The Economic Challenge of Prescription–Diagnostic Combinations - With the rise in therapeutics comes more complex partnerships. - BioPharm International

ADVERTISEMENT

The Economic Challenge of Prescription–Diagnostic Combinations
With the rise in therapeutics comes more complex partnerships.


BioPharm International
Volume 24, Issue 11, pp. 58, 57

ECONOMIC CHALLENGES

The diagnostics industry is providing new tools that could improve product offerings to physicians and patients and create value for shareholders. Unfortunately, many diagnostics industry players believe the economics of innovation are undermined by low pricing and reimbursement of tests, and the diagnostics partner's low share of prescription–diagnostic (Rx–Dx) partnership values. In this context, it is important that the government and its agencies support required changes. According to research by PwC, diagnostics companies are seeking action in three main areas, as outlined below.

Pricing

Pricing should reflect the value of the test rather than its cost. The price should reflect a reasonable proportion of the test benefits or the cost savings. In the US, the concept of value-based pricing is making gradual progress. Europe, however, has yet to see value-based pricing applied to a personalized medicine test. The diagnostics industry fears, according to PwC research, that unless pricing is adapted to value creation, it will fail to achieve sufficient economic return to stimulate continued investment and innovation.

Reimbursement

The process to gain reimbursement for diagnostics should be accelerated and harmonized across countries. In many countries, reimbursement for a new test can take four to seven years following marketing clearance. Industry participants believe that health technology assessment (HTA) models need to be adapted to allow for faster reimbursement decisions. One practical solution to address reimbursement delays has been companion test subsidies from the bio/pharmaceutical partner. This is not ideal; but in cases where the test determines drug eligibility; the alternative would be that severe limitations would be placed on drug availability. This arrangement may not be acceptable to industry.

Diversity of health technology assessment procedures across countries is another issue in multi-country product launches. This problem has been recognized by the European Commission, which has sponsored the European network for Health Technology Assessment to work on greater cooperation. The US is also represented in this initiative through the Center for Medical Technology Policy.

Value

The share of value going to the diagnostic in Rx–Dx partnerships should be revisited. Diagnostics companies are concerned about not getting a fair share of the overall value of Rx–Dx combinations when negotiating deal terms with bio/pharmaceutical partners, and that they suffer from historically low recognition of the value of diagnostics. Traditionally, diagnostics represent less than 2% of healthcare spend despite influencing more than 60% of crucial healthcare decisions. Diagnostics partners are focused on trying to rebalance their share of the financial value in Rx–Dx combinations.

One avenue that diagnostics companies are pursuing is to obtain a royalty on sales of the companion product. Companies have resisted such a move because they believe the Dx partner has not shared the risk or investment associated with drug development. Diagnostics players insist that this move should happen, arguing that where Rx–Dx combinations are relevant, the companion drug would not be able to make it through clinical trials or be reimbursed and commercialized without the companion diagnostic. Thus, the value of the drug is critically dependent on the contribution of the companion diagnostic.

In the near-term, these challenges are not expected to undermine the pace of Rx–Dx deal activity. However, they may affect long-term diagnostics innovation if they are not addressed. At best, not addressing these economic issues could result in an undervaluing of diagnostic innovation by pharma. At worst, these issues could eventually discourage continued investment into diagnostics ventures and delay patient access to important new health technology.

By Gerry McDougall, a principal at Pricewaterhouse Coopers (PwC), and Loc Kubitza, a director in PwC's Pharmaceutical & Life Sciences Advisory Services group,
.
.


blog comments powered by Disqus

ADVERTISEMENT

ADVERTISEMENT

Merck KGaA Announces Acquisition of Sigma-Aldrich for $17 Billion
September 22, 2014
Pandemic Vaccine Facility Dedicated in Texas
September 19, 2014
Guideline Delineates How to Implement GS1 Standards to Support DSCSA
September 19, 2014
GSK Fined in China Bribery Scandal
September 19, 2014
GPhA Supports Restricted Access Bill
September 18, 2014
Author Guidelines
Source: BioPharm International,
Click here