Abstract
BackgroundInnovative orphan drugs often have an incremental cost-effectiveness ratio (ICER) which is higher than the maximum threshold for reimbursement. Payers have limited budgets and often cannot pay the full price of a new product, but pharmaceutical and biotechnology companies require a minimum price to satisfy their investors. The objective of this study was to present a possible solution to bridge this pricing gap by having early phase price agreements, which reduce the risk for investors.MethodsWe used a Pricing Model, which determines the minimum (break-even) price of an innovative drug from an investor’s perspective. This model is based on economic valuation theory, which uses the expected free cash flows and the required cost of capital. We selected two orphan drugs with a positive clinical assessment and an ICER higsher than the Dutch maximum threshold of €80,000 per QALY gained to use as examples in the model: Spinraza for spinal muscular atrophy and Orkambi for cystic fibrosis.RESULTS: The results show that early pricing agreements before phase III trials can substantially lower the drug price resulting from a lower cost of capital. The minimum price for orphan drugs can be reduced by 27.4%, when cost of capital decreases from 12 to 9%. An additional adjustment of other critical parameters due to early pricing agreements (lower probabilities of phase III failure and lower research and development (R&D) costs) can further reduce the minimal price by 62.8%.ConclusionThis study shows that earlier timing of price negotiations resulting in an agreement on drug price can substantially lower the minimal price of orphan drugs for the investor.
Highlights
Innovative orphan drugs often have an incremental cost-effectiveness ratio (ICER) which is higher than the maximum threshold for reimbursement
The allocation of research and development (R&D) failures to successful drugs obtaining European Medicines Agency (EMA) or Food and Drug Administration (FDA) approval is an important element in the valuation according to the principles of economic valuation
The required discounted drug price is often based on the ICER threshold, which is usually much lower than the actual price and often the BE price for the investor based on the Pricing Model, as we showed for Orkambi
Summary
Innovative orphan drugs often have an incremental cost-effectiveness ratio (ICER) which is higher than the maximum threshold for reimbursement. Nationwide coverage systems for new medicines informed by centralized decision making on their efficacy, and in some cases value for money, were appropriate for medicines launched in the 1970s and 1980s. These were often relatively low value products such as antibiotics and antidepressants. In 2017 the Dutch Ministry of Health required a price discount of 80% for Orkambi (lumacaftor/ivacaftor combination therapy), a new medication for cystic fibrosis (CF), in order to reduce the ICER from €170,000 to the maximum threshold of €80,000 [3]. The current pricing policies may have major long-term detrimental consequences for patient and healthcare providers
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