What will the pharma industry see in 2019? Market Access Spotlight asked five industry leaders, including Jeremy Schafer, PharmD, MBA, Senior Vice President of Specialty Solutions at Precision for Value. Answers start with groundbreaking therapies coupled with concerns about pricing and explore the aftermath of mergers and other industry inflection points.

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2018 Trends of Innovative Therapies, Focus On Drug Prices Are Likely to Continue in ’19

AIS Health

Last year the pharmaceutical industry was hailed for its innovative advances, not just in drugs approved but also in the use of artificial intelligence and the broadening of therapeutic targets such as RNA. However, it was also criticized for its ever-increasing drug prices, with both commercial payers and government agencies pushing back. Moving into the new year, we’re likely to see more of the same, according to various industry experts who spoke with AIS Health about what to expect in 2019.

What are some pharma issues to keep an eye on in 2019?

Stephen B. Cichy, founder and managing director at Monarch Specialty Group, LLC: “Expect pricing and reimbursement pressure to be similar to what we saw in 2018. In this regard, look for managed care organizations and PBMs to increasingly employ utilization management approaches to manage drug spend, including formulary exclusions and prior-authorization edits. We can expect brand inflation to continue to moderate in 2019. Patients will continue to face higher out-of-pocket payments — the average commercial copay increase rose approximately 15% between 2017 and 2018. The percentage of patients with deductible plans will increase into 2019, as will new plan designs that shift more cost onto the patient.

“Accumulator programs will also continue to be a highly-sensitive discussion topic in the new year, as these types of strategies gain traction as a potential counterbalance to the rising specialty spend. Just recently, Walmart and Home Depot both announced that they are adopting accumulator and/or variable copay programs, citing the ability of these programs to potentially lower specialty trend by up to 7%. The NBGH [i.e., National Business Group on Health] expects that the number of employers using these types of strategies will double from 25% today to 50% by 2020.

“On the drug pricing front, there’s likely to be more medicines priced in the six figures than ever before. With oncology drugs leading the pack, many of these will be intended to be used just once, including potentially curative cell therapies for blood cancers and gene therapies for rare diseases.”

John Matthews, KPMG Strategy leader for healthcare and life sciences: “A big pharma issue will be any regulatory/legislative action tied to drug prices. A Democrat-controlled House and President Trump are both eager to address drug costs. However, any action will need support from the Republican-controlled Senate. Pharmaceutical executives need to be attuned to the political currents in Washington. On the plus side, the FDA is looking at opening competition in the pharmaceutical market, and they are looking at opportunities to improve the efficiency of clinical trials and data gathering.

“Otherwise, the pipelines at drugmakers look pretty solid. There seems to be particular depth for oncology products that are in late-stage trials, such as existing products under study for new indications and also new products.”

“Gene therapies may experience the biggest paradigm shift we will see in the near future.”

Jeremy Schafer, Pharm.D., senior vice president, director, payer access solutions at Precision for Value: “Pricing and legislation are likely the most pressing topics. There are few issues that House Democrats and President Trump will find common ground on, but drug prices is one of them. In addition, the successful passage of increased manufacturer liability in the coverage gap means that pharma’s ability to prevent legislation it opposes may be weakening. Moreover, pharma will need to monitor for increasingly aggressive moves by ever larger customers. The CVS-Aetna and ESI [i.e., Express Scripts Holding Co.]-Cigna mergers will create even larger payer organizations with mandates to aggressively manage drug costs. Expanding exclusion lists and continued spread of accumulator programs mean that drug access may continue to be a difficult environment.”

Are there any expected competitors to particular drugs or within a therapeutic class that you are anticipating will have a big impact?

Cichy: “Look for the continued presence of cancer drugs, disease-modifying antirheumatic drugs and immunomodulatory agents to remain top therapeutic areas for managed health care executives in the New Year. These will be joined in 2019 by new agents…for heart disease, chronic obstructive pulmonary disease (COPD) and mental health, to name a few. Zulresso (brexanolone) from Sage Therapeutics is an example of an anticipated new drug that’s expected to be the first indicated for treatment for postpartum depression. Zulresso received notification by the FDA of a PDUFA extension to March 2019 in order to finalize its REMS owing to Zulresso’s 60-hour continuous IV administration requirement.”

“There are few issues that House Democrats and President Trump will find common ground on, but drug prices is one of them.”

