Learning from Netflix
A new drug licensing model
to enable universal
treatment access
Jean-Manuel Izaret, PhD
Dave Matthews, PhD
UCSF GLOBAL HEALTH ECONOMICS COLLOQUIUM
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New pricing models: the search for mechanisms to align price and value
Old economics model
Customers receiving surplus
Customer indifferent with buying
"Unserved" segment
Surplus Margin Marginal Cost Lost opportunity
"Take it or leave it" value extraction mindset
($)
Time, units, individuals, etc.
Value Price
Customer value (Willingness to pay)
PMC
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($)
New pricing models: the search for mechanisms to align price and value
Old economics model
Customers receiving surplus
Customer indifferent with buying
"Unserved" segment
New economics model
Surplus Margin Marginal Cost Lost opportunity
"Take it or leave it" value extraction mindset Value sharing mindset
All customers receiving surplus
Margin as a share of value created
High penetration, no "unserved" segment
($)
Time, units, individuals, etc. Time, units, individuals, etc.
Value Price
Customer value (Willingness to pay) Customer value
PP
MC
MC
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Netflix introduced a novel pricing model that fundamentally changed the movie industry
Historically: pay per view Today: subscription
Content creatorse.g., movie studios
Content distributors
Consumers
Content Payment
PaymentContent
Content Payment
PaymentContent
TV, theaters Netflix
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The problem:
Hepatitis C has been curable for 4 years...
...but global prevalence remains ~70 M people...
... and high prices make universal treatment untenable
What if we applied this model to healthcare?
The goal: A "win-win-win" solution
Universal patient treatment access
Lower cost to payers and providers
Proper incentives for pharma to keep innovating
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Value from HCV therapy varies widely by patient
$200
0 1,000 2,000 3,000 4,000
$0
$100
Expected healthcare cost-savings per patient over 10 years ($K)
Patients (K)
Example patient segment
• F4 (Advanced fibrosis)• Female, aged 60-70 yrs• 5K patients• $87K per patient in cost
incurred over 10 years
Note: Based on expected cost avoidance per patient treated and cured. Based on weighted-average disease progression and mortality rates for the entire prevalent population in U.S. and average costs at each stage. 2. No expected cost avoidance for patients with liver transplants or hepatocellular carcinoma. Source: CDA USA HCV EIM and LCM models, ver171010; BCG analysis
Inter-
feron
Former leading therapy
($35,000 / patient)Peg-interferon therapy equal to healthcare costs incurred
for later stage HCV
List price range
Net price range
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A payer licensing agreement (PLA) model would realign
drug price with value delivered over time
Revenue
amortization
change
Pricing
basis
change
Pay per population vs. pay per treatment
• Payer licenses the drug with right to
distribute to all patients
• Price is set based on a percentage of
the costs avoided
Pay over time vs. pay at treatment
• Payer pays over 5-10 years, or
• A third party annuitizes, e.g., a for-
profit bank, etc.
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Payer licensing provides a "win-win-win" solution
Payer licensing agreement
Surplus Margin Marginal Cost
Unserved
($)
Patient segments
Value Price
Aggregate license
to pharmacos
paid annually
System cost
savings for
payer(s)All patients
treated as quickly
as possible
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Payer licenses in practice: benefit for all stakeholders
Current model
Unit-based payment model
Proposed model
Payer licensing agreement
Time Pay upfront Pay annuity over time
Units Pay per treatment Pay per population
Per patient price $30,000 / unit $0
Population priceYear 1: $760 M
Year 10: $60 M$350 M / year
# treated patients (10 yrs) 140 K 260 K
# cured (first 2 yrs) 45 K 144 K
# deaths (10 yrs) 22 K 7 K
System costs (10 yrs) $4.5 B $1.3 B
Pharma revenue (10 yrs) $3.25 B $3.55 B
Data for representative EU country
Primary pricing basis
$3.2BPayers savings in
systems costs
$300MPharma revenue
growth
100Kadditional patients
cured in 1st 2 years
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Payer licensing provides a "win-win-win" solution
0
1
2
3
4
5
Total system costs ($ B)
New
1.3
Current
4.5
Source: BCG + CDA Epidemiological model; ver170927; Example EU country data adapted from US epidemiology and cost data
0
20252020
150
300
Cured patients ('000s)
New model
Current trajectory
Eradication4
1
2
3
0
5
New
3.3
Drug revenues ($ B)
3.5
Current10 yr 10 yr
PatientsMore treatment access
PayersLower system costs
PharmaCosEqual or greater revenues
Data for representative EU country
Highly attractive for high-priced systems today,but also applicable to countries with significantly lower resources
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Payer licensing agreements relevant for other therapeutic areas: a framework
EconomicsTherapy should satisfy value, time, cost criteria...
