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Specialty Pharmaceuticals

In order to have the same success that pharmaceutical industries have had in the past, the industry must accept a changing business model to tackle the challenges it faces by adapting to future trends. The blockbuster mentality that industry once had of producing a multibillion-dollar drug used to treat common medical problems, like cholesterol, is no longer viable in the future trend of personalized medicine. As the pharmaceutical industry shifts away from identifying one blockbuster drug, specialty pharmaceuticals have emerged as a strategy to treat our aging population. Specialty pharmaceuticals generally consist of novel therapeutics, which treat complex chronic conditions (i.e. rheumatoid arthritis) as well as life-threatening advanced diseases, such as cancer. As of 2017, The Centers for Medicare & Medicaid Services (CMS) define a drug as a specialty pharmaceutical when it crosses the price threshold of $670 per month. Definitions of specialty pharmaceuticals vary by payer but share key characteristics as seen below.

• They are complex molecules and may be derived from biologic sources.
• They require highly involved manufacturing processes.
• They require special distribution (i.e. specialty pharmacies) and handling (i.e. refrigeration).
• They involve intensive patient education and/or follow-up monitoring to ensure appropriate use.
• They require injection or infusion in clinical settings, which is usually covered under the medical benefit.
• They are administered at home by self-injection, oral or inhaled administration and are almost always covered under the pharmacy benefit.
• They have a high-cost.

Small molecule drugs have accounted for 50% of specialty pharmaceuticals because of their mechanism of action by binding to constituents with a goal of modulating the biochemical pathway with targets for modulation such as enzymes, proteins, nucleic acids, channels, or membranes. However, although these drugs offer tremendous opportunity, their attribute of high costs and typical use for the treatment of chronic diseases has overturned the traditional pharmaceutical landscape as it threatens the availability of affordable coverage options.Mmehta10 (talk) 16:47, 26 March 2018 (UTC)

Economics of Specialty Pharmaceuticals

In specialty pharmaceuticals selection, one of the biggest questions revolves around probable risk and potential financial return. Pharmaceutical industries want to invest in a target with low risk of failure, but high return. However, risk and return assessment show that high returns are more likely to coincide with high risk. Being able to stay competitive in the market is also another major consideration as industry needs to maintain competitiveness in their differentiation and novelty of products, pricing, and marketability. Other factors include safety liability, chemical feasibility, fit with portfolio, and intellectual property constraints. In the economics of specialty pharmaceuticals, all the advantages and disadvantages are carefully considered in deciding whether or not to proceed with drug development. In recent years, specialty pharmaceuticals have represented a greater share of the pharmaceutical industry’s revenue. In 2015, specialty pharmaceuticals accounted for half of all new drugs and biologics approved by the FDA with recent trends pointing to specialty pharmaceuticals as the future of the pharmaceutical industry. A report from the IMS Institute for Healthcare Informatics stated that spending on specialty pharmaceuticals almost doubled from 2010 to 2015 and was responsible for 70% of overall drug spending growth during this timeframe, making specialty drugs account for a disproportionate share of overall drug spending. Between 2014 and 2015, there was a >20% increase in spending on specialty pharmaceuticals reaching $150 billion. By 2020, it is predicted that spending on specialty pharmaceuticals will reach $402 billion making up 47% of prescription drug spending. The growth of specialty drug spending also benefits from patent exclusivity periods since these types of drugs benefit from a longer patent protection period compared to traditional drugs. This type of exclusivity period for specialty drugs can remove the economic benefits of price competition by generic companies because it results in higher prices compared to what it would be in a perfectly competitive market. Moreover, there is growing evidence that companies with specialty drugs use patent extension strategies such as “evergreening”, where a company makes minor changes to a product to refresh its patent protection. The pharmaceutical industry’s defensive response of evergreening is also known as “life cycle management” can include “forming new crystal forms of existing drugs, new salts, esters, and other derivatives, single enantiomers of existing drugs, new formulations of existing drugs, new methods of preparation of existing drugs, and second pharmaceutical use claims”. As a result, health plans must develop methods to address the unsustainable increase in the prices of these drugs. Therefore, with the high-cost of specialty pharmaceuticals, health plans often require cost sharing for these drugs, which significantly impacts patients with the burden of high out-of-pocket costs and the potential to create barriers to access. For these reasons, health plans are searching for innovative strategies to restrain cost growth and address unsustainable increases in specialty pharmaceutical prices while also providing access to effective drugs for patients. This ultimately has led to a shift in the delivery of care models, and as a result, payment models, both of which now focus on the delivery of value in both a service and payment perspective. Mmehta10 (talk) 16:28, 26 March 2018 (UTC)

Value-Based Contracting

Value-based contracting (VBC) is a model that emphasizes providing benefit to all stakeholders (biopharmaceutical manufacturers, payers, and patients) through the alignment of price and value – biopharmaceutical manufacturers and payers linking coverage and reimbursement levels to a drug’s effectiveness and/or utility (i.e. how frequently it is used)7. The goal of value-based contracting (VBC) is to help address the challenge of increasing costs of drugs (which is particularly applicable to high-cost specialty pharmaceuticals/drugs) and overall drug spending by aligning the payment model to the demonstrated value of the drug product.
The benefits of VBC to biopharmaceutical manufacturers include:,,,

