Defining Innovation in Medicines: How to Transform Innovation into Value

Defining Innovation: How to
Transform Innovation into Value
Jorge Mestre-Ferrandiz
Office of Health Economics
1
Summer Course on the Evaluation of Medicines
University of Alcalá • Alcalá de Henares, Spain • 26 June 2013

Escuela de Verano – Evaluación del Medicamento
• Characterising innovation in general and for
medicines
• How do payers define innovation for
medicines?
• Rewarding innovation – case studies
• Final remarks
Agenda
2

Escuela de Verano – Evaluación del Medicamento 3
Available for download at: www.ohe.org

Characterising innovation in general
4
Each element on its own is
a necessary, but not
sufficient, condition for an
innovation
The three elements are
required
Newness
Improved
attributes
Willingness
to pay
Consumer is ultimate arbiter of value

5
Normal market conditions Pharmaceuticals
End user - CONSUMER
Decision maker - CONSUMER
Payer - CONSUMER
End user - PATIENT
Decision maker - PRESCRIBER
Payer – THIRD PARTY
Principle still holds that an innovation is something that the
ultimate consumer, the patient, finds more useful than what was
available before

6
Innovation can be on a large or small scale
Innovation is not ‘on or off’, ‘black or white’
Innovation is a matter of degree
Innovation is not limited to a narrow range of aspects
Innovation can include anything that people find useful
Innovation is evolutionary, not duplicative

• Outcome can hardly be anticipated ex ante
• Even after innovation is brought to market, still difficult to
forecast
• Eventual social & economic impact
• Possible directions of technology changes
• Experience effects important
• Learning by doing – manufacturing process
• Learning by using – improvements as a result of using new product
Innovation is an uncertain activity
7
New technologies enter the market in primitive form
Successive improvements derive significant economic benefit
through experience processes

• Important to understand cumulative impact
of many small improvements occurring over
time
• …“the total growth in productivity takes the
form of a slow and often invisible accretion of
individually small improvements in
innovation”…(Rosenberg, 1982)
Innovation is a cumulative activity –
small steps are important too
8

Characterising innovation in
pharmaceuticals
9
• Complex and multi-dimensional
• Requires broad perspective
Misleading to measure the degree of
innovativeness of any one medicine with a
single indicator:
“Breakthrough vs. me-too”
We run the risk of ignoring some, or all, of the
advantages of follow-on products

• The attributes of innovation can be grouped
under three general headings:
• Health gains
• Patients’ and carers’ convenience
• Other societal gains, including cost savings
Characterising innovation in
pharmaceuticals
10

Potential attributes of an innovative
pharmaceutical
11
Innovation
Tackling new
disease /
indication
Health
outcomes
•quality of life↑
•life duration ↑
Faster
treatment
Safety
•side effects ↓
•tolerability↑
Interaction
with other
drugs
Subpopulation
treated
Patients’ /
carers’
convenience
Productivity
benefits
Releasing
other health
care resources
Releasing non-
health care
resources
Source: Mestre-Ferrandiz et al., 2012. The Many Faces of
Innovation

• Tackling any new disease and/or indication
• Health outcomes (gains) as compared to existing treatments, which may comprise one or
both of quality of life and quantity of life, both for patients and carers
• Faster health improvement, eg reductions in recovery time from weeks to days may be
valuable to patients even if too small to be detected by traditional measures of outcome –
quality-adjusted life years (QALYs)
• Reduced side-effects and/or improved tolerability (which leads to better health gains for
patients both directly and through better adherence)
• Reduced negative interactions with other medicines
• Possibility of better treatment for one or more different patient subpopulations, with the
advantage that patients are less exposed to one-size-fits-all medicines
=> Health gains can arise either when a new medicine starts treating a new condition
not hitherto prevented or treated effectively (ie first-in-class) or by offering some form
of health gain versus existing treatments
Health Gains
12

• Patients’ and carers’ experience of the process of healthcare and hence their
satisfaction, independent of the final health outcomes
• Examples:
• new presentations or delivery methods for existing molecules—patches; oral
treatments replacing intravenous
• the opportunity for patients to treat themselves at home
• special pharmaceutical presentations for children, the disadvantaged and those
affected by inequalities in health and health care
• Improved convenience may allow patients greater independence and dignity
• Patients’ convenience is an aspect of innovation because it is something the end user
would be willing to pay for, given the chance
• Greater convenience is a desirable end in itself from the patient’s perspective and also
should lead to better adherence and hence to further health gains.
• Better adherence can also lead to cost reduction by avoiding waste
Patients’/carers’ convenience
13

