Pharma environment and social goals need to include—the Institute for Clinical and Economic Review (ICER)? They should, one analyst firm says.
The independent drug pricing assessments by ICER could play a role in determining good pharma corporate citizenship, Bernstein analysts say.
While environment, social and governance (ESG) measures generally evaluate corporate citizenship around issues like carbon footprint and diverse hiring practices, the dominant measure of a pharma company’s reputation is drug pricing. ICER’s independent and established system could help investors determine ESG value—and investment worthiness.
In fact, ICER analytics might be the “ultimate pharma ESG tool,” Bernstein analysts suggested in a recent 16-page investor note.
Pharma companies themselves are unlikely to eagerly embrace the idea. But something's got to give as the sticky issue of drug pricing in the U.S.—and the push for value-based pricing—is not going away.
Value-based pricing pegs the cost of a drug directly to patient outcomes, while ICER seeks to determine cost effectiveness valuations. ICER research includes clinical data, patient perspectives and stakeholder input, as well as comparative and long-term effectiveness measures to determine the appropriate cost range for a drug.
Biogen, AbbVie and Teva would take the biggest revenue hit under value-based pricing, with industry revenue loss overall at 10% to 25%, Bernstein predicted.
Pricing took a back seat during the pandemic as the hero's race to find vaccines and treatments cast a positive glow over the entire industry, but drug price increases didn't go completely unnoticed.
A flurry of media reports in January pointed out drugmakers hiked prices right on schedule. A total of 832 drugs posted an average price increase of 4.6%, GoodRx reported, adding it was "the largest amount of increases we have seen in years."
Americans cynically predicted something along those lines—89% said they were concerned drugmakers would leverage the pandemic to raise prices, a Gallup Poll in June found.
Incorporating ICER pricing methodology into ESG measurements could put pressure on pharma companies to control drug prices, Bernstein analyst Ronny Gal said in an interview. And while they may not like it, it is fair for consumers and investors to expect pharma to be accountable.
"If you’re going to charge X dollars for a product, your pricing needs to have scrutiny to it. Most industries have that already,” he said.
The Bernstein investor note further explains the group's thinking: "In looking at the ICER database, we realized the data set can be used as an in-depth, independent, objective and transparent systematic analysis of how fairly individual companies set U.S. prices. Further, the database offers quantitative targets to what prices should be. Thus it offers an actionable decision-making tool for ESG investors and offers an alternative way to legislation to pressure the industry to control their prices (boards and CEOs care about their stock prices)."
ICER agrees with the Bernstein assessment of course, but it doesn’t necessarily think the buck only stops there.
David Whitrap, vice president of communications and outreach at ICER, said that as the general concept of using evidence to inform pricing grows—consistent with how the rest of the world operates—demand will also grow for independent assessments from ICER, ICER plus other evaluators together or even a new government-established body.
Pharma has been paying more attention to ESG in the past few years, but, as Gal pointed out, it tends to focus on other issues in the ESG realm such as environmental goals or advancements in diversity and inclusion.
“They’re focusing on secondary issues, and to some extent, have not engaged at this point in the main issue,” he said. “That’s something that an incorporation of ICER-like measures could instill.”
Smart pharma companies are already engaged with ICER to get their input on pricing but for non-ESG purposes, Gal said, adding that ESG may reinforce this trend.
Some already are, Whitrap said. Pharma attitudes have changed over the past few years, with some beginning to view ICER not just as a threat to the bottom line but a potential helping hand. A handful of them have approached ICER before setting a drug price to make sure the end result will be in line with the watchdog's evaluation.
“There’s also a big carrot at the end of an ICER review for some of these companies," he said. "For those that are producing really effective drugs that make a big difference in patients’ lives and pricing those treatments fairly, the exit of an ICER review with essentially a seal of approval from an independent party that says they’ve been a responsible corporate citizen and done the right thing and priced their drug fairly, has multiple benefits for them.”
Those benefits include not only a reputation boost with the general public and federal legislators—and better leverage with payers—but also an improved ESG rating and a “progressive pitch to investors who are looking to put their money behind socially responsible companies.”
Novartis, for example, in its society 2020 report (PDF), said it is "calling for the fundamental transformation of our healthcare system."
"We want to transition to a system that is more accessible for all patients and uses value and outcomes criteria to determine how treatments are priced and reimbursed," the report said. "Novartis is expanding our commitment to value-based models of care by calling for a system shift that links drug pricing and patient access to the value they provide patients.”
Another pharma tackling price more directly is Sanofi. It wrote in its principles and pricing 2021 report (PDF): “When we set the price of a new medicine, we hold ourselves to a rigorous and structured process that includes consultation with external stakeholders.”
It listed outcomes, economic value and social value as key metrics, with a range of internal and external methodologies to assess a drug’s value, including patient perspectives.
Whitrap pointed to a third example of progressive pharma thinking in a Morningstar ESG report. It called out AstraZeneca, which “supports its wide economic moat with smart strategic decisions on drug pricing and product governance, two of the biggest social issues affecting the branded drug industry.”
Still, there are hurdles to getting ICER or ICER-type assessments incorporated into ESG.
ICER has only evaluated some drugs in the U.S.—only 34 of the top 150 reimbursed by the Centers for Medicare & Medicaid Services, by Bernstein’s count. The analysts estimate it would take at least two years to expand and refresh the database.
And value-based pricing itself has not been instituted, or even agreed upon, as the path forward in pharma. Some legislators are still backing Trump-era ideas such as drug importation, rebate management or an international pricing index.