Toxic math: a British export that the US mustn’t import
a RApport Q&A
featuring Peter Kolchinsky & Jayson Dallas
Peter Kolchinsky is founder and Managing Partner at RA Capital Management. Jayson Dallas is former CEO & President of Aimmune and current Executive Chair of Rivus Pharmaceuticals.
With apologies to the Beatles.
May 3, 2023
The UK’s National Institute for Health and Care Excellence (NICE) uses conventional cost-effectiveness analysis (CEA) to decide which drugs are valuable enough to merit coverage decisions by the National Health Service (NHS). But NICE is well known to neglect quantifiable benefits to society like caregiver spillover, genericization, and restored productivity for patients when it tallies up a drug’s benefits.
It’s long been assumed that as long as NICE-like math stays on the other side of the ocean, our US-driven innovation ecosystem will be fine. But in recent years, those anemic equations have begun to make their way to US soil. The Inflation Reduction Act (IRA) encourages the Centers for Medicare and Medicaid Services (CMS) to collect the data they believe should go into a CEA without explicitly saying they’re going to set prices using this kind of math. And most of the US biotech industry seems unprepared for combat.
Jayson Dallas, former CEO of Aimmune, experienced pharma executive, and biotech board member, has practiced medicine in the UK as a clinician for the NHS and also launched drugs there as General Manager of Roche UK. RA Capital’s Peter Kolchinsky sat down with him to get his take on NICE’s tactics, their increasingly global reach, and how biopharma can fight back.
Peter: It’s well known that the NHS and NICE are popular in the UK. Where does that sentiment stem from?
Jayson: In the UK, at least in theory, society values free or very cheap delivery of healthcare to individual patients more than it does the expense of maximizing outcomes for any individual in that system. Healthcare budgets are managed by the government at a national, regional, and local level which has led to a system that is massively fragmented and bureaucratic. NICE was established in 1999 as the NHS’s health technology assessment arm to help it get what it calls “value for money” - with all the corresponding hype.
When you peel that onion back a little bit, you can see how the public came to believe that NICE is the protector of the system from big, bad pharma trying to charge us all high prices. In reality, companies trying to do clinical trials in the UK battle these days because the standard of care that is delivered in the NHS is often not even as good as the control arms in the clinical trials that we're trying to do today.
And then you start to wonder about the cost of healthcare delivery in a nationalized system like the NHS, and how much of that actually goes to drugs and medicine versus administration, infrastructure, hospitals, and other fixed costs within the system. Where is most of the financial drain happening, and what costs are we controlling? And of course, drug budgets are visible and easier to control than some of the other stuff, particularly by the bureaucrats and administrators who are certainly not going to shine the light on their own parts of the system - where they're sucking up a lot of resources and taking a lot of time.
The NHS was groundbreaking when it was established in 1948, in a post-WWII Britain, but its psyche has evolved little since then. Today, the NHS is broken. It's been broken for a while. It's waiting to crumble and get rebuilt again. And of course no political party or government of the day is willing to take that on. To understand how ingrained the NHS is in society and people's psyche, look at the 2012 Olympic Games. Half of the Opening Ceremony was a celebration of the NHS. You saw nurses, hospital beds, and a celebration of the wonderful healthcare that British society believes it is receiving. The value placed on the system is tremendous, and kind of hard for us as Americans to understand. While living there, I saw people not flinch to pay a hundred pounds to bring their dog to the vet, but the idea of paying 20 pounds to see a doctor was incomprehensible. You’ve ingrained into people a belief system that tells them not only that this is okay, but it's the right and proper thing to do. The PR engine has, over the last 75 years, convinced the populace that this is the best system in the world and, since the vast majority of people never experience any alternative approach, this is embraced as fact.
Peter: Okay, so the UK doesn’t offer amazing healthcare, but its reputation depends on voters believing that it is great and using big pharma as a scapegoat. But isn’t healthcare innovation viewed as valuable to society? I know green technology is well understood and valued, so why not medicines that protect us from the impending doom of disease?
Jayson: I think in people’s heads, the image of pharma is just horrible. We're seen as big organizations making masses of profit and screwing over the individual. I think we’re getting better at telling our stories, but I'm astounded at how little society values innovation in healthcare, specifically in drugs and drug delivery.
It's the concept that healthcare is a right and therefore new things in healthcare, particularly medicines, should be very cheap or free. So how dare anyone make profits on them? And then there’s a cognitive disconnect on the other side, which is, “Why don't universities and academia and other parts of society just do this themselves?”
And the answer to that question is because it's hard, high-risk, and expensive. And then there’s the cost of increasing regulatory requirements on drug development, many of which are rational, but some of which are not. Companies even have to pay NICE to review your drug. You actually have to pay the system to do bad economics. And so the same people adding cost into the system are saying, “You shouldn't charge for these medicines, but you should definitely pay for all the stuff that’s required to develop them.”