• ‘Releasing other healthcare resources’, ‘releasing other non-healthcare
resources’, and ‘productivity benefits’ or benefits to the economy as a whole
• Other resources can be freed as a result of the introduction of new medicines,
now or in the future, through disease prevention and/or slower progression of
the condition
• When new medicines enable a change in the way that healthcare is provided to a
group of patients, then other resources (including non-healthcare resources, such
as social care) may be released
• Example is when medicines reduce hospitalisation costs by reducing lengths of
stay or eliminating the need for hospitalisation at all; medicines also may
improve the cost-benefit ratio relative to existing treatment
• Other non-healthcare resources could include reduced patient/carer out-of-
pocket costs and costs falling on other jurisdictions, such as formal social care and
the criminal justice system
• New medicines can also lead to productivity gains as a result of patients or carers
returning more rapidly to work or not missing work at all, increased productivity
at work, or carers being able to lead a more independent life
Other Societal Gains
14

• Need to introduce dynamic element
• Experience effects important for pharmaceuticals –
learning by using
• Better use for original indication
• Additional indications
Post-launch effects
15
Experience gained after market approval
Unexpected new therapeutic
uses discovered mainly by
chance
Extension of therapeutic areas of
use by application of known
actions
New formulations, new dosage
forms or new forms of
administration

• Significant proportion of sales for top selling medicines comes
from secondary indications (Gelijns and Moskowitz, 2000;
Pritchard et al., 2000)
• Any exercise rating degree of innovation needs to recognise
realities of post-marketing experience (Rosen and Beerman, 1999)
Post-launch effects
16
Any definition of innovation for medicines needs
an element of flexibility in order to capture the
(un)expected medical benefits revealed through
use once on the market

Examples - Antiepileptic drugs (AEDs)
17
New
generation
AEDs
Health
outcomes
Increased long
term
effectiveness
Increased QoL Safety
Fewer side-
effects
Decreased risk
of long-term
damage
Interaction with
other drugs
Decreased / no
potential for
clinically relevant
DDIs
Advantageous in
polytherapy
Subpopulation
treated
Elderly benefit
from non-
metabolised,
non-enzyme-
inducing AEDs
Patients’ /
carers’
convenience
Improved
adherence
Patients’ / carers’
convenience
Easier formulations
for children,
handicapped and
emergency
patients
Releasing other
healthcare
resources
Reduced cost per
seizure
Reduced cost per
QALY
Reduced
healthcare
utilisation costs
Newest
generation
AEDs
Health
outcomes
Effective
Provision of
broad spectrum
efficacy
Tackling new
disease/
indications
Greater efficacy in
refractory epilepsy
Useful in other
non-epileptic CNS
disorders
Interaction with
other drugs
Decreased / no
potential for
clinically-relevant
DDIs
Advantageous in
polytherapy
Subpopulation
treated
Elderly benefit
from non-
metabolised,
non-enzyme-
inducing AEDs
convenience
Once-daily
administrations
Increasing drug
adherence by
better tolerability
and more
convenient
application
Additional benefits of the ‘newest-generation’ AEDs
relative to earlier AEDs
Additional benefits of the new-generation AEDs relative to
first-generation AEDs
Innovation

Examples - Chronic myeloid leukaemia
18
Imatinib
- CML
Health
outcomes
Survival rates
QoL
Safety
Lower
withdrawals
Releasing
other
healthcare
resources
Cost effective
Imatinib – improvements relative to alpha-interferons for the
treatment of newly-diagnosed CML patients
GTKIs – Improvements relative to standard of care for
the treatment of imatinib-resistant/intolerant CML
2GTKIs
Health
outcomes
Disease
modifying
Safety
Lower toxicity
than many
alternatives
Subpopulation
treated
Imatinib
failures
Releasing other
healthcare
resources
Reduced
burden on bone
marrow stem
cell transplant
Innovation

Examples – Colorectal cancer
19
Benefits derived from capecitabine, irinotecan and oxaliplatin relative
to 5-FU/FA for the treatment of colorectal cancer
Capecitabine
Irinotecan
Oxaliplatin
Health outcomes
Improved
survival
Improved PFS
Safety
Different side-
effect profiles
Subpopulation
treated
Patients with
metastases
confined to liver
convenience
Oral therapy
Releasing other
healthcare
resources
Cost savings
Additional benefits from cetuximab, bevacizumab and
panitumumab relative to previous treatments, for colorectal
cancer
Cetuximab
Bevacizumab
Panitumumab
Health outcomes
Improved
survival
Improved PFS
Safety
For patients
intolerant to
irinotecan
Subpopulation
treated
Patients with
EGFR-expressing,
KRAS wild type
Innovation

