Biotech + Pharma Strategy Midterm

What are the 4 (sometimes 5) phases of the clinical pipeline?

1) Drug Discovery

2) Preclinical Research (animal testing)

3) Clinical Research (testing on people)

4) Regulatory Review (US: FDA, EU: European Medicines Agency, JN: Japan's Pharmaceuticals and Medical Devices Agency)

5) Post-approval testing

What elements are present in the drug discovery phase?

• Disease is understand and drugs are identified

• Research is extensively funded by the NIH

• Studying a mechanism to identify a target

In the clinical research phase, a drug is tested on humans as ______ application and waits for FDA approval

Investigational New Drug

Name the 3 phases of clinical research testing

1. Phase I: small group of volunteers shares information about the human candidates safety and his body metabolism post drug consumption

2. Phase II: Hundreds of patients for the next level of testing, sharing info on the drug’s safety, short-term side-effects, and optimal dosing*

3. Phase III: Actual patients who would be treated by the drug. Might involve thousands of patients

*Can be shortened to 2 phases if the drug is promising and goes to underserved populations

Name the 6 factors for clinical research

1. If there is a small treatment difference in a large group

2. If there is a greater variation effect of the drug across people

3. To identify rare side effects

4. For a smaller, false positive rate

5. For higher power

6. If less costly to find patients (e.g. rare diseases are costly to find patients)

What are the 3 phases of regulatory review under the FDA.

1. Submit results and analysis of product testing

2. Propose drug’s label and for manufacturing

3. Adherence to FDA’s current Goods Manufacturing Practices (scaling using FDA reference experts)

What are the 2 drug types up for regulatory review by the FDA?

1. New Drug Application (NDA)

2. Biologics License Application (BLA)

What is the total amount of years it can take to synthesize, test, submit, and approve a drug? How long does testing and submission/ approval take?

11 Years. 8 Years (each phase ~2yrs).

Among the US, Europe, and Japan, who has the shortest regulatory review times? Who has the least variation in review times? What body performed the review?

USA. Europe. Centre for Innovation in Regulatory Science.

What does Phase IV Testing consist of

Happens post approval.

• Demonstration of safety + efficacy in a larger population

• Allows the manufacturer to provide more info about the benefits / new uses of the drug

You would want to fail fast in phase __, as it is the most expensive phase

III

What is the percentage of drugs that are successful from Phase I to Approval?

12% (only 1/8 of drugs)

% of drugs have a probability to make it through Phase III to NDA/BLA submission. __% of drugs make it from submission to approval, as you are not likely to submit a drug that is not likely to be approved.

62%. 90%

What are the four FDA designations? Describe them

1. Fast Track (may not need phase III testing)

2. Accelerated Approval (using a surrogate endpoint, rather than clinical)

3. Break-through therapy (receive fast track and guidance)

4. Priority Review (6-mo vs. 10-mo standard review)

What 3 designations lead to typically receiving priority review?

Fast track

Accelerated Approval

Break-through therapy

Probability equation

P(≥ 1 approval) = 1 - P(none)

If the FDA approved a drug based on meeting surrogate (rather than clinical) endpoints, then the drug was probably approved under which category?

A. Accelerated approval

B. Standard review

C. Priority review

D. Fast track

E. Expedited processing

A

Which of these is NOT an FDA special designation for the drug approval process?

A. Expedited Processing

B. Fast Track

C. Break Through Therapy

D. Priority Review

E. Accelerated Approval

A

What are the 5 stages of the drug value-chain?

1. Basic Science: (relies on US universities receiving funding from the NIH)

2. Research: (IDing targets and potential molecules; biotech companies can take up the research work including orgs with the platform technology)

3. Development of product: (contract research organizations (CROs) help in finding patients and providers required for undertaking clinical trials). They have expertise on study design

4. Manufacturing: contract manufacturers and provide production flexibility and makes the product ready for launch. Risk quality issues.

5. Sales and Marketing: Sales representatives help to make the product launch ready too

Drug makers can either engage in the value chain directly or outsource steps

Drug companies can ____ or ____ drugs.

Develop. Acquire.

Big companies spend $__ or more for each new molecule approved (e.g. Sanofi, AstraZeneca, and Abbott). The average spend for big companies is $__ Bn.