Peter: So companies are essentially expected to pay to build a guillotine per NICE’s instructions – to perform cost-effectiveness analysis in a specific, simplified way – and then use it to chop down the value of their own products. They pay NICE to evaluate what the company submits and declare their drug overpriced. Is that right? What about the patients who live with these diseases or everyone who fears what it would be like to get sick? Are their experiences and values taken into account?
Jayson: Well, that’s the thing. I lived and worked in the UK in two different times of my life. On the first occasion, I spent some time working in the NHS as a clinician. For all of the second, I worked in pharma. One thing that was really curious – and this is where I get concerned about where we are going in the US – is in all the interactions I had through those experiences with policymakers, politicians, budget holders or NHS administrators (national, regional, & local), never, ever, not even once, did any of them initiate a conversation about a patient, a patient's disease, or the outcome that a therapy might have on an individual, a family, a community, or a society.
Every conversation was simply, “Oh my God, that sounds great, but it's gonna cost too much. We probably won't use it. Sorry.” It was an entirely cost-driven conversation. And by the way, many of these policymakers are not familiar with how value calculations are done. They just outsource that to NICE, which when we dig into it is ridiculous. Policymakers are no longer thinking about the value of innovation, they're no longer thinking about clinical benefits, and definitely not additional benefits like quality of life, peace of mind, going back to work, all of the different things that create value. They're not thinking about any of that. It's a simple numerical exercise, and “that's just gonna cost too much.”
And when we lose the value of innovation and all of those other dynamics, when we lose the ability to change someone's life, to cure diseases that haven't been cured before, to get somebody back into the workplace, or to let somebody see again when they couldn't see before, from the healthcare debate, that's a real problem.
We can see the effects already. We don't have to wait for Alzheimer's to become a problem because we already have an aging population and the government is responsible for all components of that. So there's healthcare delivery, but there's also the housing of the elderly and nursing home services. The UK system is a little more government-heavy in terms of intervention in and sustainability of people's lives, but that’s going to start costing the system more and more. But it’s really just budget-focused, so very short-term oriented. It can’t seem to see the merits of investing today to save a lot more tomorrow.
Peter: Don’t some arguments about the value of medicines break through? Like when Pfizer tried to commercialize Sutent for renal cell carcinoma NICE declared it wasn’t worth the price but the UK decided to pay for it anyway. So what happened there and what lesson might we derive?
Jayson: It’s true. NICE said Sutent wasn’t worth its price and there was an outcry from patients. A couple folks in government at the time said, “NICE’s methodology is wonderful, the best methodology in the world, the best way to determine access to healthcare, but it doesn't work for cancer, partially because you start with small, later-stage populations. So we have to carve out a second defined budget and have a slightly different methodology for how we think about cancer medicines.” And that was called the Cancer Drug Fund.
It was a separate fund to pay for cancer treatments. And of course what happened was that NICE hated it. NICE, by the way, still had oversight of it, so they still had to adjudicate the fund, and they did their best to torture its rationale for existence even further. NICE basically had to continue to make the argument that carving out any one population makes no sense in the broader cost-per-QALY thing that they were doing while administering that exact activity within the Cancer Drug Fund.
And the reality was, as more and more drugs were getting approved and funded by this fund, it basically ran out of money. Then the government came in and said, “We can't keep doing this; it's costing us too much.”
Plus then you also had other people coming along and saying, “Well, what's so special about oncology patients? Why can't MS patients have a separate fund? Why can't other patients have a fund?” So no, there doesn’t seem to have been a lasting lesson from the UK’s experience with covering Sutent over NICE’s objection.
Peter: A number of years ago, I took a stab at building a basic cost-effectiveness model for a drug and realized that agencies like NICE only look at the launch price of the drug, ignoring that it will someday go generic and keep on generating QALYs. That’s like asking if a house is worth buying while ignoring that a mortgage is finite - only considering the mortgage payments as if you’ll have to keep paying them forever. If you extend the model and take into account that a drug goes generic, the cost-effectiveness of the drug improves by around 60-65% (depending on exactly when it goes generic, e.g. 13 years after launch vs 15 years) and how low you assume its generic price will be for the long run.
I then met someone from NICE at a conference at MIT. It was a special moment for me because until then NICE was just an abstract agency and yet here was a person I could actually talk to. So I told him about my discovery that genericization had a big impact on cost-effectiveness: “Consider how many people are starting to take generic statins today, yet the benefit to them wasn’t counted in the models run on statins when they launched.”
And he said “Oh, yes, we know that. You’re talking about dynamic modeling with stacked cohorts.”
I was pleasantly surprised and asked him why NICE didn’t do dynamic modeling to better appreciate the societal value of new medicines. And he said, I’ll never forget, “Our job is to help the UK government negotiate the lowest possible prices for drugs and so it’s not in our interest to make them look more cost-effective.”
I pointed out that if everyone willfully bent the truth to undervalue medicines and unpaid for them relative to their worth, then there would be less investment in them and the UK would be worse off in the long run.