Epidemiology and access...then, market factors can be considered
Cost
Value Large cost differential between treating early and late stage patients
Time of payments not aligned with the time that value is consumed
Low marginal cost of production
High R&D cost
Impact
Access
Large prevalence affected in both developed and developing countries
Limited affordability and/or availability of prevention or treatment
Insufficient existing financing and pricing mechanisms, from commercial, government and/or NGOs
Time
bcg.com
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Novel pricing models are getting tested in healthcare
Capital credit for consumer assets
Tiered user access via freemium models
Dynamic, personalized price-setting
Many industries adopt new models Healthcare's new models are limited
Indication dependent pricing
Combination pricing
Tiered pricing
Outcomes-based pricing
Capitated pricing
Payer licensing
Model Change Model Change
User / segment Time Value redefinition
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An example:
Hepatitis C has been curable for 4 years...
...but global prevalence remains ~70 M people
Universal treatment access
Limited Access: >90% of countries restrict treatment to sickest patients.
Low diagnosis rates: Little incentive to diagnose early-stage patients when treatment cost is very high
What are we trying to accomplish?
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Hepatitis C virus treatment breakthrough faces value alignment challenges
Value per patient varies widely depending on fibrotic stage, sex, age, etc.•True for all value metrics, e.g., costs averted,
QALYs saved, GDP impact.
Time of payments by payers does not align with the time that value is delivered, no matter the value metric.
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PLA could deliver value for all stakeholders
Epidemiology Economics
Data for representative EU country
$0
$500
2026
239
405318
System savings ($ M)
261
2024
268292366389
2018 2022
317342
2020
$800
$400
$0
Total pharma revenue ($ M)
FFS
PLA300
150
0
Cumulative patients treated ('000s)
0
20
10
202620242022
Cumulative patient deaths ('000s)
20202018
PLA FFS
Notes: PLA – Payer License Agreement, FFS – Fee for service, current trajectory with unit-based pricing. Sources: CDA, BCG, Datamonitor, Decision Resources Group
258,000
139,000
7,000
22,000
$3.5 B
$3.3 B
$3.2 B
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The PLA approach works because of the long term cost-
savings from curing patients quickly
300
200
100
0
2018 202420222020 20282026
*Note: Annual hospitalization costs discounted at 3% annually. Cured and deaths are summed in time beginning 2017, all
other statuses are showing prevalence. Source: Based on CDA 171101 US-adapted model, BCG analysis
Number of patients impacted* ('000)
Current trajectory Payer licensing model300
200
100
0
202820262024202220202018
F3
F2
F1
F0
Cured but cirrhotic
Cured*
Liver-related deaths
Liver transplants
Cancer
Decomp cirrhosis
F4
Cured Cured
Dead
Dead
Status Annual cost*
0
$2,189
$0
$2,189
$2,189
$2,189
$2,189
$16,852
$26,885
$106,709
$0
Data for representative EU country
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HCV therapy delivers value over many years
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
-
500
1,000
1,500
2,000
2,500
Liver Transplant
HCC
Decomp Cirrhosis
Cirrhosis
F3
F2
F1
Chronic HCV (F0)
Total Cost
Non-drug costs of example HCV-infected patient cohort
Annual cost per patient ($) Cumulative cost ($)
Source: CDA, BCG; Chart shows average costs for male aged 30 when infected in 2013; 3% discount rate
Average DAAnet price($43K)
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
-
500
1,000
1,500
2,000
2,500
Liver Transplant
HCC
Decomp Cirrhosis
Cirrhosis
F3
F2
F1
Chronic HCV (F0)
Total Cost
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