As scrutiny on drug prices soars, calculating the value of medicines has become a vital yet politically loaded task.

The Institute for Clinical and Economic Review is familiar with the challenge.

Founded as a nonprofit reviewer of healthcare costs in 2002, the institute began assessing drug prices directly in 2014, putting it squarely in the crossfire between pharmaceutical companies, patients and payers. Dubbed ICER, the institute is seen as the American answer to organizations such as the U.K.'s National Institute for Health and Care Excellence, or NICE, whose appraisals dictate which new medicines may be covered by the National Health Service.

Even though no U.S. payer is obligated to follow ICER's advice, the group's influence is rapidly growing.

The U.S. Department of Veterans Affairs said this year that it would incorporate ICER studies in its own assessments. Equity analysts have also increasingly referenced the institute in notes on a drug's potential.

But not everyone is a fan.

Courting controversy

The institute has locked horns with Amgen Inc. over its new cholesterol-lowering medicine and its multiple myeloma treatment, and recently with Purdue Pharmaceuticals LP over its assessment of abuse-deterrent formulations of opioids.

ICER may court more controversy next year.

The institute has slated a number of cutting edge therapies for review in 2018, including the novel chimeric antigen receptor T-cell, or CAR-T, treatments for blood cancers and Spark Therapeutics Inc.'s voretigene neparvovec, the first gene therapy for blindness.

"For some of the very novel therapies, the CAR-Ts and the gene therapies out there, there is still a lot to be understood about how pricing aligns and what potential benefit looks like," Daniel Ollendorf, ICER chief scientific officer, told S&P Global Market Intelligence.

At the same time, the institute is looking to make value-based or outcomes-based pricing assessments a staple in future reports.

The impact of these analyses is significant or minimal, depending on who you ask.

The institute's review of multiple sclerosis treatments in March 2017 concluded that among 15 therapies, only one disease-modifying treatment, Sanofi Genzyme's Lemtrada, was cost-effective at its current price. Sanofi Genzyme is Sanofi's specialty care unit.

Less than a month later, Roche Holding AG's Genentech Inc. launched its multiple sclerosis drug Ocrevus at a price that came under many expectations.

Sanofi and Regeneron Pharmaceuticals Inc. — criticized previously for their $14,000 a year cholesterol drug — also recently priced Dupixent, the first eczema biologic treatment, below expectation and within the institute's cost-effective range.

Ollendorf said that Sanofi and Regeneron talked with ICER and held many conversations with payers ahead of Dupixent's launch.

The two companies were in touch with privately held pharmacy benefit manager Prime Therapeutics as well.

"I've been in this market for 15 years and this is the first time I think that [pharmaceutical companies] honestly have asked payers what their pricing would be for their products," Patrick Gleason, Prime's senior director of health outcomes, said.

Sanofi's pricing assessments relied on a range of tools, including cost-effectiveness and holistic analyses, the company said in a statement to S&P Global Market Intelligence.

"We do not believe there is a single cost-effectiveness threshold that is appropriate for all drugs in all populations," Sanofi said.

Cost-effective pricing is not about ICER's influence as much as a changing industry environment, Randy Burkholder, policy and research vice president for pharmaceutical manufacturers lobby group PhRMA, told S&P Global Market Intelligence. "The health system's growing demand for demonstrated value is having a major effect on our members and the decisions they're making with the pipeline, the research they are doing prior to launch of products but also on an ongoing basis after approval," he said.

"But there is a lot of concern about a standard like ICER's becoming an inappropriate and blunt threshold for determining value," Burkholder said.

Pricing value

In particular, Burkholder said ICER's current focus on new treatment areas such as gene therapies could curb innovation, adding that the institute's plan to review these therapies is a response to payers' concerns about cost and affordability. Cost reviewers should consider that medicines can save money on hospitalization and other forms of treatment, he said. "It's really important to take a holistic perspective," he said.

Payers have admitted that rising drug spending is worrying, most recently expressing concern over Novartis AG's CAR-T therapy, the first cancer treatment of its kind and the U.S. Food and Drug Administration's first gene therapy approval.

"I wouldn't be surprised if someday soon there is a million-dollar therapy," Gleason said. But if that medicine is not durable or effective for patients, there needs to be some recourse, he added, noting that Prime has negotiated these types of contracts for more than seven years now.

When it comes to these new therapy classes, ICER's reports will likely take on a new role.

With limited public information available about the new therapies, Prime hopes that manufacturers will share more data with ICER. "When you have a neutral body bringing up concerns, if they do exist, they are going to try to identify them and quantify them as best they can. And if they don't exist, that's really helpful for us, because they are a very strong research group, data-driven scientific organization," Gleason said.

While the institute plans to incorporate value- or outcomes-based pricing in reports, Ollendorf warned against using these models as the cornerstone of pricing strategy. "I think we want to be careful, because we're not promoting the consideration of value-based or outcomes-based contracts in lieu of responsible pricing," he said.

"If it's truly groundbreaking and substantial, then pricing might be discussed on a different plane. But that's not always the case," Ollendorf said.

The way forward

It is still not clear how much it costs pharmaceutical companies to develop and launch drugs, Gleason said. And without a clear understanding of those costs, it is difficult to tack a fair profitability point to new drugs.

"We do think ICER gets it wrong in some key ways," Burkholder said, adding that the group has been engaging with the institute over the past year on improvements. It had outlined some of its criticisms in a 2015 open letter.

ICER recently released an updated value framework. Among several changes, it expanded the upper ceiling of the cost-effectiveness threshold used in appraisal committee voting, from $150,000 to $175,000 per quality-adjusted life year, a measurement that incorporates both the length of time lived and the quality for inflicted patients. The institute is also planning to release an adaptation of the framework tailored toward ultra-rare conditions later this year.

"We don't want to discourage innovation, we want to reward innovation. But that does not mean that the price can be completely out of alignment with the benefit that's brought to the patient," Ollendorf said.