An unprecedented looked at how biotech prices their drugs

Whether you’re in the biopharma industry or not, you’ve heard about the controversy surrounding the pricing of Sovaldi and Harvoni, two therapies for hepatitis C that have revolutionized the treatment of a very common and sometimes deadly disease.  The topic first came up when Sovaldi was launched December 2013, but the noise still hasn’t died down thanks to people like Martin Shkreli and companies like Valeant.

At the same time there have been a lot of views expressed about how drugs companies price drugs and how they should price drugs.  The interesting part is that very few people know how drug pricing is done today.  That shouldn’t be surprising since those types of decisions are highly confidential and no company is interested in releasing any information to the public.

That all changed last December when the Senate Finance Committee released a report on their investigation into the pricing of Sovaldi and Harvoni.  You can download the entire, 144-page report here.  When I started to go through it, my jaw dropped.  This report provides an incredible in-depth look at how Gilead priced both drugs, including: (1) market research results from physicians and payers, (2) minutes from closed-door meetings among Gilead executives that led to the final pricing strategy and (3) post-launch responses from private and public payers.

If you are at all interested in this topic, I suggest you spend a couple hours reading through the report.  I will warn you though, I thought the report did show some bias in supporting the government’s position that Gilead acted recklessly.  Regardless, it is an unprecedented look at how biopharma companies price their drugs.

Vivus’ new obesity drug: Will it get scooped by generics before it even hits the market?

This past Wednesday, the FDA approved Belviq, the recently renamed obesity drug from Arena.  It wasn’t a huge surprise since the FDA review panel gave a strong 18-4 vote of support for its approval.  Interestingly, it doesn’t appear that the REMS requirement for Belviq is all that onerous (something I commented on in my last blog post), so Arena looks like they have a real winner on their hands.

The next obesity drug up for approval is Qnexa from Vivus.  I’ve written about Qnexa in the past (here and here) and it’s been a long journey for Vivus with an initial rejection from the FDA, negotiations over new clinical trial data requirements and a refiling of the NDA.  However, after all that, it looks like Qnexa will be approved based on the 20-2 vote by the advisory panel.  And that’s a good thing!  The clinical trial data for Qnexa is actually much more positive than that for Belviq.  Almost 50% of patients taking Belviq lost at least 5% of their body weight (average of 5.7% overall), while 50% of patients taking the highest dose of Qnexa lost at least 15% of their body weight (average of 14.4% overall).  You’re probably thinking, “Wow!  Vivus has the obesity market cornered!!”.  Not so fast, Vivus may get scooped by generics before they even sell their first pill.

Unlike Belviq, which is a new chemical entity and covered under numerous patents which prevents other drug companies from making and selling the active ingredient, Qnexa is a combination of two drugs that are already available as generics (phentermine and topiramate).  The highest dose of Qnexa contains 15 mg of phentermine and 92 mg of topiramate.  A quick internet search reveals you can get a bottle of 100, 15 mg tablet of phentermine for $142 and a bottle of 120, 100 mg tablets of topiramate for $204, a cost per day of slightly over $3 or $90/month.  Yikes!  That’s some stiff competition for a branded drug where a price of $150-200 for a month of therapy is seen as a being “on the low end”.

However, Qnexa does an advantage that the generic drugs do not: Qnexa is a controlled-release combination of phentermine and topiramate (this formulation is no doubt patented).  This has the benefit that patients can take the drug less frequently and the levels of the drug in the body are much more stable since the dose is slowly release over a period of time.  When treating obesity, where food craving and appetite can vary over the course of a day, this is significant advantage.  However, it remains to be seen if a physician could simply have the patient split the dose of generic drugs, take it twice a day and see similar results as the sustained-release Qnexa.  I have no doubt that physicians will give it a try (or are already trying it).