$10 Billion. $5.5Bn

Medium companies spent less than $__Bn for each new molecule approved

2

Small drug companies face a choice between __ and _ since they lack the money to pay for large trials and recruit expert workforce

Finding investors to help pay, including costly clinical trials, creating manufacturing capacity, and building a sales force

Licensing their drug

Larger companies have a __% approval for success in phase III versus _% for small companies. Name the two driving forces for large companies

60%

• Treatment: Bigger companies have a concrete understanding of regulatory process and how drugs get approved.

• Selection effect: send their best drugs for the Phase III and discard unlikely candidates.

40%.

Name and describe the 3 problems in Market for Technology

1. Disclosure: You have to let somebody know about your product to sell it; filing a patent is necessary but not sufficient. Attorneys are needed.

2. Adverse Selection/ Lemons Problem: Companies might try to retain good tech and license out bad ones

3. The moral hazard problem: As the cost of failure decreases, the more drugs fail. Has a demand curve shape.

What can help problems with market technologies?

1. Intellectual property protection (patents + lawyers to ensure enforcement)

2. Reputation (reputed drug companies can make good partners, secure patents, and develop robust tech)

3. Due diligence (developers should undertake proper research about partners + products)

4. vertical integration (if companies merge, interests are more aligned)

5. Pay later (pay later using milestones, or as royalties; the licensee [marketing team] pays the licensor [developer] if approved)

   1. Contracts may have annual fees

Which set of links in the value chain are in the correct order?

A. Marketing, Sales, Research

B. Basic Science, Manufacturing, Research

C. Manufacturing, Research, Development

D. Basic Science, Development, Sales & Marketing

E. Development, Research, Manufacturing

D

Abbott is a big drug company, Genzyme is a medium-sized drug company, and Cubist is a small drug company. All have approved drugs they are marketing. Based on Matthew Herper's report, which of the following is most likely to be true about these companies' R&D spending?

A. Cubist spent the most per molecule approved, because small companies aren't able to leverage economies of scale

B. Genzyme spent the most per molecule because medium-sized firms face the "valley of death"

C. All three companies spent about the same amount of money per molecule approved

D. Abbott spent the most per molecule approved, probably more than $5 billion per molecule

D

When do small drug companies typically partner with large companies?

A. Between phase III and regulatory submission

B. Between regulatory submission and launch

C. Between phase II and phase III

D. Between animal and human testing

E. Prior to animal testing

C

An executive at a large drug company is considering licensing a drug candidate from another company, but she is concerned that the only drug candidates available for licensing are low quality, and all the good candidates are being retained by other companies to be developed in-house. The concern demonstrates which problem in the market for technology?

A. disclosure problem

B. vertical integration

C. apple market

D. moral hazard

E. adverse selection

E

An executive at a large drug company is considering licensing a drug candidate from another company, but she is concerned that after she writes a check to the small company, the small company will be expend less effort developing the drug. The concern demonstrates which problem in the market for technology?

A. vertical integration

B. moral hazard

C. disclosure problem

D. apple market

E. adverse selection

B

Describe the function of priority review vouchers and their effects. Name some of the requirements to qualify as a recipient

To encourage drug development and treatments for neglected tropical diseases that afflict low-income countries. You earn a voucher for the under-researched disease and can use/ sell it for faster review of another drug

Must be on the list of eligible diseases, be novel and important, and approved by the FDA.

How many priority review vouchers have been granted since 2009? How about 2014-2018? What percentage has been sold?

23 (24). 20 (21). 50%

Give examples of eligible diseases to receive a priority review voucher. What are the categories/ year updated of disease types/ categories?

Dengue, River blindness, malaria, cholera, chagas

Neglected diseases (2007)

Rare Pediatric diseases (2012)

Medical Countermeasures (2016) for public health emergencies

What 3 effects account for voucher value? Describe.

1. Competitive Effect: can catch up with competitors/ pass them with FDA review

2. Time-Value effect: First to enter in/ talk to the public and set prices. Additionally, money today is worth more than money in the future

3. Exclusivity Effect: Can increase the amount of time on the market with faster review, thus increasing revenues to capture time-value effect

What phenomena determines voucher price?

Supply + Demand: How many are in circulation/ the market?

