Recently innovative brands outpaced competition by 3x. Some advice on how they can maintain that lead.By William McClellan, Center of Excellence Leader, Launch Excellence, USBU, QuintilesIMS
The US biopharmaceutical industry is the most R&D-intensive industry in the US economy, and its investment in R&D as a percentage of sales is roughly six times greater than that of all other manufacturing industries. Consequently, over the past 20 years, 667 New Active Substances (NASs) have successfully been discovered, developed, and authorized for use within the US—58% of which have been specialist initiated.
Specialty products came onto the scene in dramatic fashion in 2010—as the US economy was pulling itself out of the Great Recession of 2008—and they have delivered strong growth in the years since. Yet, their success has had some unintended and potentially long-lasting consequences for the economics of our health system. Unable to absorb the full cost of specialty products and still meet the needs of the majority of their populations, payers have driven the cost down in contract negotiations and aggressively managed patient access.
Will specialty brands, which have contributed so much to patient health, be able to retain their value in the marketplace? Will innovation continue to be rewarded to the extent necessary to perpetuate it?
The Emergence of Specialty Brands
The first few years of the 21st century were productive and promising for the US pharmaceutical industry, which was dominated by primary care brands. In any given year from 2000 to 2006, newly launched pharmaceutical products generated between $3 billion and $5 billion in aggregate sales during their first 12 months on the market. From 2000 to 2006, in the “Age of Traditional Products,” 28 brands achieved over $300 million in first-year sales—a threshold for outstanding performance.
Then, things changed in 2007. From a launch perspective, the industry entered the “Dark Ages.” Between 2007 and 2009, aggregate sales associated with launch brands dipped below $3 billion, bottoming out in 2008 with just $1.3 billion in sales. During this time, no brands reached the $300 million mark. Several factors accounted for this decline: the fact that there were simply fewer innovative products entering the market, the emergence of electronic prescribing systems that gave payers more ability to control access, and the financial crisis of 2007-2008.
In 2010, the industry emerged from the “Dark Ages” to a renaissance driven by oncology and specialty products. Aggregate sales for launch brands once again passed the $3 billion mark, and several brands distinguished themselves by crossing the $300 million in sales threshold in their first year on the market. From 2010 to 2016, 35 brands accomplished this feat.
Figure 1 shows how gross sales of launch brands has changed from 2000 to 2016.
THE AGE OF ONCOLOGY AND SPECIALTY
Aggregate sales from launch brands generated more than $18 billion in sales in 2014, an astounding increase over the $3 billion to $5 billion achieved during the Age of Traditional Products. Even excerpting the large contribution of the innovative Hepatitis C drugs, average first-year sales increased from $37 million in 2007 to $111 million in 2014 and 2015. In 2016, average first-year sales softened to $87 million.
So what has made the difference for these products? Why have they been even more successful than those that launched prior to the “Dark Ages”? The answer is quite straightforward: they are innovative and are meeting a market need.
The percent of launches that can be characterized as innovative increased from 15% in 2007 to 24% in 2013. (See: “Assessing Level of Differentiation and Market Need.” in box.) The degree of innovation went hand in hand with the amount of unmet need in the market. Whereas in 2007 only 27% of brands were being launched into markets with high need, approximately 50% were from 2011 to 2016. (See Figure 2.)
LARGE BENEFIT FOR SMALL NUMBERS
The good news, of course, is that innovation is addressing diseases with high-unmet need such as oncology, autoimmune diseases, and central nervous system (CNS) disorders. But, there is a complicating factor in the economic story: the patient population benefiting from launch brands is becoming smaller. In 2007, on average, approximately 180,000 patients were exposed to a launch brand. That number has decreased year over year ever since. (See Figure 3.) By 2015, only 40,000 patients on average were being exposed to launch brands. This has created the perfect health-economic storm for payers whose budgets are taking the hit. They are now paying four times the cost for products that benefit one quarter of the patients. This leaves them with less in their budgets to cover the lion’s share of their insured population.
Payers have two tools in their arsenal to address this economic challenge. Either they can negotiate with pharmaceutical companies for deeper rebates, or they can aggressively manage patient access to launch brands. As we shall see, they have been using both tactics heavily.
Figure 4 shows that in recent years, payers have been successful in getting steeper price concessions from manufacturers. Consequently, the industry’s net price growth slowed sharply in just three years—from 9.1% in 2012 to 2.8% in 2015.
Payers can limit patient access to expensive launch brands in two ways: they can decrease formulary coverage and/or increase the patient’s co-pay. To measure the impact of decreasing formulary coverage, we can track the percentage of prescriptions presented to pharmacists that insurers reject due to lack of coverage. As Figure 5 on the next page illustrates, within commercial plans, pharmacy rejection rates have soared from 12% in 2010 to 33% in 2015.
Similarly, we should be able to quantify the impact of co-pay increases by examining prescription abandonment at the pharmacy. (See Figure 6.) Recently, average co-pays in commercial plans for newly launched products increased by 20% from 2014 to 2015. So, one would expect abandonment rates to also increase. Yet, they’ve remained fairly stable from 2010 to 2015. Why? By triangulating this information with insight into the growing use of co-pay assistance programs, we arrive at the probable answer: the industry’s efforts to help patients with out-of-pocket costs has offset the effect of the co-pay increases imposed by insurers. The average final co-pay that patients paid rose only 14% from 2014 to 2015, while co-pay offset costs grew more than 32%.
Thus, launch teams are being hit by a one-two punch. They are granting deeper rebates to payers and paying out more in patient-support programs.
