ICON Access, Commercialisation & Outcomes (ACC) - November 2017 Pricing & Market Access Briefing AUTHORS: Michael Pace Senior Principal, Pricing and Market Access Guy Sherwin Lead Consultant, EU Pricing and Market Access

1. Economic forces are forging a
new payer environment with value
demonstration at its core, and the
threshold for evidence on new
biopharmaceuticals and medical
technologies is higher than ever. In
response, pharma, biotech, and med
device companies are developing
new, increasingly more complex
go-to-market strategies that include
taking greater ownership of the
patient pathway, developing beyond-
the-pill solutions, proposing novel
pricing schemes, and integrating,
value-based market access
approaches.
Fortunately, the health information
technologies, sophisticated data
management tools, and digital health
applications that are powering the
predictive analytic suites being used
to manage populations, are also
bringing a new level of transparency,
immediacy, and precision to therapy-
related clinical outcomes, patient
health status, and the overall costs
of care. Thus, the information
infrastructure is much more capable
than ever before of supporting more
multi-factorial — often outcomes-
and financial risk sharing-based—
contracts with payers.
The following briefing, drawn
from our webinar, “Outcomes-
Based Agreements and Innovative
Contracting for Biopharmaceuticals,”
reveals developing trends in the
US and Europe and discusses the
decision points that are important
to manufacturers as they consider
Value-based Contracts (VBCs) with
payers.
November 2017
Pricing & Market Access Briefing
The Evolution of Contracting:
From Net Cost to Value
For years, the focus of manufacturer
negotiations with payers and
reimbursement authorities around
pricing and access has been around
net cost. Worldwide, contracts with
payers offered purchase discounts,
market share rebates, or other simple
price concessions in return for a drug
being listed or favoured on formularies.
In recent years, particularly in Europe,
contracting to obtain market access
has evolved to include innovative
ways of reaching mutually beneficial
agreement, including the use of
managed entry agreements based on
conditional reimbursement or some
form of risk-sharing.
Today, we are seeing the focus
of pricing and reimbursement
agreements around the world shifting
more broadly and swiftly to include:
–– Discounts and rebates that are
tied to appropriate utilization
–– Performance-based risked-
sharing agreements that link
price or access to therapeutic
performance, such as the
achievement of a clinical endpoint
such as Progression-Free Survival
(PFS) or clinical measures
–– Health-outcomes and shared-
value agreements in which
payment is linked to achievements
beyond drug performance, such
as health improvement or the
avoidance of healthcare resource
utilization
And not so far into the future, when
treatments, such as regenerative
medicines, cell and gene therapies
may be even more expensive and
designed for one-time use, we
The Rise of Value-Based Contracting for
Biopharmaceuticals and Medical Technologies
Michael Pace
Senior Principal, Pricing and
Market Access
Guy Sherwin
Lead Consultant, EU Pricing and
Market Access
Key Messages
–– The focus of payer contracts
is shifting away from solely net
cost to value-based inclusion
of appropriate utilization,
performance-based risk
sharing and health outcomes-
related elements.
–– Payers are motivated to enter
VBCs due to performance
and financial uncertainty,
inadequate data, and a price/
value mismatch.
–– Selecting the best VBC is a
complex process requiring
market analysis, financial
modeling and strategic
planning.
–– Contracting will continue to
evolve with pricing pressure,
robust information and
advanced analytics as catalysts
for value element integration.
can expect to see access funded
by entirely new healthcare finance
instruments , such as annuity
payments, bonds, credit, mortgages,
and risk pooling. Receptivity to
more complex agreements is not
homogenous around the world, or
from payer-to-payer within a country,

2. modern analytical tools to observe
real-world outcomes
–– Pervasive adoption of
smartphones and mobile apps is
creating new models for patient
engagement, especially for
patients with chronic conditions
–– The integration of EHR and
telemedicine platforms is enabling
digital workflows that can improve
quality of care and reduce medical
errors
The Motivation for Negotiation
Developing a contract upon a
product’s launch—and then managing
it throughout the product’s life cycle—
should result in a win-win for both
payer and manufacturer. While both
parties will share some objectives, not
all will align, so the process necessarily
involves compromise. Negotiations
proceed best when there is an
understanding of the other party’s
motivation.
Manufacturers strive to obtain broad
access to new therapies for patients.
Yet, they are also motivated to achieve
a price that reflects the product’s
value, to maximize the return on
their investment and to be rewarded
for innovation and to ensure their
company’s sustainability; all while
maintaining a positive corporate
reputation.
