Gene therapy approvals highlight accelerated change in drug environment

April 21, 2020

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About me….

• Executive Vice-president & Chief Clinical Officer at Real Endpoints• Senior Advisor, MIT Center for Biomedical Innovation FOCUS

project• Board Director, Momenta Pharmaceuticals and TherapeuticsMD

• Former Associate Chief Medical Officer, CVS Health• Former Vice-president medical affairs and clinical innovation,

Medco• Former Director health benefits operations and clinical

performance, IBM

Jane F Barlow MD, MPH, MBA

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Overview of today’s discussion

1. Understand the changing market environment and its impact on specialty drug utilization and spend

2. Explore the impact of approvals for rare disease treatments

3. Demonstrate the effect of gene therapy approvals on contracting strategies

Agenda Learning objectives

01 US market dynamics

02 Evolving specialty drug environment

03 Case study: Gene therapies

04 Implications

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01 US Market Dynamics

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US prescription drug costs have more than tripled in the last 20 years

Peterson-KFF Health System Tracker https://www.healthsystemtracker.org/health-spending-explorer/?display=U.S.%2520%2524%2520Billions&service=Prescription%2520Drug&rangeType=range&years=1999%252C2018&source=Out%2520of%2520Pocket%252CHealth%2520Insurance&tab=1 Accessed 5 April 2020

$72.2

$286.2

$30.5

$47.1

$102.7

$333.3

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

US $Billions

Payer Pt OOP Total

$374

$1,026

$0

$200

$400

$600

$800

$1,000

$1,200

1999 2018

Per Capita $

Total Prescription Drug

Prescription Drug Expenditures1999-2018

Per Capita Prescription Drug Expenditures 1999 compared with 2018

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Key trends influencing U.S. market

Innovative, targeted treatments and specialty utilization

Payers are challenged to offer affordable benefits, foster health improvement and manage trend

•Increased payer size enables significant pressure/leverage over pharma•Vertical alignments create end-to-end control of the drug channel

•Potential end to protected classes, Part B reforms, international price indexing, drug importation, and direct negotiation

•Specialty drug trend, driven by price and utilization, steadily increasing, necessitating greater utilization management and restrictions

Drug pricing and affordability

Policy climate

Industry consolidation

•Value-based contracting represents a potential shift away from the deep rebate model

•Challenges persist in finding the right fit, developing the right model and implementing

Increase in innovative contracting and risk sharing

•Amplified demand for price transparency and reform •Greater cost sharing pushed on patients at all levels

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Vertical and horizontal integration Government focus on Rx cost and transparency

Innovators and disruptors

Three areas of exponential change having significant impact on the market environment

State Pricing Legislation

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Nearly 2/3rds of lives are enrolled in one of 9 large health plans

SOURCE: MMIT Payer data January 2020

Smaller plans have significant lives on aggregated basis – but limited opportunity to contract

Kaiser12M

United45M

Anthem 33M

Aetna 21M

Cigna 16M

Centene14M

Humana12M

CMS33M

All other plans (385): 125M lives

Coverage of US Population 2019 (327M covered lives)

HCSC16M

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Specialty is growing in absolute dollars and percent drug spend

Pharmacy Drug SpendMedical Drug Spend

% of Total Drug Spend 30% 38% 45% 50%

Total Industry Specialty Spend

20122014 2016

2018

17% Growth Rate

$92B$127B

$179B$235B

Adapted from: Partners Group

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Payers and Pharmacy Benefit Managers (PBMs) are increasingly utilizing strict approaches to manage drugs

• Formulary exclusions• Strict prior authorization criteria• Documentation

Source: Formulary Exclusion Lists published by CVS and ESI18

…leading to tighter management by payer’s across brands

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New approaches: Innovative contracting falls into several buckets…

Type of Contract

Product/ Company

Disease Contract

Outcomes-based: clinical

Luxturna/ Spark Rare retinal dystrophy

Unrestricted access to label following PA; guaranteed WAC pricing from buy-and-bill provider, additional rebate for non-improvement

Onpattro/ Alnylam hATTRamyloidosis

Unrestricted access with prior authorization following label. Multiple rebates including for discontinuation and liver transplant

Outcomes-based: cost

Jardiance/ Boehringer Ingelheim

Diabetes Larger rebate & 1-of-1 formulary if lowers cost of CV disease at health plan

Pay-over-time/ outcomes-based

Zynteglo/ bluebird bio*

Transfusion-dependent β-thalassemia

20% payment annually for 5 years; if certain number of transfusions required, no additional payments.