Kathy Gibson, chief innovation officer at CAS, a division of the American Chemical Society: “Biosimilars are likely to be one of the biggest competitors to marketed drugs. Many major players in pharma are significantly investing in this area, including Amgen, Biogen, Eli Lilly, Merck, Pfizer and Sandoz, to name a few. But it’s not just large companies investing in this space. Gedeon Richter, LG Chem and Wockhard are making great strides as well. Biosimilars in the development pipeline include medications for therapeutic areas like oncology, immunology and diabetes. Some recent biosimilar approvals include Nivestym (filgrastim-aafi), Fulphila (pegfilgrastim-jmdb) and Retacrit (epoetin alfa-epbx).”

Matthews: “Oncology could be very interesting to watch in the coming years because of the breadth of products in the market now and those in late stage trials. Payers tend to give a fair amount of latitude when it comes to covering cancer treatment options. However, drugmakers may need to be more aggressive when presenting evidence — including head-to-head studies against other newer treatments — to stand out in a competitive market.

“We’re also starting to see more biosimilars enter the market to compete against some of the older biologic-based drugs. So the rheumatoid arthritis market will see much more competition, since many of these drugs have a multitude of indications and generate billions in sales. The lack of interchangeability of biosimilars and familiarity with the original drugs serve as a barrier to biosimilars gaining widespread adoption, but these manufacturers have room to match price cuts unless they have more attractive options in their product portfolio.” 

Schafer: “Gene therapies may experience the biggest paradigm shift we will see in the near future. In areas such as immunodeficiency and hemophilia, gene therapy could have a significant impact on disease management, particularly if the drugs are highly efficacious and have durable results. However, as adoption of these high-cost agents has been a challenge, gene- and cell-based therapy manufacturers need to continue to strive to evolve the reimbursement landscape. Approvals of biosimilars in 2019 will be worth watching as well. This could be an important year to see if biosimilars are able to gain traction in areas such as immunology and oncology or if the current tepid uptake will continue.”

Are any results expected this year from clinical trials you’re keeping an eye on?

Matthews: “The oncology pipeline across the industry is fairly deep across big pharma. We’re seeing some interesting additions in the immunology category with a variety of JAK inhibitors coming from Pfizer and Gilead. The question remains whether the treatments are more effective than the TNF inhibitors to treat rheumatoid arthritis, Crohn’s disease, ankylosing spondylitis and other autoimmune disorders.

“There are some late-stage trials of vaccines that are very interesting, but the completion is uncertain. Pfizer has in late stage studies [vaccines for c-difficile and staphylococcus infection, as well as a] 20-valent pneumococcal vaccine. Merck’s developing one for the Ebola virus. Sanofi is expanding indications for Fluzone, Pentacel and meningitis vaccines.”

Schafer: “I will primarily be looking for readouts from gene therapies and checkpoint inhibitors to see how the results may alter the treatment landscape for the impacted diseases. Clinical trial readouts can be somewhat of a moving target due to shifting dates and interim analyses. We will just need to be vigilant.”

Todd Wills, managing director, CAS: “Recent FDA approvals and current drug candidates indicate there could be a continued increase in biologics and small-molecule drugs.”

What are some industry trends you expect to see in 2019?

Cichy: “The provider landscape is shifting, with new accountable care models and integrated delivery networks. At the same time, many PBMs and manufacturers are bracing for the potential disruption in the current system of drug contracting, including possible regulatory action coming from the Trump administration to restrict the use of rebates. In connection with this, CVS recently announced its new approach to pricing, called guaranteed net cost pricing, described in a press release as guaranteeing ‘the client’s average spend per prescription, after rebates and discounts, across each distribution channel: retail, mail order, and specialty pharmacy.…With the Guaranteed Net Cost model, clients continue to have the option to implement point-of-sale rebates to provide plan members visibility into the net costs of their medication.’

“Also, Express Scripts announced that as of Jan. 1, it will offer employers the option of using a formulary that would prefer lower-cost alternatives to expensive brands and would exclude the brands from coverage as a way to effectively lower prices without violating the terms of rebate agreements already in place.

“Specialty pharmaceuticals will continue to account for an increasing percentage of drug spend, a pattern that is unlikely to change in 2019. Already the FDA is approving more new drugs that serve the orphan or unmet disease space, much of which is dominated by the biotech and smaller/emerging biopharma drugs. Today, close to 80% of all new drugs approved can be considered ‘specialty’ medications, according to generally accepted criteria.”

Matthews: “The pipelines for drugmakers are fairly active. The question is where will all the money come from to bring all of these products across the finish line? Big pharma’s revenue growth has been fairly limited for the past five years at the largest companies as new products are aiming to recoup sales lost to patent expirations. Drugmakers have to be astute about which drugs can get to market quickly and recoup development costs. The companies that have the deepest pipelines will flourish, but it may take licensing programs or partnerships to get products through trials.