Payers want to improve the health
of their patient population as well as
to comply with public and political
pressures to make new drugs
available. Yet, at the same time, they
must ensure that there is a business
case to do so and that they can
mitigate the clinical and economic risks
of providing access to a broad range of
therapies.
Thus, in making any coverage
decision, payers must weigh the
perceived risks against the perceived
benefits (and the latter must outweigh
the former). For any payer, there are
four areas of perceived risk, particularly
at the time of a drug’s launch:
–– Performance uncertainty—will
the product perform in the real
world?
–– Inadequate clinical data—what
don’t we know from the data
submitted for approval?
–– Financial uncertainty—would
we be in danger of exceeding our
budget?
–– Price/value mismatch—is
the therapy worth what the
manufacturer thinks it is?
If these risks are not adequately
offset by the perceived benefits
of addressing high unmet needs,
reducing the burden of disease
or enhancing clinical/economic
outcomes, contracting can be a
tool to tip the scales. For example, a
price-volume agreement can mitigate
concerns around budget impact,
while performance-based risk-sharing
agreements can address performance
uncertainty.
Using Value-based Contracting
Innovation to Optimize
Commercial Success
Selecting and implementing an
appropriate VBC is challenging, and
manufacturers should consider a
variety of factors, including:
–– To what extent can local
contracting approaches be
accommodated, given the global
and regional strategies?
–– How would any agreement affect
the broader portfolio? To what
degree would it set a precedent
for future launches?
–– How should the approach be
tailored to the dynamics of the
therapy area (including trial design,
standards of care and disease-
specific outcomes, etc.)?
–– What are the likely financial
implications? Is there an
acceptable trade-off between
risks and benefits?
–– How well will the arrangement
differentiate the company’s asset
from the competition?
–– Is the market mature enough to
make a given strategy feasible?
but in general, the trend is toward
increasing acceptance of contracts
with more variables and risk sharing.
In the US, we expect that traditional
contracting will still predominate in
the near term even as outcomes- and
value-based elements are integrated
more frequently alongside transactional
elements in contracts with payers of
all types. There is still a great deal
of inertia to be overcome in the US.
Correspondingly, manufacturers and
payers are calling for clarity and the
easing of constraints around price
reporting and liability, as well as
therapy adherence and data analysis
activities
In Europe, Germany has historically
been unreceptive to anything other
than simple financial agreements,
although recent contracting at
the regional/local level indicated a
willingness to change. The same
pattern is emerging in Spain where
there is experience with, and appetite
for, outcomes-based agreements at
the regional level. In both France and
the UK, a majority of agreements are
still financially based, although there
are now some exceptions in France in
rare diseases, and we are beginning
to see some receptivity to outcomes-
based agreements in the UK. In
contrast, Italy is a mature market in
terms of VBCs, and a combination
of financial, payment-by-results, and
conditional treatment continuation
agreements are commonplace.
Implementation Hurdles are
Falling Away
Technology is clearly a catalyst in
the trend toward VBCs. The digital
revolution is reducing implementation
hurdles that have held back
widespread adoption of outcomes-
and value-based agreements.
Specifically, deals are easier to
envision, structure, and administer
because:
–– Large-scale computational power
is providing greater opportunities
for real-world insights into patient
behaviours, treatment costs, and
efficiency
–– Social media, health sensors,
electronic health records (EHRs),
and genomics are generating
huge amounts of patient
information that can be fed into

3. Evaluate competitive
environment, market
readiness and strategic
objectives
Identify potential
agreements and design
building blocks with
alternative options
Evaluate the planning
and implementation
challenges for each
agreement
Pressure test alternative
scenarios and build a
business case which
considers financial
impact
Drive performance,
monitor success and
plan for renewal or
contract expire
1) Analyse the market readiness,
the competitive environment
and your strategic objectives. It
is imperative that before you consider
your options, you do your homework
to understand the payer’s concerns.
Do they primarily revolve around
data, finances, or performance? You
must also determine whether the
market is mature enough to support
various types of contracts and
where your product fits in the market
competitively. Do others compete on
price or value? Will you be subjected
to cross-market risks? Internally, you
must ensure that your global, regional,
and local strategies will be aligned
and understand any implications
contracting will have, not just for the
brand, but also for the portfolio as
a whole, including products in the
pipeline. Is the market/payer ready?
Are we ready and aligned as a
company? Do VBCs fit our corporate
persona and would they be likely to
help us?
2) Identify potential agreements
and design building blocks. You
must consider each of the various
elements of a potential contract and
evaluate how the different options
will affect the value of the contract
and your ability to uphold it. What
data would the agreement be based
on, and would it measure a specific
patient population or a representative
sample of the real-world universe?