Value of follow-on products
20
Price competition
• Follow on drugs
launched at discount
vs. first in class
• Price increases limited
by number of follow-
on products
• But degree of
competition also
depends on price
freedom – the higher
the flexibility, the
tougher the
competition
R&D spillovers
• Spillovers between
R&D programmes
within the
pharmaceutical
companies
• Externalities
between
pharmaceutical
companies –
spillovers outside
companies
R&D competition
• Pharmaceutical R&D
is not a winner-takes-
all race – first-in-class
not necessarily best
in class
• Pharmaceutical R&D
is simultaneous –
cannot distinguish
between R&D for
first-in-class and
follow-on
• Periods of marketing
exclusivity decreasing
over time

medicines
medicines?
• Final remarks
Agenda
21

National systems vary greatly in complexity and detail,
particularly when account is taken of how the concepts are
applied in practice over time to decisions on access,
reimbursement and pricing over the market life cycle.
In summary, there are three basic situations:
1. Countries that use relative effectiveness based on
clinical expert opinion + budget impact
2. Countries that use cost-effectiveness with budget
impact integrated in as ‘thresholds’ in some cases
3. Countries that largely appear to have no formal models
or processes and where budget impact limits are applied
indiscriminately to all products
Payers’ definitions of innovation
22

High level summary
23
SWITZERLAND
MEXICO
CZECH R.
◊
HUNGARY
◊
SLOVAK R
◊
POLAND
SPAIN, ITALY
PORTUGAL, GREECE
AUSTRIA
GERMANY
UK
NETHERLANDS,
SWEDEN,
DENMARK, IRELAND
USA
JAPAN
TURKEY
CANADA
AUSTRALIA
NZ
BELGIUM
FRANCE
EU
Cost Effectiveness
KOREA
TAIWAN
Clinical RE
Budget Impact
Source: OHE internal analysis

France
24
1. The “Medical Value”
(Service Médical Rendu -
SMR) rating is based on
the following factors:
• efficacy/tolerance
• severity of the disease
• existence of therapeutic
alternatives
• place in the therapeutic
strategy (first line, second
line, etc.); and
• public health impact
SMR Disease
Severe Non-
severe
Major or
important
35% 65%
Modest or
low
65% 65%
Insufficient 100% 100%
Relationship between SMR rating, severity
of disease and patient co-payment rate

France (II)
25
Price of new drugs determined by the level of therapeutic improvement
relative to existing treatments is assessed using the ASMR (Amélioration
du Service Médical Rendu)
I Major therapeutic progress
II
Significant progress in terms of therapeutic efficacy
and / or reduction in side effects
III
Modest progress in terms of therapeutic efficacy and /
or reduction in side effects
IV
Minor progress in terms of efficacy / usefulness
(improved compliance, value added formulation,
improved pharmacokinetic properties e.g. reduced risk
of interactions)
V No therapeutic progress
ASMR
rating
High
Low

• Criteria in Early Benefit Assessment of
New Pharmaceuticals :
• Sustained and great improvement ^ (cure,
major increase in survival time, long-term
freedom from serious symptoms,
extensive avoidance of serious side
effects)
• Marked improvement ^ (perceptible
alleviation of the disease, moderate
increase in survival time, alleviation of
serious symptoms, relevant avoidance of
serious adverse effects, important
avoidance of other adverse effects)
• Moderate and not only marginal
improvement ^ (reduction in non-serious
symptoms, relevant avoidance of side
effects)
Key: ^in the therapy-relevant benefit, which has not
previously been achieved versus the appropriate comparator
Germany (AMNOG, 2011)
26
Pricing negotiations

• Health Technology Assessment (HTA) is the prime basis for
admission to the reimbursement system for new products
• The law sets forth the criteria which must be fulfilled if a
medicine should be reimbursed. Those criteria consist mainly
of three principles:
• The human value principle: care should be given with respect for the
equality of all human beings
• The solidarity principle: those in greatest need take precedence in
medical care
• The cost-effectiveness principle: the cost for using a medicine
should be reasonable and fair from a medical, humanitarian and
social-economic perspective
• No explicit cost-effectiveness threshold
Sweden
27

1. VBP will replace the current Pharmaceutical Price Regulation Scheme
(PPRS) in the UK from 1st January 2014
• VBP has not been formally implemented and therefore the practical
application of its principles has not been stated yet
• The Government will set a cost-effectiveness threshold structure that
applies weights to the different benefits provided by new medicines that
reflect the value of a new drug
2. VBP operationalisation might imply:
• Identifying the health gain and other attributes of the technology that are
deemed to be of value
• Some means of measuring and valuing those attributes for each particular
medicine
• A way of aggregating the relevant benefits and costs
• A decision rule to convert the overall measure of value into a maximum
price the health care system would be willing to pay
UK
28