“On the plus side, technology can play a part in improving efficiencies with their administrative functions, as well as how R&D is performed. We’re seeing drugmakers invest in IT, data & analytics, and even cognitive computing in an effort to streamline R&D costs and processes. R&D productivity has been an issue sectorwide, and drugmakers are looking at how to crack the code to get drugs to market quicker and for less money.”

“Drugmakers have to be astute about which drugs can get to market quickly and recoup development costs. The companies that have the deepest pipelines will flourish, but it may take licensing programs or partnerships to get products through trials.”

Schafer: “I think there will be a growing focus on cost-effectiveness, particularly with ICER [i.e., Institute for Clinical and Economic Review] gaining traction and new controls placing a greater emphasis on it, such as CVS allowing the exclusion of some drugs with [a price more than $100,000 per quality-adjusted life year as determined by ICER].

“I think manufacturers will spend more time prelaunch analyzing cost-effectiveness and becoming better able to communicate these stories to payers. I also expect increased scrutiny of drug prices, especially as political parties gear up for 2020. Manufacturers raising prices on Jan. 1 of this year indicates the industry may be confident in its ability to weather the storm, but time will tell.”

Wills: “Even though biologics are receiving increased attention, small molecules will continue to be a major source of new drugs for the foreseeable future. It is also worth noting that an increasing number of small-molecule drug candidates in clinical trials are focusing on less explored areas of the chemical space by evaluating the number of publicly disclosed compounds on a framework. For example, Tibsovo (ivosidenib) shares a framework with only six other compounds, all of which were initially disclosed in Agios Pharmaceuticals patents. In contrast, another drug shares a framework with over 1,000,000 compounds, indicating a highly explored area of the chemical space.”

Was there anything industrywise in 2018 or expected in 2019 that you think has been overhyped or underhyped?

Schafer: “I think some doom-and-gloom statements about biosimilars were a bit premature. Biosimilars have definitely had a challenging market entry, but we need to remember we are still in the early days of a very new industry. In addition, signs indicate that biosimilars in important categories are gaining more traction, and I expect them to continue to do so.

“I believe gene therapies have been somewhat over-hyped, or perhaps prematurely hyped. When it comes to gene- and cell-based therapies, the biggest question among payers is durability. Until we know that the results of these therapies are long-lasting, we should be hesitant to claim that diseases have been revolutionized or ‘cured.’

“I think the impact of accumulator programs has been underhyped. The programs continue to spread and have a significant impact on patient affordability as well as on the profitability of impacted pharmaceuticals. All signs indicate that more employers will adopt these programs, and I do not think the industry has found a way to successfully combat them.”

What do you think we may see in terms of M&A activity?

Cichy: “We can expect 2019 to be another strong year of growth in M&A. PBMs were especially busy in 2018, including CVS Health purchasing five specialty pharmacies. UnitedHealth’s OptumRx bought Avella Specialty Pharmacy, the largest independent specialty pharmacy. There is still a bunch of liquidity that’s on the sidelines, either on the balance sheets of various health care corporations or via capital that has been raised to invest and put to work. This, coupled with a continued pattern for industry consolidation in response to pricing and reimbursement pressure, sets the stage for likely elevated levels of M&A going into 2019.”

Matthews: “Our survey of CFOs, investment bankers and private-equity executives at the end of 2018 showed expectations of moderate investment activity in pharma and biotech for next year. Stock prices will have some of a bearing on this. The price-to-earnings valuations are still fairly high for the sector, which means there is an ability for large pharmaceutical companies to use shares as currency to pick up companies to fill pipeline gaps. 

“I think some doom-and-gloom statements about biosimilars were a bit premature. Biosimilars have definitely had a challenging market entry, but we need to remember we are still in the early days of a very new industry.”

“Pfizer and GlaxoSmithKline’s move to combine and spin off their OTC businesses is a reflection of confidence in their product portfolios. We’ll see other pharma companies look at their product portfolios to manage their risk or focus on therapeutic areas where they have a competitive advantage. Generic, veterinary and OTC drugs can provide steady cash flow and lower risk than the prescription drug business, but there are much lower returns on investment.”

Schafer: “This year has certainly started dramatically with the acquisition of Celgene by BMS. We will have to see if this was a one-off or a sign of more activity to come.”

Contact Cichy at scichy@monarchsp.com, Gibson and Wills through Rose Rankin at Rose.Rankin@Edelman.com, Matthews through Bill Borden at wborden@kpmg.com and Schafer through Tess Rollano at trollano@coynepr.com. ✧

by Angela Maas