

	RSAs represent an appealing option for both parties if designed appropriately and implemented in a collaborative manner. It’s true that these arrangements are likely to increase administrative burden for both payers and providers, particularly PBRSAs that require patient-level data tracking. It should also be noted that PBRSAs bring inherent risks outside the manufacturer’s direct control, including inefficient healthcare delivery and poor patient compliance. For these reasons, RSAs do not represent a “one-size-fits-all” solution.

	Before entering into an RSA, pharmaceutical companies should always ensure that the potential benefits are significant enough to justify the effort and risks associated with these types of agreements. In addition, manufacturers must understand how their products deliver value to ensure that the particular measures agreed upon align with that value story. Implementing RSAs requires not only lengthy negotiations and potentially costly administration, but also the ability to efficiently capture real-world evidence. As a result, pharmaceutical companies must develop the appropriate IT and data analytics capabilities to successfully implement these types of agreements.

		P. Loftus, “New Push Ties Cost of Drugs to How Well They Work,” 

, 26 May 2015, www.wsj.com/
		articles/new-push-ties-cost-of-drugs-to-
		how-well-they-work-1432684755, accessed 28 Sept. 2015.	

		Cowen & Co: Therapeutic Categories Outlook, 2008–2012 estimate, Cowen Group, NY, USA (2008).	

		C. Womack, The Pathologist in Drug Development, presentation at the Edinburgh Pathology 2013 conference (Edinburgh,
		June 2013).	

		IMS Institute for Healthcare Informatics, 

Global Outlook for Medicines Through 2018

		T. Staton, “France Strikes Big Hep C Treatment Deal for Gilead’s Sovaldi,” 

 20 Nov. 2014, www.fiercepharma.com/story/france-strikes-big-hep-c-treatment-deal-gileads-sovaldi/2014-11-20, accessed 28 Sept. 2015.	

		J. Espín, J. Rovira, L. García, Experiences and Impact of European Risk-Sharing Schemes Focusing on Oncology Medicines. Granada, Spain: European Medicines Information Network (EMINET), Andalusian School of Public Health, 2011.	

		Ernst & Young, Biotechnology Industry Report 2013.	

		NICE, List of Technologies with Approved Patient Access Schemes, retrieved December 2014 from NICE, www.nice.org.uk/about/what-we-do/patient-access-schemes-liaison-unit/list-of-technologies-with-approved-patient-access-schemes, accessed 28 Sept. 2015.	

		C. Ducruet, “Médicaments: quand les la boratoires sont rémunérés à la performance,” 

 is managing partner, both at Numerof & Associates,

 When referring to this article, please cite it as M. Kuchenreuther and M. Abrams, “Risk-Sharing Agreements in the EU and Considerations for Moving Forward,” 

The authors look at key factors driving the risk-sharing agreements that have been implemented to reduce drug expenditures across Europe.

Risk-Sharing Agreements in the EU and Considerations for Moving Forward

Many pharmaceutical manufacturers consider China as one of the most important strategic markets for future growth. It’s the second largest market in the world after the United States. More importantly, China currently accounts for less than 3% of global revenue for most major pharmaceutical companies, leaving significant opportunity for expansion and growth (1). China is more willing to support biomedical research than other countries, and its healthcare system is characterized by expanding coverage and access, as well as a higher prevalence of chronic disease. China’s emergence as a significant commercial market coincides with changes in the global landscape that are forcing manufacturers to re-evaluate their overall business model.

	Manufacturers, however, have struggled to realize this market’s true potential to date, because China’s market is highly complex and fragmented. Multiple, conflicting regulations concerning market approval requirements, market access/drug procurement, and pricing have undermined the growth opportunity China presents

	In recent years, the Chinese government has been focused on simultaneously improving the quality of healthcare, relaxing certain regulatory policies, and allowing market forces to drive healthcare and pricing reform. This article presents an overview of some of these recent market dynamics and discusses their potential impact on global pharmaceutical manufacturers, exploring new and existing opportunities for growth in China.

China’s health and pharmaceutical market overview


	By the turn of the century, Chinese citizens had become increasingly dissatisfied with a healthcare system that suffered from chronic government underfunding, urban and rural inequalities, and overpriced, low-quality products and services. Much of the population was without access to medical care (2). Spurred by these social and economic challenges, China began planning for healthcare reform. Plans for reform have largely focused on healthcare coverage, access, and pharmaceutical expenditure (3-4, see 

			Table I: China’s plans for healthcare reform.			

	Due in part to these reform efforts, China’s healthcare market is seeing strong growth as health spending continues to advance. With rising per capita incomes, China’s increasingly affluent consumers are demanding the latest in medical treatment and services (5). At the same time, changing diets and an ageing population are increasing the incidence of cancer, heart, diabetes, and other chronic diseases. For instance, according to the World Health Organization (WHO), there are an estimated 3.07 million new cancer cases annually in China-21.8% of the global total (6). WHO also estimates that approximately 230 million and 114 million Chinese currently suffer from cardiovascular disease and diabetes, respectively (7, 8).