Cost-cap/ subscription

CV drug/ Biotech** CV disease Guaranteed payment for treating annually increasing % of defined CV/diabetes population with low-end of ICER pricing range & additional discount to reflect $0 copay

*Unsigned and still not final structure; **MoU but final contract unsigned

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02 Evolving specialty drug environment

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Innovative treatments targeted to rare populations are driving increased drug prices

1950 - 2000: Oral primary care drugs

1995-2015: Biologics for specialty categories

2018… Rare/orphan

Price/ScriptPatientsPayers

The most expensive drug in the world: Zolgensma at $2.1M per patient

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Specialty drug spending is poised to surpass traditional drug spending

Managed Care November 2019 based on IQVIA Medicine Use and Spending in the US, May 2019

Moved from 26% of drug spend in 2009 to 49.5% in 2018

Drug Spending by Traditional and Specialty, 2009 to 2018

738 727 699603 595 595 605 592 546 527

262 279 289318 385 385 438 471 489 517

0

200

400

600

800

1000

1200

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Traditional drug spend Specialty drug spend

2018

net

per

cap

ita d

rug

spen

d ($

) 1,000 1,006 988931

922 9811,043 1,064 1,034 1,044

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Rare diseases and cancer dominate pipeline and drive growth

1Citeline’s PharmaProjects, 2FoCUS NEWDIGS Initiative at MIT, 3EvaluatePharma, Orphan Drug Report 2019, 4BioCentury, April 2019

• Oncologics comprise 35% of 2018 pipeline1

• Companies are conducting 908 gene/cell therapy trials (in 140 indications)2

• Orphans will comprise 20% of worldwide sales in 20243

• In 4 of the past 5 years, over 40% of first product launches were orphan drugs, reaching a high of 58% in 20184

0

5

10

15

20

25

30

2014 2015 2016 2017 2018

No.

of P

rodu

cts

Orphan Non-orphan

~58%

~45%~41%~22%~40%

SPECIALTY: FIRST PRODUCT LAUNCHES

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03 Case study: Gene therapies

CONFIDENTIAL

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What is a gene therapy?

• Technique that modifies a person’s genes to treat or cure disease

• Mechanisms include:– Replacing a disease-causing gene with a healthy copy– Inactivating a disease-causing gene that is not functioning properly– Introducing a new or modified gene into the body to help treat a disease

• Regulated by the FDA Center for Biologics Evaluation and Research (CBER)– Biologics license application (BLA) required for marketing

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FDA website: https://www.fda.gov/biologicsbloodvaccines/cellulargenetherapyproducts/ucm573960.htm Accessed 29 September 2018

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How do gene therapies work? Hemophilia A example

• Adeno-associated virus serotype 5 (AAV5)-based gene therapy– Functional copy of gene that codes for Factor VIII protein is inserted into AAV5 capsid that delivers the

gene to a patient’s liver cells– Cells use new functional gene to produce Factor VIII protein– Administered by a single intravenous dose

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Examples of current and near-term pipeline gene therapies

Valrox: Hemophilia A

Zolgensma: hATTR Anyloidosis

Zynteglo: Beta Thalassemia

etranacogenedezaparvovec: Hemophilia B

Luxturna: Leber’s congenital amaurosis

5 patients/M lives $2.1M

10 patients/M lives $1.8M Europe

12 patients/M lives $?M

$?M49 patients/M lives

5 patients/M lives $.85 M

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Emerging one-time therapies create financial challenges

Three financial challenges exacerbated

Payment timingOne-time high cost

Performance risk: Effectiveness & durability

Actuarial risk:Likelihood of encountering a case

0

10

20

Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 6

Classic Medicines

Benefit Cost

0

20

40

60

80

Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 6

Durable Therapies

Durable Therapies Distill Payments Upfront

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New treatment innovations challenge current insurance paradigms, threatening access

New durable

therapies

Payer coverage

Patient access

• Growing clinical pipeline on innovative durable therapies

• High one-time cost will likely create financial challenges

• Sustainability for all stakeholders is at risk

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FoCUS: Multi-stakeholder group dedicated to making innovative cures accessible and sustainable

FoCUS: Financing and reimbursements of Cures in the US

FoCUS Financing and Reimbursement of Cures in the US

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation 22

• Burden of multiple high cost therapies

• Concern about what this will represent in 3-5 years with respect to total cost

• Potential off label use

• Operational management of a larger pipeline

• Adverse selection

Other reasons for high concern

98%84% 91% 91%

65%

2%16% 9% 9%

35%

0%10%20%30%40%50%60%70%80%90%

100%

Total cost is material formy plans

Payment timingrelevant to benefit

realization

Product performancerisk

Actuarial risk Other

Reasons why managing the financial risk of high-cost durable therapies is a high or extremely high concern (n=65)

Agree Disagree

Survey: US Payers’ concerns reflect all these issues

FoCUS Financing and Reimbursement of Cures in the US

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation 23

Greatest payer interest lies in addressing performance risks

6%9%

3%

18%14%

1%

29% 27%

13%

31%

40%

34%

16%

9%

49%

0%

10%

20%

30%

40%

50%

60%

Reducing upfront budget impact of the newtherapy by smoothing payments over time

Aligning the timing of the therapy costs withits benefits

Only paying for therapy that works

All Payers (N=77)

Not a benefit Slightly beneficial Moderately beneficial Very beneficial Extremely beneficial

FoCUS Financing and Reimbursement of Cures in the US

Most payers plan to develop strategies for these therapies over the next 2 years

Payers are inclined to manage these therapies differently

The question is high priority over the next two years

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FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation

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Three precision financing solutions are emerging to address reimbursement challenges

