This morning we learned of yet another value based diabetes drug deal. According to a story posted on the Philadelphia Business Journal webs site Merck (NYSE: MRK) and Aetna have signed a value based deal for Januvia. According to the story;
Under the agreement, Aetna will receive incremental rebates from Merck for its Januvia and Janumet drugs based in part on those products’ contributions to helping Aetna’s commercial member population with type 2 diabetes “achieve or maintain treatment objectives.
The contract requires Merck to pay rebates, the amount of which was not disclosed, to Aetna if certain portions of patients in the population who are prescribed the drugs do not achieve their treatment goals and require further therapy, as determined by their physicians.”
This is not the first such deal, Lilly (NYSE: LLY) did this Trulicity, and it certainly won’t be the last either.
Value based deals are in essence outcomes based reimbursement. Simply put Merck will be rewarded when patients hit predetermined metrics and punished through higher rebates when they fail to hit these metrics. Frankly it’s just a matter of time before these value based deals become the de facto standard and not just for drugs but also devices in particular insulin pumps.
The risk we see here is patient adherence combined with the destructive nature of diabetes. Looking at the Merck Aetna deal we see Merck carrying a greater share of the risk. First there is no way even with patient outreach and education programs they can make sure the patient takes Januvia as prescribed. Second, even the most adherent patients often fail to achieve good outcomes. Also given that the majority of patients are on multiple medications how can Aetna directly link poor outcomes to Januvia.
We also wonder how deals like these impact the physician. Physicians are already being handcuffed by payors, often times being told how to manage a patient’s diabetes. One of the biggest complaints by physicians is that formulary limits the options available to patients, that they would like to use more and/or different medications but do not because the patients out of pocket costs would increase.
We further wonder just what metrics Aetna will use to measure performance. At first glance it would seem like a no brainer and that HbA1c would be the metric of choice. However, A1c is an incomplete gold standard for control and there is growing consensus it should not be the only biomarker to measure control. There is also ample evidence that different patient populations should be held to different standards. While achieving an A1c of 7 or below is fine for some it is not fine for all.
Going back to the article it states;
“Merck (NYSE: MRK), which has a larger research and manufacturing operation in West Point, Montgomery County, will also become the first health care company to participate in AetnaCare, a new personalized health and wellness care program that provides the managed care company’s members the knowledge, tools, and support to take a proactive role in managing their own health.
The separate initiative will include the use of predictive analytics to identify target populations and proactively curate various health and wellness services that are available to each member. The program is designed to support treatment adherence, ensure that important social support needs are met, and reinforce healthy lifestyle behaviors. The AetnaCare program will initially target patients with diabetes and hypertension in Mid-Atlantic markets.”
This second part of the deal points to the growing role of big data, predictive analytics and to some extent artificial intelligence. It also supports our belief that in the future diabetes management will become very unique to the individual patient. That just as cancer treatment is becoming individualized so too will diabetes management, a move by the way which not only makes sense but is very logical. The fact is the needs of a 25-year-old patient are different than a 65-year-old patient and these two patients should not be managed the same way or held to the same outcome metrics.
Taken one step further the second part of this deal underscores something we have been saying almost every day, the future of diabetes management is now in the hands of companies like Google, Apple, Samsung and IBM. Companies which not only have strong consumer skills but who are also well versed in the power of big data. These companies, not Lilly or Merck, have the skill set to not just develop but manage the diabetes management systems of the future which will ultimately lead too personalized, individualized diabetes management.
The nature of diabetes management is changing on multiple levels and the sooner the old guard gets with the program the better. Companies like Lilly and Merck can add tremendous value to these systems given their wealth of knowledge in diabetes. This excuse the expression is their sweet spot, their core competency. This is why Medtronic (NYSE: MDT) was smart to partner with IBM’s Watson Health, Medtronic understood what they were and were not good at. Same goes for Dexcom (NASDAQ: DXCM) and Google. Same goes for Sanofi (NYSE: SNY) and Google.
These hook ups between big pharma and big data will become more and more common. And it will forever change the nature of diabetes management.