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Jamie DaviesHead of Pharmaceuticals, Healthcare & Medical Devices

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Overview

• Trends in price control mechanisms.

• Innovative pricing models.

• How macroeconomics affects policymaking.

• The outlook for pharmaceutical pricing & reimbursement.

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Price Control Mechanisms

• Free pricing and indirect control.

• Value-based pricing.

• Reference pricing (internal and external).

• Wholesale and pharmacy mark-ups.

• Reimbursement lists and formularies.

• Essential medicine lists.

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Drug Sales Trend In The US, % change y-o-y

Specialty drugsOverall drugsTraditional drugs

Source: Express Scripts, The 2014 Drug Trend Report, March 2015.

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Risk-Sharing Deals

• Driven by need to constrain growth in healthcare spending.

• Indication-specific product pricing.

• More tools in health economics, such as ROI calculators.

“One of the big frustrations has always been people paying top dollar for drugs that aren’t always giving them the best response. If pharma is truly sincere about wanting value-based reimbursement, we now have the sophistication to do that.”

Express Scripts CMO Steve Miller, July 2015 Source: Memorial Sloan Kettering Cancer Center (MSKCC).

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Example Medicine Price Calculation Using MSKCC's DrugAbacus

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Companion Diagnostics

• Exemplified by Herceptin and HER2.

• Another regulatory hurdle with associated expenses.

• Leading to personalised medicine.

Image: use of a companion diagnostic (CDx) to identify the patient subgroup suitable for treatment with the corresponding pharmaceutical. Source: American Association for Cancer Research (AACR).

“When an appropriate scientific rationale supports such an approach, the FDA encourages the joint development of therapeutic products and diagnostic devices that are essential for the safe and effective use of those therapeutic products.”

U.S. Food and Drug Administration, August 2014

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Remote Monitoring Devices

• Remote monitoring should ‘improve’ effectiveness of pharmaceuticals.

• Quantitative and qualitative data to aid clinical decisions.

• Important to consider total cost.

Image: a patient enrolled on Partners HealthCare’s Connected Cardiac Care Program (CCCP) with the remote self-monitoring device.

“If you had a remote-monitoring device that the patient could use in their home together with Entresto, we could make a more serious dent in hospitalization.”

Novartis CEO Joe Jimenez, July 2015

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Differential Pricing

• Lower prices > increase volumes > widen access.

• Approach dictated by portfolio.

• Risks to implementation but also considerable long-term upside.

“We're going to focus on that, get that volume out there at a fair price, get a good return on our R&D investment, but not be fixated on defending ever and ever higher prices in the developed world."

GSK CEO Andrew Witty, May 2015

Image: still from television interview between GlaxoSmithKline’s CEO Andrew Witty and CNBC’s Squawk Box in May 2015.

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Pharmaceutical PolicyNumber of policy measures implemented between 2008 and 2011Economically stable

countries Economically less stable countries

Austria Estonia Finland Greece Ireland Portugal Slovakia Spain Total

Pricing

Price cuts 0 0 0 2 2 3 0 4 11External price referencing 0 0 0 3 0 2 2 1 8Distribution remuneration 0 1 0 3 3 3 0 3 13

VAT on medicines 1 1 0 1 1 1 0 1 6Extraordinary price review 0 0 0 2 2 1 1 1 7

ReimbursementInternal reference pricing 0 1 1 1 0 2 2 1 8Out-of-pocket payments 4 1 0 0 1 5 3 2 16

De-listing 0 0 1 2 0 1 0 1 5

GenericsINN prescribing 0 1 0 0 0 1 1 1 4

Generic substitution 0 0 0 0 0 0 0 0 0Pro-generic public campaigns 1 2 0 0 1 3 1 2 10

Total 6 7 2 14 10 22 10 17

“The three economically stable countries implemented 15 measures, compared with 73 in the five economically less stable countries.”

Source: Effect of the economic recession on pharmaceutical policy and medicine sales in eight European countries, Christine Leopold et al, Bulletin of the World Health Organization (WHO), Published online: 16 June 2014.

High number of pharmaceutical policies

Low number of pharmaceutical policies

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The Ripple Effect

• Greece crisis could cost industry billions.

• Complexity and currency considerations.

• Undermines incentives for price differentiation in low income countries.

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R² = 0.551110980550008

Relationship Between Wealth And Components Of Pharmaceutical Reference Basket

Country per capita GDP rank

Reference basket per capita GDP

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Source: C Leopold et al. / Health Policy 104 (2012) 50-60.

Austria

Poland

“International reference pricing undermines value-based pricing and can lead to distortions since currency fluctuations and price cuts imposed by structural problems in one country have a spill-over effect in other countries."

European Federation of Pharmaceutical Industries and Associations (EFPIA), June 2014

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Outlook For Pricing & Reimbursement

• Risk-sharing deals will be embraced primarily by payers but also drugmakers. • Companion diagnostics to play key role in genomics revolution in healthcare.

• Uptake of remote monitoring device to remain slow over medium term.

• Few companies to engage in high volume, low price strategies.

• Economic downturns lead to policies that are negative for pharmaceutical companies.

• Industry opposition to international reference pricing to increase.

BMI View: Pharmaceutical companies that successfully communicate the value of their products to decision-makers will outperform.

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Q&A