Two factors will determine the impact of generic phentermine and topiramate on Qnexa’s sales: the price of Qnexa and how insurance companies respond to it.  If Qnexa hits the market at a modest premium, say $100 – $120/month, I predict that insurance companies won’t balk at it.  They won’t like it, but they’ll also judge the difference in price as too small to devote resources to controlling.  However, if the price goes much higher, say $150+, insurance companies will take notice and start to implement some controls that could significant curtail Qnexa sales.

Now insurance companies can’t force a physician to prescribe generic phentermine and topiramate instead of Qnexa, since neither is approved for use in weight loss (physicians on the other hand, are free to prescribe drugs for off-label use).  However, insurance companies have the ability to heavily incentivise the use of particular drugs through things like co-pays, step-edits and prior authorizations.  The really big risk for Qnexa is the co-pay.  Insurance companies typically have “tiers” for their prescription drug coverage that look something like this:

Tier 1: Generic drug: $10 co-pay

Tier 2: Preferred branded drug: $40 co-pay

Tier 3: Non-preferred branded drug: $65 co-pay

Tier 4: Specialty drug: 20% co-insurance

If we imagine a scenario where Qnexa is priced at $120/month (which is way lower than what I think they’ll price it at), insurance companies won’t complain too much about the cost and may choose to put it on tier 2.  However, patients will see a significant difference in out-of-pocket expense for Qnexa vs. generic phentermine and topiramate.  If a doctor prescribes Qnexa, the patient would pay around $40/month for the prescription.  If a doctor prescribes generic phentermine and topiramate, the patient only pays $20 per month ($10 for each prescription).  Over a year, that’s a difference of $240, not a lot, but enough to provide some incentive to take the generics.  If Qnexa gets price higher than $150, insurance companies may put it on tier 3, where patients are paying $45/month more than the generics for a difference of $540/year.  That is a significant amount of money in most people’s books and enough to get patients to ask their physician to prescribe the generic combination.

Either way you cut it, Qnexa, despite have a clear clinical benefit for obese patients, may have a hard time reaching the multi-billion dollar a year sales estimates that have been floating around.  When the FDA makes its final call on Qnexa on July 20th, keep an eye out for the price Vivus settles on because it will have a huge impact on how successful (or unsuccessful) the drug becomes.

If the FDA approves the new obesity drugs, will REMS crash the party?

Wow!  A lot has happened since my last blog post.  Two of the three new obesity drugs up for approval (Qnexa from Vivus and Lorquess from Arena) both received positive responses from their respective FDA advisory panels despite all of the pessimism from outside observers.  Of course, both drugs have yet to be officially approved by the FDA and they could still be rejected, just ask Intermune.

However, I refuse to be one of the pessimists and I do believe that at least the one of the two drugs will get the FDA’s stamp of approval, if not both.  However, before everyone breaks out the champagne and starts celebrating, we need to talk about something called REMS.

REMS stands for Risk Evaluation and Mitigation Strategy and was brought into effect through the 2007 Food and Drug Administration Amendments Act.  It was introduced to allow the approval of drugs that have a both an obvious benefit, but also substantial risks.  Think of it as a finger that tips the risk-benefit scale more to the benefit side.  REMS provides an additional level of control over drugs that otherwise couldn’t be approved for unrestricted use in the general population. If you’re interested in a more detailed overview of REMS, there are some great summaries here and here.

I’m sure you’re wondering what these controls look like. Well, they come in a number of different flavors.  Here is a list of typical REMS requirements, starting from the least onerous:

1. Medication guide
2. Communication plan
3. ETASU (Elements to assure safe use)
4. Implementation system

The most basic REMS is a medication guide.  The guide provides additional information for the prescriber so that they are completely informed of the risks and benefits of the drug and can fully inform the patient taking the drug.  It lays out the concerns around adverse events and procedures the prescriber can follow to minimize those risks.  The manufacturer provides a draft guide to the FDA, who, if satisfied it contains all the necessary information, approves it.