Would your product be compared
to an individual competitor or the
entire competitive class? Would it
be best to measure outcomes in
terms of efficacy, surrogate response,
biomarkers, adherence, cost of care,
or some combination? And, finally,
what would be the mechanism for
any potential compensation to the
payer (rebate/discount, price inflation/
protection, relative access, full/partial
refund of related resource costs)?
(See Figure 2.)
3) Evaluate the planning and
implementation challenges for
each type of agreement. These
range from stakeholder management
to cost and resource requirements
for implementation, accounting, time
requirements, the market mix, impact
on competitive positioning, and
monitoring. The latter will require that
infrastructure be in place and data be
available, whether administered by
a third party or between payer and
manufacturer.
Figure 2: Scenario 1Figure 1: The ICON value based contracting framework
Analyse Design Plan Validate Execute
We recommend that companies follow a five-step framework in order to select the optimal design. (See Figure 1.)
4) Validate the business case for
VBC selection. You will need to
“pressure-test” alternative scenarios
with internal and external stakeholders
and build a business case that
considers the financial impact, as well
as risk. By using financial modelling,
you can assess the long-term
financial implications of each option.
At this stage you should also think
through your renewal or exit strategy,
considering the financial, public and
political implications of renegotiating or
terminating the contract.
5) Drive performance, monitor
success and plan for contract
renewal or expiry. During execution,
you will need to regularly 1) engage
stakeholders to help them understand
the value of the agreement and
2) review the clinical and financial
performance to identify any action
and appropriate mutually beneficial
improvement opportunities while
3) continually assessing whether
the contract should be continued,
amended or terminated at expiry.

4. Some Key Success Factors
–– Built on common ground.
There must be some degree
of alignment in the objectives
between the payer and the
manufacturer. The intent of
the agreement can range from
demonstrating value to optimizing
care to generating revenue,
improving quality, experimentation,
and everything in between.
–– Matched to the right product.
The best deals will be made on
the right products, in the right
context. The best contract for the
situation will be determined by the
product’s stage in its lifecycle, its
degree of competition, the degree
of risk it poses, and its cost.
–– Supportable with data.
The structure of the agreement
will be affected by the type of data
that are needed to administer
the terms, how that data will
be transferred or accessed,
and whether it is verifiable and
auditable.
–– Structured strategically.
For the partners in the agreement
to be satisfied, substantive terms
must be ironed out with respect to
the timeframe, lead-in periods, key
measurements, and financial risk
magnitude and distribution.
–– Supported by right partners.
It is crucial that both parties
to a VBC have invested in
enabling resources themselves,
while enabling high degrees of
transparency and collaboration
between their organizations. In
more and more circumstances,
retaining a mutually acceptable
third-party data steward or
representative real world data
source accepted by the payer is
being seen as opportunistic.
ICON plc Corporate Headquarters
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Leopardstown, Dublin 18
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T: +353 1 291 2000
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ICONplc.com/commercialisation
ICON Commercialisation & Outcomes optimises the value of drugs and medical devices through
innovative strategies and tactics that reflect evolving evidentiary, regulatory, and reimbursement
requirements. Our expert team establishes and communicates a product’s unique clinical and
economic outcomes to achieve success in today’s dynamic and patient-centric healthcare environment.
ICON plc is a global provider of drug development solutions and services to the pharmaceutical,
biotechnology and medical device industries. The company specialises in the strategic development,
management and analysis of programmes that support clinical development – from compound
selection to Phase I-IV clinical studies.
Conclusion
The market is moving, inexorably,
to VBCs, although at different rates
around the world, by payer and by
manufacturer. We anticipate that
innovative and integrative contracting
will continue to progress, particularly
with the inclusion of outcomes-
based elements and value-based
consequences. Pricing pressure is
the driving force, with information and
technology the enablers.
To discuss the implications
of this briefing or to arrange
a meeting, please contact
enquiries@iconplc.com
Figure 2: VBC Design Building Blocks
Data source
Determine the
appropriate source
of data to base the
VBA
–– Specific payer
population
–– Representative
real-world
population
Comparator
Consider which
type of comparison
is required and to
what products or
data
–– RCT data vs.
real world
benefit
–– Individual
competitor
–– Entire
competitive
class
Measure
Determine the
most appropriate
outcome measure
–– Efficacy
outcomes
–– Adherence
based
–– Surrogate
response
–– Biomarkers
–– Costs of care
Business
consequence
Consider
the potential
compensation
mechanism
–– Rebate,
discount
–– Price inflation /
protection
–– Relative access
–– Full / partial
refund of related
resource costs
Potential VBA design
The different components
of a VBA can be
assembled to create a
number of customised
options