It’s not often that a biotech executive team talks to the Centers for Medicare & Medicaid Services through a conference call announcing the approval of the company’s first product.

That’s what the Regeneron Pharmaceuticals Inc. team did repeatedly during an early evening call on November 18 following the approval of Eylea (afibercept) for neovascular (wet) age-related macular degeneration. The product was approved late in the afternoon of the extended deadline date for action on the application. Regeneron Senior VP Commercial Bob Terifay delivered the message most directly in response to a question: “When we looked at the pricing, we really wanted to be fair to physicians and patients but also to the health care payors….We feel the price is fair to physicians; it is also fair to Medicare.”

“Fair to Medicare.” That has to be a concept that will warm the hearts of the payors at CMS.

The typical reference to CMS by companies at the time of FDA approval for a novel product headed into Part B (administration in a physician’s office) is that the sponsor anticipates that CMS will cover the product.

Sometimes, the sponsor will add health economic data to show overall savings or a clinical profile that argues resolution of an unmet need as a justification for a super-premium price. Eylea has a convenience advantage: injections at two-month intervals following three initial monthly injections vs. a recommended monthly schedule for Genentech Inc.’s Lucentis (ranibizumab) or monthly monitoring when considering a longer interval use of the product after initiation. The Lucentis labeling currently describes administration on a delayed schedule as “less effective.”

Regeneron argues further that the reduced number of intravitreal injections translates into a potential safety advantage, reducing the potential for infection in the eye.

No Convenience Premium: Regeneron Highlights Lower Costs to System

Whatever advantages it offers in convenience and safety, Eylea does not carry a premium price to the standard therapy. The company is introducing the product at $1,850 per single dose (2 mg vial) which compares to the recent average sales price for Lucentis of $2,015 per dose. Taking into consideration the fewer injections for Eylea, the annual all-in costs for visits, injections and drug for Eylea are about $16,000 per year versus $29,000 for Lucentis, according to Regeneron.

During much of its development period for the drug, outside speculation focused on Regeneron setting a price above the Lucentis level to reflect its convenience advantage and the tough commercial challenge of dislodging a well-accepted product. The expectation: Regeneron would have to price high to make an adequate return from a sliver of the premium market.

The lower entry price to the market dollar-leader may presage a developing model for bio-betters. Eylea is essentially just that: a therapy very close to the originator (non-inferior and clinically equivalent to the originator in clinical trials) but with an arguable convenience factor. If it can start eating into the new patient starts at over 90% of the originator’s price in a growing market, that could be a successful formula and a model for the next wave of bio-better products.

Of course, the AMD market is anything but typical. It is the home of the single largest Medicare Part B drug (Lucentis) and also perhaps the most controversial pricing disparity, with many ophthalmologists believing the similar molecule in Genentech’s Avastin is just as effective at about $50 a dose. In fact, about two-thirds of the injections in the class are for Avastin, making Lucentis a most-unusual market-leading brand.

Because Lucentis is the current top-cost product to Part B, the AMD sector already gets close political attention. That was a good reason for Regeneron to put a positive CMS response high in its pricing calculations. Also see "A Bad Day for Lucentis" - Pink Sheet, 1 September, 2011.

Moreover, by coming in at a discount, Regeneron may be appealing to prescribers whose reaction to the Lucentis price is more emotional than strictly economic: if the goal is to deny Genentech a windfall on Lucentis, choosing Eylea is just as effective. Given the recent reports of infections associated with compounded Avastin, the combined impact of fewer injections and a lower cost per unit than Lucentis may be as much about going after the Avastin share as Lucentis’. ([A#2011500141 ])

Regeneron described the outside pressures for lower pricing as coming from “the retinal community”. In his peroration to the unveiling of the price on the November 18 conference call, Terifay said that the company had heard “very clearly” that the pricing decision should not be a purely “analytical” calculation based on the product’s differentiation to the existing treatments.