	Against this backdrop, it’s not surprising that the Chinese government expects healthcare spending to surpass $1.3 trillion by the end of this decade (9). The aforementioned market dynamics-the emergence of China’s middle class, increased coverage and access, and the chronic disease burden of the country’s rapidly aging workforce-clearly create significant opportunities for pharmaceutical and medical device manufacturers. In fact, China, already the world’s second largest pharmaceutical market, is projected to reach spending levels of $155-185 billion by 2018 (10).

	In addition to opportunities for increasing product sales, the recent growth and future prospects of China’s healthcare market have also attracted infrastructure investment from major multinational pharmaceutical companies. More than half of the top 20 global pharmaceutical firms have built R&D facilities in China and, together with smaller firms, are taking advantage of China’s sizeable skilled workforce (4). Manufacturers’ interest in making these infrastructure investments is spurred by the country’s requirement for at least some domestic clinical testing before drug approval, as well as China’s willingness to invest in life and medical sciences research. China is currently the world’s second-highest investor in R&D and is poised to overtake the US in R&D spending by 2023 (11).

	While pharmaceutical and biotech companies continue to view China as an attractive market, regulatory issues and other hurdles continue to serve as obstacles. China offers poor intellectual property (IP) protection, and the drug application timeline is the longest of all Asian countries. Consequently, innovation continues to stagger in China compared to other parts of the world, and more than 80% of the market is comprised of generic drugs (12). There are also a number of challenges to setting up clinical trials and performing biopharmaceutical development, including language and cultural barriers as well as infrastructure, regulatory, and quality issues.


	Gaining regulatory approval has been and continues to represent a significant roadblock for manufacturers trying to bring a new drug to the Chinese market, particularly multinational companies. The China Food and Drug Administration (CFDA) has been conservative, slow, and extremely risk averse, causing the waiting list for approvals to exceed more than 18,500 drugs at the end of 2014 (13). For an imported new drug, it generally takes two to three years or more for approval (14).

	At the same time, quality and integrity have come under the microscope in China amid recent allegations of bribery and corruption, as well as a number of reported cases where implementers of clinical trials have manipulated results. Against this backdrop, the CFDA finds itself in a delicate position of looking for ways to expedite drug approval processes while simultaneously upholding quality in the application process, implementation, and scrutiny of clinical trials.

	On one hand, China recently vowed to slash its approval backlog for foreign drugs within the next two to three years (15). China’s efforts will reportedly include the increased use of clinical trial waivers under certain conditions, outsourcing some of its approvals, and eliminating the time spent by government officials in dealing with the intermediaries manufacturers often hire to take their products through the approval process (16).

	On the other hand, in 2015 the CFDA issued guidance on international multi-center clinical trials that adds new levels of regulation and could significantly lengthen manufacturers’ road to market approval. According to the guidance, international multi-center clinical trial data used for the application of drug registration must be derived from two countries, including China (17). Because these regulations are rather new, manufacturers are still trying to figure out how to interpret them and what changes need to be made to address them. At the same time, the impact of these regulations on the overall attractiveness of the Chinese market still remains to be seen.


	In China, branded pharmaceuticals and generics that earn placement on the National Reimbursement Drug List (NRDL) are partially (10%-90%) or fully reimbursed. Since 2000, China’s National Development and Reform Commission (NDRC) has played a key role in pricing drugs on the NRDL by setting price caps based on the manufacturer-reported costs of production. This system, however, gradually created concerns that focusing purely on price would sacrifice drug safety and quality, as well as provide opportunities for manufacturers to inflate costs to obtain a higher price. At the same time, pricing restrictions squeezed certain drugs out of the market as manufacturers stopped production over profitability concerns (18). In the end, this system failed to achieve the intended reduction in drug prices.

	Recognizing that a government-controlled pricing system was not working, the NDRC announced that price caps for all drugs aside from anesthetics and grade-one psychiatric medications would be removed (19). While at first glance this new policy may appear to benefit manufacturers, pricing pressures remain.

	Drugs that receive regulatory approval in China must be purchased on a provincial procurement platform through a competitive bidding process before they can be used in hospitals. Until recently, bidding systems at the provincial level placed imported branded drugs in a separate group where they didn’t compete directly with low-cost local alternatives. Under the new system, these premium products must now compete with Chinese generic drugs. In fact, foreign manufacturers dropped out of approximately 61% of bids in the wealthy eastern province of Zhejiang in 2015 and thus won’t be able to sell their products to public hospitals (20).

	In addition to facing more stringent drug procurement processes, manufacturers will also need to prepare for greater transparency and scrutiny from the government regarding pricing activities. Specifically, pharmaceutical manufacturers will be required to provide information on drug production and distribution costs. Also, the NDRC will launch a six-month campaign against price-related violations such as excessive pricing, price fraud, and collusion to manipulate market prices (21).

