CBI Rare Disease Leadership Summit December 7, 2006 Building An Effective Reimbursement Plan for Orphan Drugs

1. CBI Rare Disease Leadership SummitDecember 7, 2006 Building An Effective Reimbursement Plan for Orphan Drugs Lessons From Medicaid and Private Insurers

3. Agenda • Private insurance environment • Medicaid • Distribution considerations • Recommendations ~ Medicare discussed by Jayson Slotnick, BIO ~

4. Tag & Associates Overview

5. U.S. reimbursement planning and problem solving • Payer research; competitive analysis • Strategic planning; reimbursement forecasting • Advocacy with major payers

6. Betaseron® CytoGam® Botox® Remicade® Prolastin® Bexxar® Immune globulin INOmax® Orphan Drug Involvement

7. I. Private Insurance Environment

8. No Reimbursement Incentives • Orphan drug development is encouraged by legislated economic incentives, but … • There are no national or state government Orphan drug reimbursement incentives • Unlike cancer, HIV/AIDS, ESRD • Just another expensive drug that may or may not be misused

9. Implication • As coverage becomes more dependent on evidence, rare disease patients may not be able to access the treatments that manufacturers are given incentives to develop • E.g. 7 NORD “High Priority Access Problem” drugs http://www.rarediseases.org/pdf/Final_ltr_CMS_011006_V2.pdf

10. Off-Label Coverage? • What if a patient’s diagnosis is “slightly” off-label for an Orphan drug?

11. Betaseron® Example • Labeled for relapsing MS • At launch, clinicians did not agree on diagnosis terminology • An MS patient whose physician used terminology that differed even slightly from labeling would almost always be denied Betaseron® coverage

12. Bexxar®/Zevalin® Example • At Oxford, no prior authorization needed for relapsed or refractory low-grade, follicular, or transformed B-cell non-Hodgkin's lymphoma, in patients with rituximab-refractory follicular NHL as a single course of treatment • Coverage usually denied for every other use

13. Payer Cynicism • Some medical and pharmacy directors believe the Orphan Drug Act is being abused to gain undeserved advantage for drugs that would be marketed in any event • Orphan drugs that present an economic threat because of broader use will be tightly controlled

14. Recent Examples • Vidaza™ (azacitidine) • Approved 2004 for myelodysplastic syndrome (MDS) • Coverage policies prohibit use in sickle cell anemia, solid tumors, other cancers • See e.g.http://www.bcbst.com/MPManual/Azacitidine.htm

15. Recent Examples - 2 • Apokyn® (apomorphine) • Approved 2004 for treating Parkinson's during episodes of "hypomobility," so-called "off periods" in which the patient becomes immobile or unable to perform activities of daily living

16. Recent Examples - 3 • Apokyn restrictive coverage policies • Limit drug quantity • Require prescribing by neurologist • Require fail first with other (less expensive) Parkinson’s treatments • See e.g.: http://www.bsneny.com/content/neny_prov_guid_Apokyn.pdf http://www.tuftshealthplan.com/providers/pdf/pharmacy_criteria/Apokyn.pdf

17. Recent Examples - 4 • Retisert™ (fluocinolone acetonide intravitreal implant) for the treatment of chronic non-infectious uveitis • Not covered by some insurers • “Reliable evidence does not support efficacy compared to standard treatment” http://www.tuftshealthplan.com/providers/pdf/Retisert.pdf • Cost is $22,000 vs. $45 for 30 months of steroid treatment http://www.pswi.org/irx/FAIImplant.pdf

18. The Value of Evidence • Revlimid® (lenalidomide) approved for MDS • Covered by Cigna for multiple myeloma beforeFDA approval for that indication on strength of 2 studieshttp://www.cigna.com/health/provider/pharmacy/coverage_positions/ph_6120_coveragepositioncriteria_lenalidomide_revlimid.pdf