What are 3 concerns for priority review vouchers?

1. Eligibility: treats a certain disease, has not already been approved by FDA, and priority review on own merit

2. Access: Giving up patient rights for generics

3. Burden: Speeding up development of one drug slows down another(hasn’t happened)

What does priority review shorten the time to and from?

To: 6 mo, from: 10 mo

The FDA generates nearly $3M in __. The FDA can then request extra $ if more vouchers are available to hire additional staff and increase their salary limits

user fees

The __ of a priority review voucher gives positive value to the expected return on tropical disease development in low-income countries

market price

Name the cycle effects (3) of voucher sale

1. return for investors

2. sell at cost or free (tax implications if sell)

3. invest in new R&D

Incentives matter: If you extend __, there are too many vouchers in the marketplace.

eligbility

What is a potential future voucher extension? Describe it

Vector expedited review voucher (VERV)s would encourage development of new products fighting disease-carrying pests (e.g. bed nets against mosquitos)

Describe the difference between orphan and neglected diseases

Few people with a disease (<200k in the US) vs Many people that are mostly in low-income countries

Which of these conditions is likely to be on the priority review voucher list of eligible diseases?

A. Influenza (a respiratory virus that causes widespread infections)

B. Hodgkin Lymphoma (a common pediatric cancer)

C. Chronic Kidney Disease (decreased kidney function that affects approximately 14% of the US population)

D. African trypanosomiasis (a parasitic disease)

E. Alzheimer's Disease (a form of dementia that affects many elderly people

D

A priority review voucher bearer may only use a voucher to speed approval of:

A. there are no requirements on the type of drug for which a company can use a priority review voucher

B. drugs for neglected diseases

C. drugs for lifestyle diseases

D. drugs for large populations

A

What is the newest category of treatments eligible to earn a company a priority review voucher? (added in 2016)

A. Overdose reversal agents

B. Medical countermeasures

C. Veterinary antibiotics

D. Neglected diseases

E. Rare pediatric diseases

B

According to Ridley and Regnier (2016), a drug approved 4 months earlier will have

A. no change in peak market share

B. 10% higher peak market in absolute terms (for example, increasing from 40% to 50%)

C. 5% higher peak market in absolute terms (for example, increasing from 40% to 45%)

D. 1% higher peak market share in absolute terms (for example, increasing from 40% to 41%)

D

ccording to Ridley and Regnier (2016), for the typical voucher user, the most valuable effect of the priority review voucher is likely to be:

A. Launching a product later, when the market has heated up

B. Launching a drug earlier, because money earned now is more valuable than money earned later

C. The ability to sell the voucher

D. Launching a drug earlier relative to competitors, because insurers tend to lock in to the first entrant

E. Launching a product earlier, thus potentially benefiting from a longer period of patent protection

B

What is the function of formularies?

To drive utilization of a generic or preferred brand name of drugs given a specified list

Describe the function of PBMs

• Manage drug benefits for health insurance plans

• Process + pay drug claims

• Develop and maintain a formulary (classification of drugs into different levels/ tiers) and associated copays. The formulary is developed by a pharmacy + therapeutics (PMT) committee

• Negotiate lower prices from manufacturers (rebates)

Shift use to cheaper drugs

Intermediary between insurers and pharmacies and insurers and drug makers

Have market power, get low prices, and limit spending

List + describe the 4 tiers of formularies

1. Generics (lowest cost-sharing for beneficiary); can be split into cheap and expensive

2. Preferred brand-name drugs (have no generic alternative). These are good value for the money according to the PMT committee

3. Non-preferred brand name drugs (might have cheaper alts, such as generics)

4. Specialty*: often patient-administered injectable medications

Off-formulary: patient will pay full price of the drug

*Higher formulary tiers require more cost-sharing from the benficiary

The number of drugs excluded from formularies has __

increased

What are advantages of PBMs?

• negotiate lower drug prices

• Generate leverage in the market; if drug is not list, exclude a large patient population

• Keep copayments relatively stable

Give the rebate equation

Data vendor report - company report. Rebates are usually confidential and are larger for placement on a formulary

Describe the steps to navigate a formulary

1. Step therapy: a plan will only cover certain drugs after a low-cost option has been tried first and didn’t work

2. prior authorization: requires some clinical criteria and lots of paperwork to be met before the plan will cover the medication

3. quantity limits: PBM will only cover limited quantities of certain drugs per prescription

If you don’t pay rebate for the preferred formulary status, what can you do?

offer coupon, which reduces the out-of-pocket cost for the patient, working against the the assignment of a higher cost-sharing amount by the PBM.