3. The Government has established whichattributes of a medicine it
believes deliver value to society
• Improving health across the NHS
• Tackling diseases where there is greater “burden of illness” (BoI)
• Demonstrating greater therapeutic innovation and improvement
(TII) compared with other products
• Demonstrating wider societal benefits (WSBs)
4. Criteria to measure the value of each element will be decided by the
Government
• The value of health gains will most probably still be measured by
QALYs
• BoI might be weighted by the severity of the disease
• TII might reflect different dimensions, e.g. unmet need, rarity
• WSBs might include the savings to the indirect costs of care borne
by patients and their caregivers
UK (II)
29

• In Germany and France the emphasis of the recent reforms is
centred around the evidence requirements and, in particular,
the use of comparators and head-to-head trials.
• In the UK, however, VBP is about the weighting given to the
evidence and the social value of a drug; for instance, does a
drug fulfil an unmet need or is there a high burden of illness
associated with this particular disease?
• Overall there is an increasing emphasis on proving innovation
and/or an additional health benefit in order to get a high(er)
price (relative to comparators)
• Evidence requirements are stricter
30
Some Common Themes

medicines
medicines?
• Final remarks
Agenda
31

• This study reviews appraisals of breast cancer and colorectal cancer medicines
carried out by HTA agencies in a selection of industrialised countries
• Aims: identify key drivers of decisions and to understand the similarities and
differences in the requirements of different agencies
• Breast cancer and colorectal cancer represent two of the most prevalent types of
cancer in industrialized countries, with a relative abundance of publicly available
data relating to pharmaceutical advances in these diseases
Rewarding innovation
32

• Examination of reimbursement decisions made in Australia,
Canada, England and Wales, France and Scotland for:
• 9 medicines for breast cancer (40 decisions)
• 8 drugs for colorectal cancer (36 decisions
Case Studies: Defining and Rewarding Incremental Innovation
in Breast and Colorectal Cancer
Positive Restricted Negative
Breast (n=39) 62% 17% 21%
Colorectal (n=38) 42% 13% 45%
• Well established reimbursement systems with similar goals
• But often reach different conclusions about the value of a particular
medicine
• Explained by differences in their approach to assessment
33

Use of surrogate
endpoints
Patient voice
Comparator issues
Dealing with uncertainty
and available evidence
Issues
Discussion
Four broad areas where differences of approach to
assessment appear to have led to differences in decisions
about whether to fund a particular medicine
34

medicines
medicines?
• Final remarks
Agenda
35

1. Innovation in pharmaceuticals, or indeed any other area, should
not be described as binary—it is a matter of degree
2. The ultimate arbiters of the innovativeness of a new product (in
the absence of externalities) are the users. For medicines, the
‘users’ include patients who take the medicines, payers who bear
the financial costs, prescribers who decide which medicine is
used, and carers who offer support to patients => Thus,
innovation in medicines should be treated as a multidimensional
concept: a new medicine may be more or less innovative along
any one or more of the dimensions
3. Pharmaceutical R&D is a risky process with uncertain outcomes.
Consequently (dis-)incentives for innovation can be expected to
affect all magnitudes and dimensions of innovation inextricably
Final remarks
36

4. The full assessment of innovation of medicines is only possible well
after launch because many valuable therapeutic benefits are not
appreciated until long after launch. This means that if these drugs are
not launched or not used, many of these additional benefits will not
be realised
5. The published literature shows that dynamic R&D competition
between organisations drives greater R&D efficiency and productivity
as well as the potential for price competition when the result is that
more than one molecule is launched within a therapeutic area. For
companies, dynamic competition drives their R&D process and
decision-making. For payers, price competition can generate savings.
Overall, dynamic efficiency reduces the time patients must wait to
get access to new technologies and yields differentiated medicines,
enabling better matching to different patients’ needs
Final remarks
37

6. Differences in key considerations across HTA agencies can
sometimes mean that they reach different recommendations
when assessing the same products
7. Any policy that does not recognise all aspects of value as well
as the costs to the payers, and that has the potential to
increase the uncertainty of future earnings if a company fails to
launch the first-in-class medicine, might end up discouraging
potential worthwhile R&D investment
8. Pricing and reimbursement or health technology assessment
(HTA) regulation that ignores or subverts the previous
concluding points risks stifling socially-valuable innovation
Final remarks
38

To enquire about additional information and analyses, please contact Dr.
Jorge Mestre-Ferrandiz at jmestre-ferrandiz@ohe.org
To keep up with the latest news and research, subscribe to our blog, OHE News
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©2013 OHE
39

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