Will Outcomes Based Contracts Change The Dynamics?

Will Outcomes Based Contracts Change The Dynamics?

As drug and device companies continue to embrace outcomes based contracts the question becomes will they be judged solely on HbA1c. This past Friday Lilly (NYSE: LLY) outlined how their outcomes based contracts for their once weekly GLP-1 Trulicity work. According to slide used during their presentation “Treatment success was defined using a composite measure including HbA1c and medication adherence.” Should Trulicity patients outperform non-Trulicity patients Lilly receives a rebate credit if not the payor receives a higher rebate.

Although Lilly did not disclose what other measures were used besides HbA1c Diabetic Investor believes as these agreements become more commonplace one of the additional measures will be glycemic variability. As we have been noting there is general agreement that while A1C may be the “gold” standard for measuring control it is an incomplete measurement. Thanks to CGM systems researchers now understand the importance of keeping patients in a tighter glycemic range.

Years ago Dr. Irl Hirsch a leading advocate of CGM gave a presentation which showed two patients both with an A1C of 7, the definition of good of control. Yet one patient was kept in a tight glycemic range while the other had wildly divergent glucose patterns. Dr. Hirsch’s contention, now borne out by additional research, was that the patient with the tighter glycemic range was actually under better control than the one with wild swings in glucose.

Looking for any edge they can get with payors it’s a logical next step that drug and device companies will add glycemic variability to their outcomes based contracts. This just reinforces our belief that the most valuable currency in diabetes is hard data. Data that goes beyond A1C and cardiovascular impact. Or put another way when it comes to data the more the better.

On the flip side of this avalanche of data is the impact of negative data. As we noted during the ADA conference Jardiance Lilly’s SGLT2 has a huge leg up over Invokana from Johnson and Johnson (NYSE: JNJ) and Farxiga from AstraZeneca (NYSE: AZN) not because of the EMPA-REG data but also because of the warnings the FDA issued for Invokana and Farxiga but not Jardiance. As we said back then even if the cardiovascular data from Invokana and Farxiga is better than the EMPA-REG data, something we doubt, the FDA warning is huge strike against these two drugs.

Diabetic Investor further suspects that as biomarkers such as glycemic variability become more important it will change the way physicians manage diabetes. Which is another reason we believe that Dexcom (NASDAQ: DXCM) and Medtronic (NYSE: MDT) are smiling. Both companies are working on disposable systems which can used not just by insulin using patients but all patients regardless of therapy regimen. Since physicians will also be compensated based on patient outcomes they will likely embrace these systems. The fact is quarterly A1C measurements don’t tell the whole story and CGM data will allow physicians to intervene more quickly.

Perhaps the best way to illustrate this point is to look at how a patient currently uses a CGM versus a conventional point to point monitor. Let’s also assume the patient using a conventional point to point monitor is diligent about testing and tests 4 times each day. It is quite possible, we’d even say likely, that this patient would have no idea they were not doing well as they have no idea what’s going on between glucose tests. Even if the conventional monitor comes with a way cool app that analyzes the data the analysis can only be based on the data received, which for a conventional monitor is an incomplete data set. The fact is when it comes to glucose data more is better.

Going back to yesterday’s post this is why we believe we’re about to see more partnerships between device and drug companies. The simple truth is they need each other. Diabetic Investor further believes this move towards outcomes based contracts will ultimately help patients as both drug and device companies, again as we noted yesterday, have skin in the game.

Yes, the dynamics are certainly changing and this time around everyone will win.