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BETASERON COULD COST MEDICAID/MEDICARE ABOUT $200 MIL. PER YEAR, SEN. PRYOR PROJECTS; ASKS BERLEX TO CONSIDER LARGE UNAPPROVED USE MARKET IN SETTING PRICE

Executive Summary

The recently-approved Berlex/Chiron multiple sclerosis drug Betaseron could cost the Medicaid and Medicare programs roughly $ 200 mil. annually, according to preliminary estimates from Senate Aging Committee Chairman Pryor (D-Ark.). In an Aug. 10 letter to Berlex President and CEO Jorge Raul Engel, Pryor and Senate Aging Committee Ranking Republican Cohen (Maine) ask that Berlex consider the impact of Betaseron's costs on federal government health care programs in setting final pricing for Betaseron. Based on an assumed annual price range of $8,500-$10,000 per patient, Pryor and Cohen calculate the Medicaid and Medicare annual costs for the drug at between $173 mil.-$203 mil., excluding a 20% patient co-payment. Betaseron (interferon beta-1b) was approved July 23 for use in ambulatory patients with relapsing-remitting multiple sclerosis to reduce the frequency of clinical exacerbations ("The Pink Sheet" July 26, T&G-1). The first product specifically approved for MS, Betaseron will be manufactured by Chiron and marketed by Berlex, with limited distribution expected to begin in early October. Chiron will receive 30% of net sales. The Pryor/Cohen letter is an example of the de facto pricing oversight that now exists in advance of any future federal requirements for price reviews. Pharmaceutical firms introducing breakthrough products are almost certain to have to answer questions from one or more congressional investigators. Bristol- Myers Squibb, for example, was obligated to go through a similar price review with Rep. Wyden (D-Ore.) when it introduced the anti- cancer drug Taxol at the beginning of this year. In a perverse way, the current pricing challenges from Capitol Hill -- often supported by vocal patient advocacy groups -- may actually make the threat of a government price board appear less onerous. A board, with set rules and procedures and expert members drawn from the health care community, might be a more preferable forum in the long run compared to the no-holds-barred tussles that companies face from congressional inquiries. Berlex may have incited the congressional challenge to its pricing by going initially to the financial community with projections on the pricing and sales of Betaseron before beginning a public education program. Berlex is expected to make an official announcement about its plans for pricing and distribution of Betaseron during the week of Aug. 16. Companies introducing high-priced breakthrough products have to be particularly sensitive about how they handle the release of pricing information. Going first to the financial community emphasizes the commercial side of the pricing equation when public understanding of the pricing decision may be more important to the long-term prospects for the product. The Pryor/Cohen letter was released simultaneously with an Aug. 10 Schering AG meeting with the financial community in New York at which the company reportedly discussed the price range for the product. By coincidence, the discussion of Betaseron pricing took place just after the FDA advisory committee review and approval recommendation for another of the upcoming high-priced biotech products, Genentech's Pulmozyme. While it has not publicly discussed its pricing, Berlex has been doing spadework with the relevant MS patient population and developing patient assistance programs. Senators Pryor and Cohen, in fact, commended Berlex for "several innovative programs to make the drug available to individuals with MS that are unable to afford the medication." The senators called the programs "clearly steps in the right direction." However, the senators noted, "based on our recent experience with drug manufacturer indigent patient programs, we strongly urge that the company make an extra effort to assure that physicians, patients and MS centers are fully educated about these programs." One program which Berlex is considering, according to the Pryor/Cohen letter, would involve "distributing a significant number of vials of Betaseron to the [National Multiple Sclerosis Society] for distribution to patients in need." Other programs under consideration involve deferred billing and providing a two- month supply of the drug free to patients who use the drug properly for 10 months. Although acknowledging that "these programs will certainly be welcomed by the many patients that will benefit from them," Pryor and Cohen expressed concern that the price of the drug is being set at the upper end of the contemplated range in order to compensate for the cost of the support programs at the expense of those who will pay for the drug. Pryor and Cohen maintain that "just a few months ago," Berlex informed the senators that it "was considering a price in the range of $5,000 to $10,000 a year for therapy, with the price likely to end up in the range of $7,500 per year." From a recent Berlex letter to the Aging Committee, however, the senators have come to believe "that the pricing range has narrowed to $8,500 to $10,000 per year." Pryor and Cohen informed Berlex that they are "obviously concerned that the company appears to be deciding upon the upper end of the initial pricing range." They added that