LEARNING FROM NETFLIX A NEW DRUG LICENSING MODEL TO ENABLE UNIVERSAL TREATMENT ACCESS - JEAN-MANUEL IZARET, PHD DAVE MATTHEWS, PHD
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Learning from Netflix A new drug licensing model to enable universal treatment access Jean-Manuel Izaret, PhD Dave Matthews, PhD UCSF GLOBAL HEALTH ECONOMICS COLLOQUIUM
New pricing models: the search for mechanisms to align
price and value
Old economics model
Customer value (Willingness to pay)
($)
Customers receiving surplus
Customer indifferent with buying
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
P "Unserved" segment
MC
Time, units, individuals, etc.
"Take it or leave it" value extraction mindset
Surplus Margin Marginal Cost Lost opportunity Value Price 1New pricing models: the search for mechanisms to align
price and value
Old economics model New economics model
Customer value (Willingness to pay) Customer value
($) ($)
Customers receiving surplus All customers receiving surplus
Customer indifferent with buying Margin as a share of value created
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
P "Unserved" segment P High penetration,
MC no "unserved" segment
MC
Time, units, individuals, etc. Time, units, individuals, etc.
"Take it or leave it" value extraction mindset Value sharing mindset
Surplus Margin Marginal Cost Lost opportunity Value Price 2Netflix introduced a novel pricing model that
fundamentally changed the movie industry
Historically: pay per view Today: subscription
Content creators
e.g., movie studios
Content Payment Content Payment
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Content distributors TV, theaters Netflix
Content Payment Content Payment
Consumers
3What if we applied this model to healthcare?
The problem: The goal: A "win-win-win" solution
Hepatitis C has been
curable for 4 years... Universal patient treatment access
...but global
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
prevalence remains Lower cost to payers and providers
~70 M people...
... and high prices Proper incentives for pharma to
make universal keep innovating
treatment untenable
4Value from HCV therapy varies widely by patient
Expected healthcare cost-savings per patient over 10 years ($K)
Example patient segment
• F4 (Advanced fibrosis)
• Female, aged 60-70 yrs
$200 • 5K patients
Former leading therapy
• $87K per patient in cost
($35,000 / patient)
incurred over 10 years
Peg-interferon therapy equal
to healthcare costs incurred
for later stage HCV
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
$100
List price range
Net price range
Inter-
feron
$0
0 1,000 2,000 3,000 4,000
Patients (K)
Note: Based on expected cost avoidance per patient treated and cured. Based on weighted-average disease progression and mortality rates for the entire prevalent population
in U.S. and average costs at each stage. 2. No expected cost avoidance for patients with liver transplants or hepatocellular carcinoma. Source: CDA USA HCV EIM and LCM
models, ver171010; BCG analysis 5A payer licensing agreement (PLA) model would realign
drug price with value delivered over time
Pricing Revenue
basis amortization
change change
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Pay per population vs. pay per treatment Pay over time vs. pay at treatment
• Payer licenses the drug with right to • Payer pays over 5-10 years, or
distribute to all patients • A third party annuitizes, e.g., a for-
• Price is set based on a percentage of profit bank, etc.