	Online pharmaceutical sales. Drug sales to hospitals currently make up approximately 75% of the Chinese pharmaceutical market (22). Some of the market access challenges manufacturers may encounter due to more heavily scrutinized procurement and competitive bidding procedures, however, could be partially offset by the government’s recent decision to lift bans on online prescription drug sales. The country continues to wait for the CFDA to draw up regulations that are expected to be robust at first, in light of growing concerns over quality, safety, and corruption (e.g., counterfeit drugs). While manufacturers may have to wait some time before the true impact of this policy change on market penetration and pharmaceutical sales can be realized, even opening a slice of the huge prescription drugs market could be a big boost to the industry.


	China’s government has verbalized a commitment to making its regulatory landscape for new and innovative pharmaceuticals more stable, predictable, and efficient (23). It has also taken multiple steps to create a more market-driven pharmaceutical industry, particularly with respect to pricing and access. Concurrently, China’s economy continues to develop at an unparalleled pace. The country is more focused on genuine innovation than ever before, and its healthcare landscape is characterized by an aging population with greater access to providers and medicines. While manufacturers across the globe cannot discount the aforementioned challenges and should anticipate policy changes to take some time, there are plenty of reasons why these organizations should be bullish on China’s potential for providing future growth and expansion opportunities.

	The dynamic nature of global markets continues to apply significant pressure on manufacturers’ business models, from product design and drug development through commercialization. China is no exception. To maintain competitiveness, manufacturers are encouraged to develop an accurate and up-to-date understanding of the Chinese regulatory framework and an adaptive market access strategy.

	Until there is more clarity around how the CFDA will reduce the length of the drug approval process and until these policy changes are fully implemented, multinational manufacturers looking to launch drugs already marketed in other countries will likely continue to face delays. By expanding their presence in China, either through partnerships with domestic companies or infrastructure investments, manufacturers may be able to reduce the extent of these delays. In fact, leading manufacturers such as Eli Lilly and Novartis are already shifting from late-stage drug development and R&D outsourcing to building facilities that will house more fully integrated R&D capabilities (1).

	China’s domestic pharmaceutical industry has been dominated by generic-drug manufacturers that have not heavily invested in R&D or manufacturing excellence. Global manufacturers remain well positioned to leverage quality and innovation as competitive advantages. Lilly is among the pharmaceutical companies to have capitalized on this by forging a strategic partnership with a domestic pharmaceutical company to create a platform for Lilly-branded generic medicines (24).

Big Pharma’s Internationalization of R&D to China

 (Routledge, Taylor & Francis Group, 2015).
	2. C. Kahler, 

 (Millwood, 2012);31:2536-2544.
	4. A. Daemmrich and A. Mohanty, 

Journal of Pharmaceutical Policy and Practice 

(November 12, 2014).
	6. International Agency for Research on Cancer, World Cancer Report 2014.
	7. World Health Organization Representative Office-China, 

, 310(9):948-959 (2013), doi:10.1001/jama.2013.168118.
	9. China-Britain Business Council, 


	10. IMS Institute for Healthcare Informatics, 

Global Outlook for Medicines Through 2018,

 November 2014.
	11. Council on Foreign Relations, 

Chinese Pharma: A Global Health Game Changer?

, March 31, 2015.
	12. “Betting On China For New Drug Development,” 

, April 29, 2015.
	13. “China drug approval backlog jumped by a third last year,” 

, March 13, 2015.
	14. “Foreign Drug Companies in China See Approval Delays,” Dec. 7, 2014, 

Fact Sheet: 25th U.S.-China Joint Commission on Commerce and Trade

, Dec. 19, 2014.
	16. E.J. Lane, FiercePharmaAsia (April 26, 2015).
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Asia Regulatory Roundup: Clinical Trials in Focus in China, India

,” RAPS.org, Dec. 2, 2014.
	18. L. Burkitt, “Scraps Price Caps on Low-Cost Drugs,” 

, May 8, 2014.
	19. Jing Li, “China Scraps Price Caps for Most Drugs,” 

, May 5, 2015.
	20. “Foreign Drugmakers Face Pressure to Lower Prices in China,” May 25, 2015, 

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	21. S. Wong and D. Pountney, “China Amends The Drug Administration Law and Removes Price Caps for Most Pharmaceutical Products,” 

, May 15, 2015.
	22. “China Web Pharmacies Would Have Alibaba Vying With Legacy Firms,” 

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	23. Asia-Pacific Council of American Chambers of Commerce, 

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	24. Eli Lilly and Company, 

Lilly Expands Strategic Partnership with Chinese Manufacturer Novast to Serve Chinese Patients with High-Quality Branded Generic Medicines


	Michael J. Kuchenreuther, PhD, is a research analyst for Numerof & Associates.

:
	When referring to this article, please cite it as M. J. Kuchenreuther, “Market Access in China,” 

China’s emergence as a significant commercial market is forcing manufacturers to re-evaluate their overall business model.