they "would hope that the final price would reflect the company's cost of researching, developing and manufacturing the drug, providing reasonable patient support programs, and assuring a reasonable profit for the company." To calculate the cost of the drug to the federal government, Pryor and Cohen estimated that 34% of the 300,000 MS patients in the U.S. are Medicaid or Medicare beneficiaries. "Conservatively," the senators assume that 25% of these federally insured patients would use Betaseron. According to FDA estimates, nearly 30% of MS patients have the relapsing-remitting form of the disease for which the beta interferon product is approved. The initial Betaseron pricing is based on the projected population of relapsing-remitting MS patients using the drug. Pryor and Cohen contended, however, that the company should look at the likely treatment population, including off-label use. "Because this is the first treatment of any type for MS, it seems likely that MS patients in other stages of the condition may be taking the drug, even if the drug is not approved for use in those conditions," the senators maintained. This line of reasoning puts Berlex in the position of being asked to price a product based on estimates of unapproved drug use. "When setting the initial price for the drug, the company may want to seriously consider the fact that the population using the drug will likely be larger than the relapsing-remitting population, thereby resulting in higher total sales," Pryor and Cohen suggested. They cited a sales model showing that total revenues for Betaseron could approach $900 mil. by 1997, with up to 45% of all MS patients using Betaseron and no potential competitor products available until that time. Among other concerns raised in the Aug. 10 letter are the cost of the drug to MS patients, who will still have to obtain other medications, and to the estimated 53% of MS patients who are not covered or only partially covered by insurance for outpatient prescription drug coverage. Pryor and Cohen estimated that the out-of-pocket cost to an MS patient taking Betaseron for seven years, with 20% cost sharing, would be $12,000-$14,000. The senators questioned whether the indigent support programs would be subsidized by high prices to other market segments. "If the higher price is being decided upon to pay for the patient support programs," Pryor and Cohen said, "it is a clear example of how cost shifting in our system places the health care financing burden on government programs and other individuals that can afford to pay for these drugs or have private insurance." Indicating an underlying interest in a narrow range of prices, Pryor and Cohen added that, if health care reform includes universal drug coverage, "we hope that future pharmaceutical price shifting will be minimized, and all health plans will pay pharmaceutical prices which are based on costs of development with a reasonable profit for the manufacturer". Pryor and Cohen asked Berlex to clarify a statement made in an earlier letter from the company, which predicted that "as a result of the implementation of [the assistance] programs, the average net realized revenue to Berlex will be under $8,000 per year." They also inquired as to whether the price range of $8,500-$ 10,000 per year represents the price for a 10-month or 12-month supply of the drug, and whether patients would receive free product or a rebate. Other questions to Berlex inquire about the details of the company's deferred billing program and its eligibility requirements, and about "an innovative Betaseron distribution method for patients" which the senators said Berlex has developed. Pryor and Cohen quoted Berlex as stating that through this method, "patients will continue to receive the advice and counseling of their neighborhood pharmacist," and they expressed confusion about whether any pharmacist may participate and whether patients will be able to obtain Betaseron only through the established network. Betaseron was the first biotech product approved under FDA's accelerated approval regulations. In the July 23 approval letter, FDA noted that approval is contingent on the demonstration "through adequate and well-controlled studies that differences in CNS lesions, as visualized by MRI scanning, correlate with clinical benefit, and that such studies be carried out with due diligence." The agency also set out eight commitments which Chiron has made, including a four- to six-year study in chronic-progressive MS to be initiated in the first or second quarter of 1994, with disability status as the primary endpoint and MRI as a secondary endpoint; a study to evaluate the usefulness of continued treatment with Betaseron beyond two years in ambulatory relapsing- remitting MS patients, with rate of exacerbation as the primary endpoint; gathering further information in determining the extent of depression or aggravation of pre-existing psychiatric disease as a side effect of treatment; and developing assays that will improve the quantitation and characterization of patient antibodies to Betaseron. The companies are also asked to submit adverse experience reports "in accordance with the requirements for postmarketing reporting of adverse drug experiences until such time that specific reporting requirements for biological products become effective."

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