The coupon can make the price difference disappear between preferred and non-preferred brand-name drugs

Coupons can be offered for (3):

• old drugs with high copays

• specialty drugs which have high cost sharing (20%)

• new drugs that are not yet on the formulary

Currently, about _ in 5 brand-name prescriptions use coupons

1

The copayment elasticity of demand says higher copayment…

decreases drug demand and utilization

Give the elasticity equation then provide the income elasticity, price elasticity, and copayment elasticity

% change utilization / % change in X

% change in utilization / % change income

% change in utilization / % change in price

% change in utilization / % change in copayment (implies drug demand)

Demand is highly sensitive to…

copayment, but varies by disease. Some estimates place elasticity for health care around -1/5

Describe the results of the RAND health insurance experiment

Examined health care costs, utilization, and outcomes in the United States.The study found that people who had zero copays had higher utilization and spent more.

The RAND health insurance experiment demonstrated health insurance is more helpful for…

poor people with chronic disease

Describe the Oregon Health Insurance Experiment and its findings

Oregon accepted 10k uninsured adults from a lottery. They found Medicaid recipients:

• Had higher health care use

• Higher spending

• Reports of happier, healthier, and financially secure

• however, no significant difference in health outcomes

Health insurance protects you from bankruptcy and gives you peace of mind

Describe the flow of funds through PBMs

Manufacturer → wholesaler → pharmacy → patient

OR

Manufacturer → wholesaler → provider → hospital/ clinic → patient

Generally, __ receive funds from a PBM because drugs dispensed from pharmacies are managed from drug benefit

Pharmacies

Receiving a discount/ rebate from a manufacturer is based on __ and _

Volume

Market Share

A list of drugs split into different "tiers" of coverage is called a ___________

A. pharmacy benefit manager

B. prior authorization

C. formulary

D. capitation

E. patient assistance program

C

Which drug benefit tier is likely to require the MOST cost sharing by the patient?

A. Tier 1: Generics

B. All tiers have the same level of patient cost-sharing

C. Tier 2: Preferred brand-name drugs

D. Tier 4: Specialty

E. Tier 3: Non-preferred brand-name drugs

D

In both the RAND health insurance experiment and the Oregon health insurance experiment, people who received more generous health insurance coverage had:

A. poorer health outcomes

B. higher health care spending

C. no change in any metrics

D. better health outcomes

E. lower health care spending

B

There is a paradigm shift for what in diagnostics?

Having higher prices, like drugs

Describe the following types of medicine: empirical, stratified, and individualized

Empirical: trial + error testing (most drugs)

Stratified: for groups; using a biomarker to delegate group type. reduces quantity but increases value and thus price

Individualized: customized and bespoke; take material from patient and make a drug

Name the top 3 world economies for drug reimbursement

U.S., China, and Japan (Europe = ½ of Japanese market)

A majority of a share of U.S., UK, Germany, and France’s drug expenditure is on…

branded drugs (majority to existing protected brands)

US branded drugs are __% of spending, but only _-_% of usage

70

10, 20

describe the 4 markets for drug reimbursement globally

1. Emerging Cash: pay out of pocket + no insurance (China, India, Africa)

   1. Issue: affordability

2. Competitive Insurance: tiered formularies for coverage (US)

   1. Issue: Tools: formularies, prior authorization, step therapy

3. Therapeutic Referencing: Compare value of new drug vs existing + reimbursement limits (Europe [France, Germany, Italy, Spain] + Japan)

   1. Issue: Choice of reference is key

4. Health Economics: Cost effectiveness analysis → coverage determinations (UK, Australia, Canada, South Korea, and Sweden)

   1. Issue: high-priced drugs not covered

The __ = 40% of sales (competitive insurance) itself.