In this environment, prescriptions written do not come close to equating to sales. Even for traditional products which are not as expensive as specialty brands, prescription fill rates (total prescriptions presented at the pharmacy, minus those rejected and abandoned) are decreasing. While the fill rate was 70% between 2010 and 2013, it dropped to 55% between 2014 and 2015. That means that for every 100 prescriptions that make it to the pharmacy, on average, only 55 get filled.
To understand this in more detail, we looked at fill rates for innovative versus non-innovative brands. As seen in Figure 7, the fill rate for innovative brands decreased by more than 50% in the last two years. And, it is far lower than the fill rate of non-innovative brands. In 2014 and 2015, the fill rate during the first six months of launch was 39% for innovative brands and 57% for non-innovative brands, suggesting that payers are much more aggressive in limiting access to innovative brands.
In many brand teams’ experience, payers are delaying their reimbursement decisions on launch brands, and so we compared fill rates for the first six months post launch with the second six months. While the data show a slight increase in fill rates in the second six months for innovative brands, there may be other factors at work aside from payers’ reimbursement decisions. It could be that manufacturers’ are contributing more to patients’ co-pays earlier on, a situation that would mask payers’ delayed decision- making. We do know from other analyses that payers tend to change their position up until about four months post launch.
BUT ARE THE REWARDS STILL THERE?
So, given payers’ pushback, the question becomes: Is the industry’s innovation still being rewarded? We conclude that it is, but, not nearly as much as in the past. And the change is taking place rapidly. From 2010 to 2013, innovative brands generated sales approximately three times the size of sales for non-innovative brands. In 2014 and 2015, that ratio had shrunk to about two times the size. So, while innovative brands still yield higher rewards than non-innovative brands, the differential is diminishing at an alarming rate.
What is around the corner? Will this trend continue? Admittedly, the outlook is worrisome as payers’ budgets are finite, and something must give. In 2016, 25% of launches were categorized as innovative, and 50% were launching into a market of high need. Yet, these launch brands are projected to have the lowest average first-year sales since 2013. (See Figure 8.)
WHAT CAN INNOVATORS DO?
While other QuintilesIMS analyses have revealed that the basic shape of the curve representing launch trajectories has not changed significantly, many other aspects of the launch environment have. Thus, manufacturers must modify their best-demonstrated practices to account for these market forces— most specifically the deepening influence of payers. Faced with payers’ growing restrictions on patient access, manufacturers must adopt more robust demand modeling to improve their forecasting capabilities. By more accurately sizing their asset, brand managers can better manage expectations of senior management, shareholders, and industry analysts.
Currently, many companies are “paying double” to improve access in that they are offering payers rebates and providing patients with assistance at the pharmacy register. While both are successful strategies, companies should carefully plan how to optimize them and avoid overcompensating. For example, it is probably not necessary to offer a $25 co-pay card to patients who are in plans with just a $25 co-pay—the outcome of the manufacturer’s 50% rebate to the payer.
Companies will need to have a multichannel marketing model and a customer team that is fully integrated and enabled within it. Certainly when addressing small numbers of highly important, but difficult to engage specialists, it is crucial to ensure that all channels are used to their greatest effect. Also, payers’ increased influence is quite regional, suggesting that manufacturers would do well to account for these regional variations in how they allocated their promotional resources across their marketing channels.
Companies will also require an intense patient focus. Specialty treatments are mostly geared to relatively small segments of patients with complex, difficult-to-manage diseases. Identifying these patients and supporting their treatment for optimal outcomes will be key to excellent launches
In the long run, in order to sustain their own R&D innovation, the industry will need to be creative in addressing the macroeconomics of medicine, ensuring that the cost of innovation is borne appropriately by all who benefit, not simply by today’s payers and patients.
Innovation is the lifeblood of the R&D pharmaceutical industry and what distinguishes it from all other sectors. The industry’s contributions to patient health and to advancing medical science are universally applauded. Yet, innovation— more precisely its price tag—captures the attention of payers and is forcing them to aggressively manage their budgets in ways that are dampening revenues for specialty brand manufacturers. Yes, the rewards for innovation are still there, but for how long? The trend is not encouraging. Is 2016 the beginning of the next era in the pharmaceutical industry—the Age of Limitation?
Bill is an expert in the field of pharmaceutical launch excellence with over 20 years of experience. He leads the Launch Center of Excellence for the US at QuintilesIMS where he focuses on launch readiness, tracking and performance diagnostics utilizing patient data, statistical modeling, qualitative and quantitative research. Bill leads a team of professionals responsible for developing thought leadership to provide innovative approaches for launching a brand. The research focuses on patient acquisition and prescriber adoption and productivity. The group has examined how launch success varies by market need and product differentiation creating launch archetypes. Findings have fueled offerings that focus on launch strategy, commercialization tactics and performance monitoring.
QuintilesIMS is a leading integrated information and technology-enabled healthcare service provider worldwide, dedicated to helping its clients improve their clinical, scientific and commercial results. Formed through the merger of Quintiles Transnational and IMS Health, QuintilesIMS’s approximately 50,000 employees conduct operations in more than 100 countries. QuintilesIMS provides solutions that span clinical to commercial, bringing customers a unique opportunity to realize the full potential of innovations and advanced healthcare outcomes. As a global leader in protecting individual patient privacy, QuintilesIMS uses healthcare data to deliver critical, real-world disease and treatment insights. Through a wide variety of privacy-enhancing technologies and safeguards, QuintilesIMS protects individual privacy while managing information to drive healthcare forward.