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Maximize Value July 09, 2015

Entresto: Pharma's Litmus Test for Value-Driven Healthcare?

Partner, Health & Life Sciences, Oliver Wyman

Last week Reuters reported that Novartis plans to use a novel pricing model when it launches its “keenly awaited” new heart failure drug Entresto. David Campbell, an Oliver Wyman Partner who specializes in valuing new drugs, breaks down how this new model could impact the traditional pharma-payer-provider dynamic:

Entresto is shaping up to pose a litmus test for value-driven healthcare.

The drug treats the more than 2 million Americans with heart failure who have low or irregular heartbeats, characterized as reduced ejection fraction. The drug reduces risk of death from cardiovascular causes by 20%, heart failure-related hospitalizations by 21%, and all-cause mortality by 16%. Prior therapies blocked detrimental effects, but mortality remained high, with some 50% of patients dying within 5 years of diagnosis.

With these strong results, Entresto was approved by the FDA six weeks earlier than expected. While there are few details available on pricing, Novartis has signaled some important intentions all the more enticing in a year where pharma has increasingly felt the press of reform.

First, Novartis has confirmed it will price Entresto (full cost for uninsured patients) at $4,500 per year. While this is materially higher than the $108 per year cost of the current, genericized standard, Enalapril, it is a far cry lower than other recent, breakthrough and lifesaving therapies, such as the $178,000 Blincyto for leukemia and $94,000 per year for Harvoni, the HepC treatment.

Perhaps even more interesting to note are Novartis’ indications it will “propose discounts…followed by bonuses or price raises over the long-term if the medicine reduces hospitalizations for patients.” Novartis will help payers with the initial incremental cost and its impact on their budgets, and allow payers to earn savings and share that risk with the drug developer.

Clearly, as discounts price Entresto closer to the current standard’s, adoption becomes easier. Why wouldn’t a doctor write a script for a clinically superior product with no economic downside? “Why should we?” adopt becomes “why wouldn’t we?” For the payers, the situation could be similarly compelling. As discounts reduce the cost impact vs. current therapies, covering the drug becomes easier, and payers can provide a breakthrough new therapy to patients sooner.

But what of the “bonuses…if the medicine reduces hospitalizations”? This could potentially lead to a more radical shift. Can providers and payers actually measure and manage a risk-sharing or value-based program such as the one being set forth by Novartis? No medicine, taken improperly, will merit its costs. Can providers diagnose, dose, educate, and help patients remain compliant with the medicine so that patients and payers see the benefits?

Payers will, undoubtedly, need to “earn” the low-cost initial pricing by showing that they can measure and track the outcomes that would lead to fair value for Novartis. Can they reflect marginal or only the full cost of the resources? Can the systems handle the many co-morbidities associated with these patients? If not, are they prepared to say that they can’t “value” an innovative medicine, or deprive patients and consumers of the opportunity to access the drug by not having those processes and capabilities in place?

Given these overarching questions, this will be an exercise in clear and manageable metrics. Taking the therapeutic benefits as given, then the contracting—what is required to earn the low base pricing, what will trigger the value-sharing, and so on—is key to the success of the arrangement. With its success comes a new model for healthcare. With a failure come serious questions about the health system’s ability to appreciate and benefit from better therapies.

If the agreement is too burdensome, it will impede adoption and longtime benefits to the patient as well as reduce the value to the healthcare system. Too lax, and Novartis will not see sufficient return on its high and lengthy investment to merit continued support, ultimately limiting the overall positive impact on the health system as a whole in the longer run.

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