the costs avoided
6Payer licensing provides a "win-win-win" solution
Payer licensing agreement
System cost ($)
savings for
payer(s)
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
All patients
treated as quickly
as possible
Patient segments
Aggregate license
to pharmacos Surplus Margin Marginal Cost
paid annually Unserved Value Price
7Data for representative EU country
Payer licenses in practice: benefit for all stakeholders
Current model Proposed model
Unit-based payment model Payer licensing agreement
Time Pay upfront Pay annuity over time
Units Pay per treatment Pay per population
Per patient price $30,000 / unit $0
100K
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Year 1: $760 M
Population price $350 M / year additional patients
Year 10: $60 M cured in 1st 2 years
# treated patients (10 yrs) 140 K 260 K
# cured (first 2 yrs) 45 K 144 K $3.2B
Payers savings in
# deaths (10 yrs) 22 K 7K systems costs
System costs (10 yrs) $4.5 B $1.3 B
Pharma revenue (10 yrs) $3.25 B $3.55 B
$300M
Pharma revenue
growth 8
Primary pricing basisData for representative EU country
Payer licensing provides a "win-win-win" solution
Patients Payers PharmaCos
More treatment access Lower system costs Equal or greater revenues
Cured patients ('000s) Total system costs ($ B) Drug revenues ($ B)
300 5 5
4.5
Eradication
4 4
3.3 3.5
3 3
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150
2 2
1.3
Current trajectory 1 1
New model
0 0 0
2020 2025 Current New Current New
10 yr 10 yr
Highly attractive for high-priced systems today,
but also applicable to countries with significantly lower resources
9
Source: BCG + CDA Epidemiological model; ver170927; Example EU country data adapted from US epidemiology and cost dataPayer licensing agreements relevant for other
therapeutic areas: a framework
Economics Epidemiology and access
Therapy should satisfy value, time, cost criteria... ...then, market factors can be considered
Large cost differential between Large prevalence affected in both
Value Impact developed and developing countries
treating early and late stage patients
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Time of payments not aligned with
Time the time that value is consumed Limited affordability and/or availability
of prevention or treatment
Access
Low marginal cost of production Insufficient existing financing and
Cost pricing mechanisms, from commercial,
High R&D cost government and/or NGOs
10bcg.com
Novel pricing models are getting tested in healthcare
Many industries adopt new models Healthcare's new models are limited
Model Change Model Change
Indication dependent pricing
Capital credit for
consumer assets Combination pricing
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Tiered user access via Tiered pricing
freemium models
Outcomes-based pricing
Dynamic, personalized Capitated pricing
price-setting
Payer licensing
User / segment Time Value redefinition
12What are we trying to accomplish?
An example: Universal treatment access
Hepatitis C has been Limited Access: >90% of
curable for 4 years... countries restrict treatment to
sickest patients.
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
...but global
prevalence remains Low diagnosis rates: Little
~70 M people incentive to diagnose early-
stage patients when treatment
cost is very high
13Hepatitis C virus treatment breakthrough faces value
alignment challenges
Value per patient varies widely depending on
fibrotic stage, sex, age, etc.
•True for all value metrics, e.g., costs averted,
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
QALYs saved, GDP impact.
Time of payments by payers does not align with the
time that value is delivered, no matter the value
metric.
14Data for representative EU country
PLA could deliver value for all stakeholders
Epidemiology Economics
Cumulative patients treated ('000s) Total pharma revenue ($ M)
FFS
300 $800
PLA
258,000 $3.5 B
150 $400
139,000 $3.3 B
0 $0
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Cumulative patient deaths ('000s) System savings ($ M)
20 $500 405 389 366
318 342 317 292
7,000 268 261 239
10
22,000 $3.2 B
0 $0
2018 2020 2022 2024 2026 2018 2020 2022 2024 2026
PLA FFS
Notes: PLA – Payer License Agreement, FFS – Fee for service, current trajectory with unit-based pricing. Sources: CDA, BCG, Datamonitor, Decision Resources Group 15Data for representative EU country
The PLA approach works because of the long term cost-
savings from curing patients quickly
300
Current trajectory 300
Payer licensing model
Number of patients impacted* ('000)
Cured Cured Status Annual cost*
Cured* 0
200 200 Cured but cirrhotic $2,189
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F0 $0
F1 $2,189
F2 $2,189
F3 $2,189
100 100 F4 $2,189
Decomp cirrhosis $16,852
Cancer $26,885
Dead
Liver transplants $106,709
Dead Liver-related deaths $0
0 0
2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028
*Note: Annual hospitalization costs discounted at 3% annually. Cured and deaths are summed in time beginning 2017, all
other statuses are showing prevalence. Source: Based on CDA 171101 US-adapted model, BCG analysis 16HCV therapy delivers value over many years
Non-drug costs of example HCV-infected patient cohort
Annual cost per patient ($) Cumulative cost ($)
2,500 80,000
2,500 80,000
70,000 Average DAA
2,000 net 70,000
price
60,000
2,000 ($43K)
Liver Transplant
60,000
50,000 HCC Liver Transplant
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
1,500
50,000 CirrhosisHCC
Decomp
1,500
40,000
Cirrhosis Decomp Cirrhosis
40,000
1,000 F3 Cirrhosis
30,000
1,000 F230,000 F3
20,000 F2
F1
500
20,000
500 10,000 Chronic HCV (F0)F1
Total Cost
10,000 Chronic HCV (F0)
- - Total Cost
- -
Source: CDA, BCG; Chart shows average costs for male aged 30 when infected in 2013; 3% discount rate 17You can also read
