The Non-FDA Agency That Could Change Drug Development Forever

It's hard to sell a drug if your main customer isn't willing to pay for it.

That's the situation Eli Lilly (NYSE: LLY  ) finds itself in after the Centers for Medicare and Medicaid Services, or CMS, issued a draft decision last month proposing that the agency not cover the company's Alzheimer's diagnostic Amyvid outside of clinical trials.

That's a big blow for Eli Lilly, which paid $300 million up front for Amyvid's developer Avid and $500 million more in milestones. Fortunately, some of those milestones were tied to sales, so Eli Lilly likely won't be paying them any time soon.

Amyvid is used to identify amyloid plaques seen in patients with Alzheimer's disease, and CMS doesn't seem to have a problem with the diagnostic doing what it's supposed to.

"Evidentiary gaps"
While it's clear that Amyvid identifies amyloid plaques, it's less clear whether amyloid plaques are the cause of Alzheimer's disease or just a by-product. CMS wants more data to show how identifying the amyloid plaques helps the patient.

The fact that there are limited options for Alzheimer's patients and that they don't work all that well probably doesn't help the situation. Why pay for a diagnostic to identify patients who should be treated with drugs that don't work? (Technically, Amyvid rules out patients who don't have amyloid plaques rather than diagnosing Alzheimer's, but the corollary would also seem to be true.)

Interestingly, CMS is willing to pay for diagnosis with Amyvid when used to determine who should be enrolled in a clinical trial. CMS seems to be saying that the usefulness of Amyvid is inevitably tied to a drugmaker finding a useful drug for the disease. And identifying and enrolling the correct patients can help cut down the noise, making it easier to identify effective drugs.

That kind of research has already started. Brigham and Women's Hospital is using Amyvid to determine whether patients should enter a prevention trial testing Lilly's solanezumab. Merck (NYSE: MRK  ) is using General Electric's (NYSE: GE  ) competing amyloid-identifying diagnostic in its phase 2/3 trial of MK-8931.

Dollars over doctors?
In the way the system has always worked, the FDA approved drugs, doctors prescribe the drug, and CMS pays for them. There might have been a little pushback from CMS to keep doctors from prescribing drugs off label, but CMS deferred to the FDA even if it wasn't technically required to.

When Dendreon (NASDAQ: DNDN  ) underwent its CMS review of Provenge, I told readers not to worry. FDA approval was sufficient to gain reimbursement. It was.

Now I'm worried.

With the push to lower costs, it's clear CMS isn't willing to pay for every FDA approved drug. That's always been a possibility. Now it's a reality.

When valuing companies with drugs that primarily treat the elderly, investors will need to evaluate the possibility that CMS may not pay for the drug. With just one drug having been denied coverage, figuring out where the line is won't be easy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2013, at 4:30 PM, PharmTeam wrote:

    It's amazing that Lilly is still pushing that solanezumab so hard. Not too long ago they also bought two PET markers for Tau tangles. I'd be much more enthusiastic if they were pursuing that route, as not many others have gone that way yet.

  • Report this Comment On August 31, 2013, at 7:48 AM, mridenhour wrote:

    As long as there's this much financial influence, the CEOs' profits, the mergers and acquisitions, the market speculations, etc., connected to our healthcare system, we will continue to have the highest cost of any country and only mediocre care and treatment afforded to our citizens. Healthcare should never have become big business. It only makes sense that if the money is in sick people, that's what the market and those in the market want to see, not cures and reasonable cost.

  • Report this Comment On August 31, 2013, at 9:24 AM, johnn277 wrote:

    This should not be a surprise to any well read individual. In most developed countries, product approval/registration is a separate event from reimbursement. One good example is the European Medicines Agency. This is charged with review and approval of products based on trials of toxicity, dose response, clinical efficacy etc. Very like the FDA. There is no value judgment. However, the individual countries then have the authority to approve any such product for reimbursement. In the UK, the Health authorities utilize the services of NICE, the National Institute of Clinical Effectiveness, to grant reimbursement and also the PRICE.... If a company disagrees with the price offered, they cannot gain reimbursement. So good clinical performance is essential. So so performance equivalent to other approved products generally results in a low reimbursement price. Extending life for a week is not usually considered worth tens of thousands of dollars per dose. However, NICE has been amenable to improvements in quality of life. So it is not always clear and an application always necessary. This issue with Lilly is not at all surprising in light of what is standard practice in the rest of the world.

  • Report this Comment On August 31, 2013, at 1:19 PM, medicalquack wrote:

    Well you can always partner up with a health insurance company and sell some data...like Lilly and Humana announced...this appears to be to be competition for the FDA Sentinel program to where all insurers were going to "donate" claim information and other related data to have one major place for all to look at and analyze medical data..interesting is is not?

    One might ask today, what is an insurance company as the analytical actions and data selling initiates with subsidiaries, where all the action takes place.

    http://ducknetweb.blogspot.com/2013/08/pharma-and-health-ins...

    On that note if you want a company to introduce your drug or device to the FDA and consult on the entire process, United Healthcare has had a subsidairy that does that for a few years now..CanReg..so what are these insurers all about today:)

    http://ducknetweb.blogspot.com/2011/09/united-healthcare-opt...

  • Report this Comment On September 04, 2013, at 2:06 PM, oldmonk47 wrote:

    It appears to me that restricting access (by not paying for them) to diagnostics and other FDA approved drugs for older folks is part of the Obamacare rationing of goods and services for old folks in favor for younger people. I suspect we will be seeing more and more restrictions or non payment for Medicare participants, especially if they are old. Welcome to hope and change.

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