Pretty simple so far, right?  Medication guides are the most common type of REMS and account for around 2/3 of all the drugs that have REMS requirements.  The other 1/3 aren’t so lucky, some of those have ETASU requirements.

The types of controls within an ETASU can also vary.  They can be as simple as providing formal training for the prescriber so that he or she understands how the drug should be administered, how to educate the patient and how to recognize and report any adverse events.  However, on the other end of the spectrum, ETASU controls can also limit who can prescribe the drug, which pharmacies can fill the prescriptions and where the drug can be administered.  Where the problem comes in is that you can’t just have these controls, you need mechanisms in place to make sure they are being followed.  This requires pharmacists, nurses, physicians and hospitals to take on an incredible administrative burden and a burden that they don’t get reimbursed for.  That is how REMS can really put the squeeze on a new drug.  If you are a physician who has the choice of prescribing a drug where all you do is write a script versus a drug where your staff has to spend an hour filling out forms just so that the patient can drive across town to the one pharmacy that stocks it, which one would you prescribe?  Even if a drug with an onerous REMS is the only drug available to treat a condition, how often  will physicians think “I would love to use this drug, but I can justify the burden on me and my staff?”

Both Qnexa and Lorquess have the potential to be approved with a REMS requirement.  Qnexa contains topiramate, which is known to increase the risk of cleft palate in mothers who take the drug while pregnant.  REMS seems like a great way to keep Qnexa out of the hands of pregnant women, similar to Revlimid (which has an incredibly onerous REMS).  Lorquess has the FDA concerned about a possible increased risk of cardiovascular events and REMS would be a great way to collect patient data (through a registry) to determine if that risk is meaningful.

If either of these drugs ends up with strict REMS requirements, you can expect all those financial analysts to quickly revise their revenue estimates and the price of the companies’ stock to react accordingly.  So save your champagne until the FDA decisions come out on June 27th (Lorquess) and July 20th (Qnexa).  You may just end up saving it for New Year’s Eve.

More news on the obesity front!

Amazing!  No less than 10 days after I blogged about Vivus resurrecting their NDA for Qnexa, Orexigen sent out a press release detailing their plan to resubmit their NDA for their obesity drug Contrave.

To give you a little bit of background, the FDA rejected Orexigen’s NDA, despite a majority vote to approve (13 to 7), due to concerns about cardiovascular safety.  The FDA ended up “recommending” (I put it in quotes since nothing the FDA recommends is actually optional) that another clinical trial be run to eliminate concerns over over an increase in blood pressure seen during the phase III clinical trials that Orexigen submitted as a part of thier original NDA.

Originally, this caused Orexigen’s leadership to announce they were abandoning Contrave.  Details are scarce, but apparently the FDA requested a clinical trial design that was so out of touch with what a company like Orexigen could muster that the company decided it wasn’t even worth discussing.

However, after a period of negotiations with the FDA, Orexigen apparently reached a deal where they could resubmit their NDA if they conduct a cardiovascular safety trial comprised of approximately 10,000 patients.  If Orexigen considers that a win, I can’t even imagine what the FDA’s original demand looked like.

So now, Orexigen is estimating that they can complete the trial and resubmit their NDA in 2014.  Rather than critique the company’s announcement, I’ll just point you to Adam Feuerstein’s article where he points out the utter ridiculousness of Orexigen’s optimism.

If you don’t feel like reading the article, I’ll give you the cliff notes: Orexigen has $70M in the bank and a conservative estimate for the cost of a 10,000 patient trial is $100M.  However, Contrave is being co-developed with Takeda who has much deeper pockets than Orexigen.  A more insurmountable obstacle is the time line of NDA resubmittal in 2014.  A trial that size will take one to two years, just to enroll all 10,000 patients, never mind administer the drug, collect data, resubmit the NDA and get FDA approval.

If Orexigen/Takeda pulls this off, it will be a victory indeed.  I just worry it might be a pyrrhic victory.