19. P & T Committee Review • National and larger regional plans are likely to have P & T review of an Orphan drug eligible for Rx benefit • Smaller plans may not • Too few patients • Medical benefit drugs are often not given P & T review • Medical Director decides

20. Medical Director Is Key • MCO Pharmacy Directors are less involved with Orphan drugs than most others • If medical benefit, it is usually the Medical Director’s decision • If Rx benefit, may never get to P & T

21. Gleevec® and Orfadin® • Two of the few Orphan drugs subject to formulary control (oral) • 3rd or 4th tier with prior authorization • 4th tier = coinsurance % = affordability barrier • Use limited to label

22. Payment • For clinician administered drugs, typically 80% AWP • Specialty providers often paid less via negotiated contracts • AWP will be going away • Replaced by ??? • Pricing driven by reimbursement

23. II. Medicaid

24. Medicaid Orphan Drug Policy? • November 2006 survey of 20 states • AK, AL, CA, GA, MA, NC, ND, NE, NH, NJ, NM, OH, PA, SC, TN, UT, VA, WA, WV, WY • No special treatment for Orphan status • Though cancer, mental health, HIV are often exempted from prior authorization

25. Informal Policy • However, there is often recognition of urgency and willingness to adapt • If state has 6 month wait (NH) they may waive if asked • “It isn't so much that drugs in orphan status are treated differently than other drugs, but rather that the upfront work to determine how and under what circumstances a drug is to be covered, is discussed and, hopefully, handled in a straight forward manner with the manufacturer” Medicaid Pharmacy Director

26. Determine If Special Controls Apply • High cost populations often receive special management • Where “high cost” = high cost (rather than specified diseases), Orphan drug patients will be included

27. Payment • Follows the usual formula for that state • Typically AWP minus 12% - 14% • For all state formulas, see http://www.kff.org/medicaid/upload/State-Medicaid-Outpatient-Prescription-Drug-Policies-Findings-from-a-National-Survey-2005-Update-report.pdf

28. Rebates • January 2007: Manufacturers must pay Medicaid rebates (15.1%+) on drugs administered in Dr. offices and hospital O/P dept’s. • Good: Makes Orphan drugs more affordable to cash-strapped Medicaid programs • Bad: Some manufacturers have not recognized and budgeted for this

29. III. Distribution Considerations

30. Specialty Distribution • For Orphan products, a two-edged sword • Very helpful, almost essential for many products, but … • Can cause conflict with some payers’ distribution/patient management programs

31. Specialty Distribution - 2 • Distributors typically press for exclusivity • For reimbursement, manufacturer is often best served by having several distributors

32. IV. Recommendations

33. In General • Expect no reimbursement “break” from Orphan status • Orphan status does not obviate the need to prove the drug’s value • What would a payer want to see/need to know to pay your asking price? • Find out (market research) • Target Medical Directors

34. Assume Private Payers Will Be Skeptical At Best • If you are developing an Orphan drug primarily or exclusively for a rare disease, you must make a special effort with payers to show them the limits • If Orphan status is a technical advantage to help develop a product for broader use, expect access restrictions until value is proven

35. Patient Assistance • Insured patients may need cost sharing assistance • If medical benefit, coinsurance could be 20% + • If Rx benefit, may be 4th tier • % coinsurance rather than $ copay

36. Plan Conservatively • Your market is defined by the label • Carefully consider the reimbursement implications of every limiting phrase • Marketing an Orphan drug beyond its Orphan indication will create payer backlash • Research, analyze, plan

37. Medicaid • Build Medicaid rebate into revenue projections • Be sure you have signed rebate agreement that covers this drug • If state has post-marketing waiting period, ask whether it can be waived based on Orphan status

38. Distribution • Single-distributor arrangements should be avoided unless you are confident that all payers will deal with the only game in town

39. Final Word • Beware of killing the goose • Yesterday’s FDA price and market strategy view unlikely to be shared by payers • NORD, BIO and other stakeholders should consider the risk to rare disease patients of blockbuster profit from Orphan drugs

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