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation

• Short-term milestone-based contracts• Usually < 2-year duration• Pay for treatment upfront• Specified rebate payments tied to early outcome

• Multi-period performance-based annuities• Usually > 2 years (likely 3 to 5 years)• Payments spread out over contract period• Payment tied to performance over time

• Orphan Reinsurer and Benefit Manager (ORBM) and Risk Pools–Carve out risk and management of novel breakthroughs

Solutions must be customized for the

therapy/disease AND

satisfy each stakeholder

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Overview of a milestone-based contract (MBC)

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation

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One-year MBC timeline:

Via the provider or

intermediary

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• 3 January 2018: Massachusetts insurer Harvard Pilgrim Healthcare announces outcomes-based agreement for vision gene therapy

Treatment&

Payment

30 MonthEye Test

Manufacturer rebate if under-performance

X

Manufacturer rebate if under-performance

30-90 DayEye Test

X

Example milestone-based contract for vision therapy

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation

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Overview of a performance-based annuity (PBA) contract

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation

Pay when patient and healthcare system receive benefits

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Initial Upfront Payment

Assess Outcome Metric

Payer milestone payment if outcome met

Treatment 1 2 3 4 5Years

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NEWDIGS Initiative • MIT Center for Biomedical Innovation • CONFIDENTIAL 29

bluebirdbio company presentation, ready to recode; September 23, 2019. http://investor.bluebirdbio.com/static-files/8c4eb7bb-37d6-4fba-941c-1a154c8bbfd6 Accessed November 18, 2019

• Spread payments over up to 5 years

• Get paid only if the treatment works

Example performance-based annuity for β-thalassemia (Europe)

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Orphan Reinsurer and Benefit Manager (ORBM) concept

• Carve-out actuarial risk

• Enable scale for innovative contracting and financing

• Provide medical management

Source: Trusheim M, Mytelka DS, Warren GL, Han D, Ciarametaro M. Improving Management of Gene and Cell Therapies: The Orphan Reinsurer and Benefit Manager (ORBM). PharmExec 2018 Sept 10. Available at: http://www.pharmexec.com/improving-management-gene-and-cell-therapies

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Source: http://lab.express-scripts.com/lab/insights/specialty-medications/delivering-on-the-promise-of-modern-medicine

Beginning with 2 Gene Therapies

Cigna offering ORBM-Lite: Embarc

FoCUS Financing and Reimbursement of Cures in the US

Payers may favor different solutions based on their particular dynamics

Approach Commercial Fully Insured

Medicaid Medicare Advantage

Self-Insured Employer

All Payer Segments

Population risk-pooling 69% 40% 52% 50% 55%

Short-term MBC 75% 50% 61% 20% 60%

Long-term MBC 58% 36% 43% 30% 46%

Annuity: Spread payments over >2 years 33% 14% 24% 20% 24%

Performance-based annuity: spread payment over >2 years/tied to performance

47% 21% 35% 30% 35%

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Milestone-Based Contract (MBC): Pay for therapy upfront and receive refunds tied to performance over the short-term (< 2 years) or the long-term (> 2 years)

MIT FoCUS payer survey completed April 2019: 77 participants representing over 280M lives

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Important to start the dialogue on financing solutions early as barriers need to be addressed

FoCUS NEWDIGS Initiative • MIT Center for Biomedical Innovation

Structural Strategic Administrative• Pricing and Reporting

Regulations, esp. Medicaid Best Price

• Insurance Reserve Regulations

• Accounting Cost and Revenue Recognition Rules

• Ability to sign multi-year agreements

• Coverage • Patient mobility• Reinsurance strategy

• Tracking patients over time

• Ability to align on relevant outcomes measures and milestones

• Ability to align on terms• Program administration

effort

FoCUS Financing and Reimbursement of Cures in the US

FoCUS insights and resources available onlinehttps://www.payingforcures.org/toolkit

FoCUS Financing and Reimbursement of Cures in the US

Purpose

Target Audience

Format

• Payer and biopharma teams who have not designed a precision financing solution and are considering it • For specific products• For the coming pipeline

• Policy-makers who wish to understand key FoCUS insights

Toolkit: Purpose, Audience, Format

• Web-based• Self-directed• Simple -- “peeling the onion “ iteratively

• Resource for practitioners considering offering or adopting a precision financing solution:• Easy access to FoCUS learnings• Jump start own solution design • Accelerate use of precision financing

NEWDIGS Initiative • MIT Center for Biomedical Innovation

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04 Implications

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Summary

US drug trend continues to grow fueled by specialty and increasingly drugs for orphan conditions

Market consolidation leaves few payers with most of the negotiating power

Gene therapies introduce new areas of uncertainty: Payment timing, performance risk and actuarial uncertainty

New reimbursement models are under consideration to address gene therapy risks

New tools are emerging to support stakeholders in their assessment of gene therapies

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Actions

Educate• Stay abreast of the changing environment• Identify resources and tools to help

Assess

• Understand the impact of orphan drugs including gene therapies on your plan

• Consider cumulative impact in addition to the individual drug impact

Innovate• Explore new reimbursement models• Define a strategy to achieve negotiating power

Thank You!jbarlow@realendpoints.com