Tuesday, March 15, 2011

Seeking Value: How Lower Prices Can Make Sense

Angus Russell is CEO of Shire PLC. Shire is a global specialty biopharmaceutical company with 4300 employees in 28 countries. He will be the keynote speaker at the BIO-Windhover/Pharmaceutical Strategic Outlook Conference taking place March 30 to April 1 in New York.

The current issues faced by health care systems globally can be summed up in an excerpt from Michael Porter’s recent article in Harvard Business Review entitled “Creating Shared Value” --

“From society’s perspective, it does not matter what types of organizations created the value. What matters is that benefits are delivered by those organizations—or combinations of organizations—that are best positioned to achieve the most impact for the least cost.”

Nearly every health care system around the world is facing tight budgetary constraints, which is having an impact on what those economies are willing to pay for medical innovations. In particular, payors are demanding tangible value for the medicines that biopharma companies hope to bring to market. This message became crystal clear as I traveled in the past year to many of the 28 countries where Shire has a presence and met with the various stakeholders engaged in the drug development process.

Today, it is no longer sufficient to hit a clinical endpoint. As evidenced by the recent decision in the UK by the National Institute for Health and Clinical Excellence (NICE) to decline reimbursement of several clinically-proven drugs due to their perceived high cost and low value to the UK health care system, health care regulators are taking a much more critical look at the cost of a medicine and its implied value to society.

Given the changing landscape, what can companies do to increase the likelihood that their product will not only be approved by regulators, but also receive reimbursement that enables them to be appropriately compensated for their R&D investment? While the answer to this one billion dollar question – a figure some estimate as the average cost to bring a product to market – remains under debate, what has become abundantly clear is that life sciences companies must take into consideration the needs of a much broader group of stakeholders, and clearly demonstrate the value to society that can be realized through the development of innovative treatments for unmet health needs.

Historically, physicians were seen as the gatekeepers to the successful commercialization of a product. Nowadays, it's clear to most companies that patients, caregivers, advocacy groups, policymakers and payors – in addition to physicians – are all important influencers in what we at Shire refer to as the Circle of Value. It is essential that we engage with these stakeholders regularly to hear, and address, their unique needs and to gain insight into a host of factors that can have a very real and direct impact on the success of a drug candidate, ranging from clinical trial design, to meeting unmet medical needs in the marketplace and assessing prospects of obtaining product reimbursement.

Thus Shire has expanded the teams that engage with patients, policymakers and payors, which has allowed us to listen more effectively to the needs of these groups and adapt our approach to drug development and commercialization activities. As an example, Shire conducted a number of focus groups with physicians around potential pricing prior to the launch of our Gaucher treatment Vpriv. The feedback indicated that it would be beneficial to all involved if Shire priced Vpriv lower than the other approved product on the market.

Shire's management ultimately secured a price for Vpriv that is at a 15% discount compared with the only other commercially-available product for this rare disease, even though the market conditions suggested Shire could potentially have secured a premium price. In addition, as part of our patient assistance program, Shire instituted a co-pay funding plan specific to Vpriv for eligible patients in the US.

Of course, the resources a company has at its disposal to serve these stakeholders can only be effective when there truly is a need in the marketplace for a specific medicine or device. Thus Shire's approach to drug development first identifies an unmet need in the marketplace and what a new product’s value proposition needs to be in order to be considered a success. Shire conducts comparative effectiveness research, including the standard-of-care for that condition, early in the clinical development process. By doing so, we seek to demonstrate the tangible value associated with a product candidate; if we cannot do so, our process allows us to make a decision to discontinue a program earlier — and with potentially several hundreds of millions dollars still in-hand.

Delivering true value to the health care system through a market-driven, multi-stakeholder approach is critical in today’s times. The better drug companies can demonstrate and deliver value, the more likely they are to receive the reimbursement needed to meet the high costs of developing their medicines, and thus to generate revenues to reinvest in R&D – all of which helps patients and their caregivers, and contributes to the health of society overall.

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