_ and _ (therapeutic referencing) account for another 40%

US

Europe and Japan

A majority of the drug population (75%) is from the ___ group of global reimbursement

Emerging cash

Describe me-too drugs pricing in the 4 global markets

Emerging Cash: market price

Therapeutic Referencing: same price as reference, otherwise tailored to generic if available

competitive insurance: pay rebates for preferred formulary status

health economics: in UK, <$50k per QALY added

Me-too drugs face price pressure; must be different and better

The key metric in health economics systems is an ___. Give the equation

ICER

added cost/added life (QALY)

If ICER < threshold, then coverage (demonstrates cost effective). If ICER > threshold, then no coverage (not cost-effective)

Rejections tend to __ as ICERs increase

Increase

Describe parallel trade

Low price in one country versus a high price in another, which presents an arbitrage opportunity (only in the EU)

__ in the US always gets the best price/ lowest price in the marketplace

Medicaid

To establish a list price, manufacturers must have (3)…

Market power (e.g. patent)

knowledge of WTP (avg. income)

Prevent arbitrage (e.g. parallel trade)

What are countries South Africa uses for reference pricing?

Australia, NZ, Spain, and Canada

How do manufacturers respond to spillovers?

1. Reduce the difference in prices across markets (price convergence, which is good for richer countries, but bad for poorer)

2. producing country-specific names and packages

3. Could charge a single price, but then, negotiate individual rebates for each country

4. Launch in high-priced countries first and delay launch in lower-priced countries (lower-priced countries could miss life-saving drugs)

In parallel trade, ___ spills over. In international reference pricing, the ___ spills over

quantity

price

Describe the impact of differential pricing

give lower-income countries lower prices

invites arbitrage (mitigate with differentiated products and work with low-price countries to reduce spillovers)

Requires market power, be different → more freedom for choosing price

The US Medicare program spends about $_Bn per year for retail prescription drugs, expanded through Medicare Part D. Prior to 2006, Medicare didn’t pay for retail drugs, though they did pay for __ drugs

100

doctor-administered (e.g. chemotherapy or dialysis)

__ is health insurance for seniors and the disabled

Medicare

Describe the 4 parts of Medicare

Part A: hospital

Part B: Medical (doctor) → drugs administered by a provider in an office-setting

Part C: Medicare advantage (“choice”) → like commercial

Part D: drug (Retail)

Describe Medicare part D

Private insurance plans bid to Medicare in order to be selected to offer a Medicare Part D plan. Medicare pays a capitated amount per head per month. Every plan is based on a common model meeting the minimum standards set by Medicare.

Has 3 threshold’s:

1. Threshold 1: Have deductible; pay 100% of cost of drugs you pick up at the pharmacy until reached deductible amount. ALSO pay set monthly amount to part D plan (premium)

2. Threshold 2 [coverage]: After reaching your deductible, you pay for 25% of the cost of your drugs and the plan pays the remaining 75% (insurer = 75%, individual = 25%)

3. Threshold 3: You might reach the coverage gap known as the doughnut hole. It was gradually closed under the afordable care act where drug makers and payers help pay for brand-name drugs when enrollees would otherwise be in the doughnut hole

   1. In 2019, manufacturers cover 70% of the cost of brand name drugs in the doughnut hole, insurance covers 5%, individual = 25%

4. Threshold 4 [Catastrophic coverage]: lasts until the end of the year and restarts January 1st. If drug costs are especially high, you will eventually spend enough to reach another level (insurer = 15%, govt = 80%, individual = 5%)

Medicare bears the risk for high-cost enrollees, with losses/ profits limited by “risk corridors”

low-income is measured as __% of the federal poverty level. The income cutoff for individuals is ~$_k and $_k for couples

150

20

25

The __, also called the “list price” but doesn’t take discounts/rebates into account. The _ (AWP) is is the WAC + a 20-25% markup

wholesale acquisition cost (WAC)

Average wholesale price

The __ is a volume-weighted average over 6 months, taking rebates and discounts into account

average sales price (ASP)

Today = ASP + 6%

__ = the largest US government program

Medicare

__ is a US government health insurance program for low-income people, its operated jointly by the federal and state governments. Low-income is defined as <_% of poverty

Medicaid

133%

__ provides coverage for children from low-income families

Children’s Health Insurance Program (CHIP)

Medicaid receives a rebate from the ___ based on the Best Price rules and inflation penalties

manufacturer