And he said, “The UK doesn’t really matter to pharma. We’re a small market. The US is the largest market and doesn’t rely on cost-effectiveness analysis.”
“But what if the US did what you’re doing?” I asked.
And he said, I’ll never forget, “Oh, then that would be a problem.”
Jayson: And here we are. We have a problem.
Peter: So how does a big company push back against NICE?
Jayson: Large pharma companies have their own health economists who do their analyses and, in every submission that they make, they include their own assessment of value using many of the factors we’ve talked about – time to genericization, populations who may no longer require therapy, discontinuation rates, and trying to get to some sort of concept of budget impact over time. My assumption is that every company that makes a submission to NICE, or any other payor body, includes the best possible dataset that they can in terms of both clinical data and assessment of value.
So we’d do this analysis and then NICE would ignore half of it. They have their own mechanism and they'd say, “Yeah, we kind of get that. We're not interested in that. We're gonna cherry-pick the stuff you've sent that we would have used anyway.” They strip out the quality-of-life stuff, caregiver spillover, impact on productivity, etc.
And NICE hearings actually have the opportunity for clinicians, patients, caregivers, and other impacted parts of society to come and speak. And it's hard, because in every single NICE hearing that happens, these people show up and will speak passionately, but at the end of the day, NICE goes, “Yeah, that’s wonderful to hear. It sounds great, but it's too expensive.”
And I think there is a lot of anxiety around taking this on in the public domain because a couple of companies tried that, and the media framed it as “NICE is protecting our population, and NICE says no because pharma wants to charge too much.”
And we’d say “Yes, but have you looked at our model?”
And the media would say, “Yep, blah, blah, blah, but NICE is protecting us.”
So the problem is that the credibility NICE has in the eyes of society is huge, and the credibility that pharma has in the eyes of society is not. And so the minute you try to have this debate in public, pharma just gets hammered.
In the bigger picture, I do feel that Brexit will turn out to be an own-goal for the UK when it comes to this dynamic. Now that the UK is disengaging itself from the central medicines approval process, it may well be that companies just don’t bother to seek regulatory approval for new products in the UK, given that this is now an additional hurdle. And that may lead to even fewer investments in research and clinical trials.
Peter: What is the local biopharma industry doing about NICE willfully underestimating the value of its products? You’ve got big pharmas like AstraZeneca and GSK there.
Jayson: I would say that a lot of companies have significantly reduced their footprints in the UK. There used to be a lot of manufacturing in the UK, and that's pretty much moved out.
Even AstraZeneca, by the way, is making new decisions about big investments. They recently pivoted from a planned investment in a UK facility to building it in Ireland, which was a £300 million investment. So you're seeing this sort of pulling out.
But what is astounding is when you speak to the government or decision-makers and you say to folks, “You are discouraging investment in the UK. We as an industry have a lot of clinical trial money we can put into a country. We have manufacturing and research facilities to build.”
And they'll go, “Yes, but we have Oxford, Cambridge, and London. The golden triangle of research and science in the UK that's existed for hundreds of years. It can be a fantastic place to invest in research.”
And you say, “But why would we invest in research there when you're never gonna use the outcome of that research?” And there isn’t a good answer.
Obviously where we do our discovery and where we sell our products don’t have to be linked - markets have decoupled invention from sales in many industries. But there’s something distinctly unpleasant about how mercantilist the UK has been, expecting investment in R&D to boost its economy but then willfully undervaluing the products, essentially freeloading off the US and other countries.
Peter: So what’s to be done on a larger scale? How do we stop NICE from spreading methodology that seems so toxic to medical innovation?
Jayson: We have to start with the US, because if we allow the US to go down the path Europe has gone down, then we are going to end up in a place where all innovation in drug development is stifled. And we're starting to see a little bit of this in the Inflation Reduction Act with small molecules, but the attitude spills over ultimately into biologics and all the reasons why investors should start questioning investment into drug development versus other things.
And I think getting ahead of it in public is really important. One of the problems that historically happened in Europe, is that the industry was constantly on its back foot, entirely on defense all the time. And when you're on defense all the time and your story is a little bit complicated compared to the really simple story of “big drug companies charge us too much,” it’s a rough spot to be in. So we need to get onto our front foot and show society why innovation matters.
We need to start really doing the expanded math, what you call Generalized Cost Effectiveness Analysis, and promoting the results. The public is not well served only hearing from ICER and NICE.
There are some rational countries in the world where they still do pay attention, like Germany and France. That doesn't mean that getting reimbursed there is easy, and it doesn't mean that you get whatever price you ask for, but they're more rational systems. And we have to think about helping rational systems explain the way they do things to some of the irrational systems in a way that the irrational systems will listen to. And I think to do that as an industry, we've gotta be way more selective around where we invest. We should invest in countries that are going to support the industry, the most rational systems and, ultimately, the patients and families whose lives can be changed by continuing innovation.
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