Commercializing Breakthrough Drugs In a Value-Based Market

Co-authored with John Kerins, Director in Cain Brother’s Corporate M&A Advisory practice.

Key Takeaways:

• Society demands both innovation and fair pricing from drug companies that develop treatments for all diseases. Proving meaningful efficacy and value is essential for successful drug commercialization.
• The market opportunity for commercialization services is broad, covering a wide-ranging suite of services focused on the effective launch and ongoing commercial success of a drug or medical device.
• The best growth strategies for consolidating CCOs rely on differentiation.
• CCOs play a crucial role in establishing value-based payment arrangements that provide value to buyers and sustain innovation.

Around 2,000 people in the US suffer from a hereditary disease called Leber’s congenital amaurosis, which causes blindness. Spark Therapeutics, a startup focused on gene therapies, developed a one-time treatment that significantly improves the condition. Their drug, Luxturna, costs $425,000 per eye.[1]

Spinal muscular atrophy is a fatal genetic condition that afflicts approximately 1 in 10,000 children worldwide. Novartis developed a drug called Zolgensma which potentially cures the disease with a single dose. At $2.1M per patient, the drug is the most expensive drug in history.[2][3]

Drugs like Luxturna and Zolgensma target, alleviate and sometimes cure rare diseases. While such therapies give hope to the afflicted, they come with exceptionally high prices. Pharma companies justify these high prices because the market for drugs that treat these “orphan” diseases (diseases afflicting fewer than 200,000 patients in the U.S.) is small and development costs can be enormous. In addition, they also compare the price to the ongoing societal costs of treating a patient’s symptoms over a lifetime.

American society is grappling with the wrenching cost-benefit tradeoffs created by costly pharmaceutical therapies. Stimulating innovation without allowing profiteering is at the center of this public debate. Hoping to avoid regulatory remedies, some drug manufacturers are pushing for outcomes-based payment models.

Novartis CEO Vas Narasimhan and AstraZeneca CEO Pascal Soriot are among industry leaders calling for value-based payment mechanisms for high-cost drugs.[4] For example, Novartis will not charge leukemia patients the $475,000 cost of its drug Kymriah if they do not respond favorably to the treatment within one month.[5]

Cynics may view this embrace of value as an industry ploy in which Big Pharma always wins; yet outcomes-based pricing models bring transparency to the murky orphan-drug market, incentivize drug development and help deliver lifesaving medicines to patients who desperately need them.

From an industry perspective, the trend toward costlier therapies with demonstrable value intensifies the need for real-world evidence and public education. Manufacturers must prove and communicate the comparative efficacy and potential monetary benefits of new therapies to multiple stakeholders, including payers, PBMs, patients, providers and government regulators.

Today, Medical Affairs departments within pharma companies as well as external Contract Commercialization Organizations (CCOs) and specialized consultancies seek to satisfy market demands for real-world evidence of drug effectiveness. Their collective efforts help drug companies develop and implement more sophisticated commercialization strategies.

In 2018, Syneos, a multinational Contract Research Organization (CRO), estimated the market for CCO services to be $156 billion.[6] As the need for outcomes-based payment mechanisms expands, CCOs and commercialization consultancies are becoming pivotal players in commercializing new drugs and attractive acquisition targets in a consolidating market.

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