To gain insight into the commercial changes occurring in the oncology industry, Campbell Alliance initiated the Oncology National Commercial (ONC) study where 75 key industry experts, physicians, payers, and opinion leaders were surveyed. The study revealed an alarming pattern that told us that the oncology space is transforming in such a way that never-before-seen competition is now built into the “DNA” of the business of oncology, and few companies are prepared to operate in the face of this intense competition.
Below are trends and analysis found in the ONC survey:
Trend 1: Large pharma has dramatically expanded its oncology pipeline.
Large pharma has developed and bought its way into oncology to the point where two and a half times as many compounds were in clinical trials in 2010 as were in the large pharma pipeline of 2000.
Bottom-line effect: Competition is sharply greater, based on gross numbers.
Trend 2: The oncology pipeline has become increasingly targeted.
Oncology pipelines are shift-ing away from therapeutics such as cytotoxic agents and broad cell-cycle inhibitors that treat cancer with little specificity. The agents filling the 2010 pipeline are much more targeted than the agents filling the 2000 pipeline.
Bottom-line effect: There is now great overlap in mechanisms of action and molecular targets among the large-pharma oncology pipeline.
Trend 3: Multiple oncology therapies target the same molecular pathways.
In 2010, large pharma oncology pipelines were driven by new understanding of molecular pathways. Agents became increasingly engineered to their targets. If we focus on the top 10 targets, outside of the top 5, all of the other targets had only one or two agents targeted to them in the pipeline in 2000 (see Figure 2 below).
Trend 4: Multiple agents are now tested against even rare tumors.
In 2000, 63% of new compounds in late stage clinical trials were tested on one or more of the “big five” solid tumors (breast, colorectal, gastric, lung, and prostate). By 2010, this share had dropped below 50%. The story is one of market competition and a scattering to supposed safe havens of ever smaller patient populations.
Bottom-line effect: The pipeline for niche indications has become increasingly crowded and may represent even more competition per patient than seen in tumors that affect larger patient populations.
Trend 5: Biomarkers are fragmenting the oncology market.
Biomarkers, on one hand, allow for increased efficacy and smaller clinical trials. On the other hand, biomarkers necessarily narrow the market and funnel compounds with similar mechanisms of action to the same biomarker-defined patients.
Bottom-line effect: By defining even smaller patient populations, biomarkers may limit payoffs.
Trend 6: Oncology has become a blockbuster machine.
Entering 2010, oncology blockbust-ers had become much more valuable than they were in 2000. In 2000, only two oncology drugs had more than $1 billion in revenue. In 2010, all of the top 10 oncology drugs exceeded $1 billion in sales. This revenue growth has come in the face of decreasing incidence for most cancers in the US. Instead, the revenue growth has come largely through the increasing price of new oncology drugs.
Bottom-line effect: There is good news in that an oncology blockbuster is now a blockbuster.
Trend 7: Oncology is saturated with sales representatives.
In the past decade, the growth in oncology sales representatives was 6.9% annually, far outstripping the 3.3% growth in oncologists. This growth has outpaced the growth of oncologists in the US to the point where there are three reps for every 10 oncologists. This increase in sales reps per oncologist limits access by competition. In addition, the survey respondents confirmed that access is increasingly limited, such that about half the time, sales reps are unable to see the oncologist. This limited access suggests that the industry may be over-invested in sales representatives targeting high prescribing oncologists.
Bottom-line effect: Industry leaders expect that oncology sales forces will net increase, and this may imply that access will become even more competitive.
Trend 8: Oncologists are no longer the sole decision makers.
Oncologists began the decade making essentially all the decisions in oncology patient care. Now a host of stakeholders influence oncology therapy choice. The federal government has already begun exerting its new influence over oncology treatments. State governments are increasingly exerting access influence by mandating coverage and mandating IV/oral cost equivalence. Payers are also shifting costs to patients, who are increasingly exposed to high co-pays or coinsurance.
Bottom-line effect: As non-oncologists exert ever-greater influence over oncology therapy choice, success-ful oncology companies will redeploy customer-facing resources to address the needs of these newly important customers.
Trend 9: Payers are beginning to man-age oncology.
In 2000, oncology remained an area with few price controls. The typical flow of injectable oncology drugs was via buy-and-bill, where oncologists purchased oncology products from wholesalers and received payment (including substantial mark-ups) from health plans and Medicare Administrative Carriers. By the mid-2000s, oncology practices were able to increase margins by using group purchasing organizations (GPOs) to negotiate more favorable discounts and rebates from manufacturers. By 2010, both Medicare and many traditional healthcare plans had responded by changing the reimbursement methodology to average selling price (ASP), which is net of all rebates and discounts. ASP has removed much of the profit potential from buy-and-bill.
Payers are also controlling access to oncology therapeutics explicitly. Typically, payers seek to control costs by requiring an FDA indication, prior therapy failure, appropriate dosage, appropriate therapy intervals, or compendia listing. Prior authorizations are required for up to 65% of covered lives for the most expensive oncology monoclonal antibodies.
Bottom-line effect: The downstream effects of lower oncologist profitability are just beginning to be felt. Oncologists are shifting unprofitable patients to hospitals. Oncologists themselves are migrating from independent practices to large institutions with financial incentives less aligned with high prescribing. Eroding profit margins are leading to a decreasing direct financial interest of oncologists in therapy choice. Therapy choice may be driven more by “reimbursement confidence” than by access, and decreasing financial incentives may lead to lower prescription rates for expensive therapies.
Trend 10: The combination of commercial and clinical factors may lead to a bursting oncology asset bubble.
Oncology had been a hot area for licensing through the 2000 to 2009 period. In-licensed compounds were evaluated and purchased based on historic trends. Unfortunately for those valuing oncology assets, historic trends have not continued. Many of the key inputs to valuation models appear to be eroding sharply.
Bottom-line effect: When a supply glut is combined with eroding valuation fundamentals, a price collapse may be in the works.
There is more to this story. Please go to the September issue of OBR green to view more analysis and figures that accompany the copy in this blog. The full length article and blog were written by Jeff Stewart and Nader Naeymi-Rad of Campbell Alliance.
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