• The ability to differentiate their product from their competitor’s through value analyses, which may assist payers in making formulary decisions and improve market access for their drug product.
• The increased potential for generation of real-world evidence (RWE), which if the drug product performed well this may further increase market share and revenues for the life cycle of the drug product.
• The ability to inform future research and development (R&D) and clinical development programs – i.e. studies have shown for “follow-on” products (i.e. second and third generation products within the same therapeutic class), that improved safety profiles are key drivers in the success of a drug product. Therefore, understanding how the current favored drug performs clinically (as well as its structure/function relationship) may inform the fine-tuning of the drug design for the “follow-on” product. We have seen many examples of this within the tyrosine kinase inhibitor (TKI) class of therapeutics.
• The risk sharing with the payer may result in increased benefits for the manufacturer, i.e. increased reimbursement when the drug product is ultimately demonstrated to be more effective than expected.
• The benefits of VBC to payers include:,,,
• The payers can use VBC to gain experience with a drug product, reducing uncertainty regarding clinical value, performance, and financial impact
• The potential for decreasing costs by allowing more effective medications to be placed in preferred tiers
• The evidence to drive further competition within the therapeutic class potentially increasing negotiating power
• The ability to shift some of the risks to the biopharmaceutical manufacturer, especially if the drug product under-performs
• the ability to define and agree on outcomes that are meaningful and measurable within a reasonable timeframe is challenging between all parties.
• The tracking and measuring of outcomes, which requires the proper infrastructure on the payer and provider end to be in place to facilitate this outcomes-based agreement (i.e. robust information technology, data infrastructure, staff expertise, etc.).
• The risk-sharing nature of VBC requires biopharmaceuticals manufacturers to assume financial consequences of an underperforming drug product. If biopharmaceutical manufacturers do not have confidence in the payer and providers ability to properly measure outcomes-based criteria, biopharmaceutical manufacturer will be reluctant to assume the financial consequences and enter into VBC agreements.

The implementation of VBC faces certain challenges, one of which involves FDA-specific rules and regulations.

• Anti-Kickback Statute (AKS): In 1972, the Anti-Kickback Statute was enacted and serves as “a criminal statute that prohibits the exchange (or offer to exchange), of anything of value, in an effort to induce (or reward) the referral of federal health care program business”. VBCs between drug manufacturers, payers and providers may be viewed as inducing providers to prescribe a particular medicine.
• The best price requirement of the Medicaid Drug Rebate Program: For manufacturers’ medicines to be covered by Medicaid, manufacturers are required to provide Medicaid programs with a rebate that is the greater of either 23.1% of the Average Manufacturer Price (AMP) or AMP minus the best price. VBC may present a potential risk for manufacturers with regards to resetting their best price and increasing rebates paid for all Medicaid patients.
• Pre-approval and Off-label Marketing and Communication Rules: Communication between payers and biopharmaceutical manufacturers is limited to on-label discussions only, which may limit the ability to effectively share risk between the two groups in a VBC agreement.

To help address the rising cost of specialty pharmaceuticals and VBC implementation barriers, there are increasing efforts towards policy change that better aligns with value-based healthcare delivery models. As part of the Affordable Care Act (ACA), in 2009 the Biologics, Price, Competition and Innovation Act (BPCIA) was passed creating an abbreviated approval pathway for the licensure of biologic products shown to be biosimilar to, or interchangeable with, an FDA-licensed reference biological product , The overall goal of the BPCIA is to help facilitate competition within the high-cost biologic therapeutics market, helping to lower drug costs and increase access to treatment. As stated by the FDA, “The BPCIA aligns with the FDA’s longstanding policy of permitting appropriate reliance on what is already known about a drug, thereby saving time and resources and avoiding unnecessary duplication of human or animal testing”. In January 2017 under the new Trump administration, the FDA released a draft guidance/Q&A document that indicated it is revisiting how it regulates the exchange of information between payers and manufacturers, which may help better facilitate VBC agreements. Furthermore, in June 2017 a bill, titled “Stopping the Pharmaceutical Industry from Keeping Drugs Expensive (SPIKE) Act of 2017”, to amend title XI of the Social Security Act to require drug manufacturers to publicly justify unnecessary price increases was submitted to Congress.
Mmehta10 (talk) 18:46, 26 March 2018 (UTC)

Conclusion

Pharmaceutical drugs represent one of the fastest growing segments of US healthcare spending. Advancements made in drug discovery and development research has been used to identify new drug targets that have therapeutic applications with biologic origins, which provide targeted therapy for severe, chronic and rare diseases. Specialty pharmaceuticals take steps toward the trend of personalized medicine to maximize the likelihood of therapeutic efficacy and to minimize risk factors for individual patients. The translation of these pharmaceuticals to clinical practice can potentially lead to several opportunities for improved compliance, cost effectiveness, success in development by better target selection, or identifying patients with greatest unmet medical need. Due to the increasing cost and utilization of specialty drugs, they are quickly becoming an increasing portion of the total rising pharmaceutical costs. Stakeholders, such as payers, providers, and patients, are looking for ways to maximize the value of each dollar spent on healthcare. Policy changes, such as the BPCIA, and reimbursement model changes, such as VBC, are being evaluated and implemented to address the value of high-cost therapeutics.
Mmehta10 (talk) 18:55, 26 March 2018 (UTC)

See Also

• Specialty drugs in the United States
• Value-based purchasing