Terifay noted that the company believed it had justification to price “at a premium to Lucentis” but opted for a strategy that would emphasize access.

“In making our pricing decision, in spite of the advantages that Eylea would provide,” Terifay said, “we needed to be sensitive to the cost of this important class of drugs to the health care system – especially in light of the anticipated growth in usage as the population ages.” Regeneron estimates that 350,000 patients are treated for wet AMD in the U.S. annually and the age boom from baby boomers is certain to increase the prevalence of AMD.

There was a clear note of trepidation in Terifay’s voice as he laid out Regeneron's thinking in advance of unveiling the price. The immediate reception from the financial community represented by the analysts on the phone was surprisingly positive with at least four analysts expressing outright relief at the choice to price below Lucentis.

Using an average cost per office visit of $250-$300, Regeneron calculates that monthly monitoring for the AMD population is already costing the health care system over $1 billion.

Less for Doctor’s Pocket, But Extended Terms Offer Less Risk

The seven office visits for Eylea will cost about $3,000 compared to about $5,000 for the visits associated with Lucentis. That’s a nice savings to the system per patient; but, here is the downside for Regeneron, that is also $2,000 per year less billing per patient to the administering doctors.

Regeneron addressed that point indirectly during the conference call, referring numerous times to the burden on ophthalmology practices from the influx and repeat visits by AMD patients. An underlying issue in the competition between Eylea and Lucentis will be whether the reduced stress on office capacity for ophthalmologists plus increased convenience (and fewer office visits and injections) for the patients will offset the loss in revenues to the doctors from the lower fee on the cost of the drugs and the fewer office visit reimbursements.

The six percentage reimbursement fee from Part B would almost be double for a physician using Lucentis versus Eylea: about $1,450 vs. $770 in the first year (and $660 in subsequent years for six doses of Eylea).

Regeneron is setting up trade terms to cover doctors during the reimbursement waiting period, which could be more pronounced in the first year until the product gets a J-code from CMS for Medicare coverage. The company did not disclose specifics. However, in response to a question about matching 90-day payment associated with Lucentis, Regeneron said it was likely to offer terms that are “significantly longer in the current market” and then shorten the terms when the J-code is added in 2013.

Despite the lower per-dosage price, Regeneron maintains that it is not “selling on price.” The company says it will not offer special incentives to practices with high volume and does not expect much overall discounting, maybe to the 7-10% range for government contract/FSS schedule supply.

A Big Launch, Overshadowed by Other News

The company says that it will have $800 million in cash and securities by the end of the year to support the market launch and the further clinical/regulatory development of other ophthalmologic and cancer indications for afibercept and Arcalyst (rilonacept) for gout flares. Regeneron expects to file a supplemental BLA for Eylea for central retinal vein occlusion before the end of this year.

Regeneron CEO Leonard Schleifer assured the conference call that the current resources are adequate to fully support the launch. This is one area where larger economic factors outside Regeneron’s control may play a role. Stretching terms to cover the distributor and physician costs for the product is easier with current low interest rates.

If Regeneron has to fight against Roche/Genentech assets in a trade terms fight in a higher interest rate period that could stretch the resources and hinder the Eylea launch or crimp the other clinical development programs.

Another headline issue stole some of the thunder from the Nov. 18 approval announcement. Earlier that day, FDA announced the withdrawal of the Avastin metastatic breast cancer indication. That dominated much of the general press coverage and resources on FDA.

That’s actually a very apropos headline battle. Regeneron will face a shadow from Avastin throughout it commercial life. The company has to hope that Avastin does not continue to steal headlines going forward from the off-label use in AMD.

Eylea might have the right strategy for cutting into the premium market. Regeneron just has to hope that the premium market survives and that its play to CMS earns it a pleased and steady buyer and ally in the future.

Eylea Pricing is Eye-Opening: Regeneron Plays to CMS, Payors on Price; Docs with Terms

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