EU Drug Pricing: The Only Way Is Down
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Pricing pressure in Europe is hardly new, but it became a much bigger concern in 2010. The last 18 months have seen some of the most severe and certainly the most numerous, price cuts across the region. Although individual European countries represent only a small share of Big Pharma revenues, the EU as a whole is the world's second-largest market in sales terms, only slightly smaller than the U.S. Among the most prominent cost-cutting measures were Germany's 10% hike in the rebate that drug firms must pay insurers for drugs outside the country's reference-price system, and Spain's blunter 7.5% price slash in June 2010 (see chart: EU Price Cutting, Country-By-Country). Europe's governments, trying to get budgets under control amid the global economic crisis, target drug prices first, comments Brendan Melck, health care analyst at IHS Global Insight, a consulting firm; "they're less sensitive politically than say hospital services," he continues. The cuts vary in size and nature depending on the national system involved. Thus France, with arguably the closest to value-based drug pricing already in place, cut the reimbursement rate for drugs deemed only 'moderately' effective from 35% to 30%. The most valuable tier, the 'highly' effective drugs receiving 65% reimbursement, remains unscathed, and most likely will do so for a while given the backlash that even the moderate tier cut provoked from the country's insurers, the mutuelles, according to Jim Furniss, Director, Global Market Access Strategy at Bridgehead International. "But France is gradually tightening the screws" across a number of fronts, including via increased incentives for generic prescribing. That's the same story across the board. Countries that historically had far lower generic penetration (mainly the southern European states, such as Spain, Italy, Greece and France) are fast changing that. They're creating incentives to boost utilization. And they're cutting generics prices – in Spain by up to 25%. In Ireland, the cut is 40%. Greece, alongside September 2010 cuts of up to 27% on some drugs, is also pushing down generics prices. So is Italy. Generics prices and utilization still vary considerably from one European country to the next; prices remain high – relative to U.S prices – in states such as Spain and Italy, which have only recently begun to encourage generic prescribing. But in countries including the U.K, Holland and Sweden, where generic penetration is high, prices are more similar to those in the U.S, at 70%-90% below those of branded equivalents. The precise impact on individual companies of European price cuts will vary depending on portfolio and geographic emphasis. Razmic Gregorian, a partner at pricing consultancy Simon-Kucher & Partners in Boston, puts the overall cuts in the 3%-5% range; Bristol-Myers Squibb Co.'s CEO Lamberto Andreotti in January 2011 estimated the impact on his company as closer to 6%. Piper Jaffray analysts' impact models from a July 2010 report include assumed cuts ranging from 2.5% to 7.5%. For Gregorian, the order of magnitude of the cuts isn't unprecedented. "What's unprecedented was where the cuts took place, and the number of them."
Cuts Aside, Local Uptake's the Problem Even then, beyond the percentage-point cuts lies arguably a more sinister threat to drug firms: blocks to usage at a local level in many countries. Most drug firms are now resigned to – and adapting to – the higher cost-effectiveness hurdles and tighter scrutiny that accompany price cuts in most of Europe's largest markets. What is arguably even more challenging is the pressure on drug usage at a far more local level in many European countries, points out Bridgehead's Furniss. In theory, local authorities in countries such as the U.K., Sweden and Italy, have to follow the advice of national Health Technology Assessment bodies like the National Institute of Health and Clinical Excellence in the U.K. But the reality is that many don't. And that means many of the newest and most expensive drugs simply aren't prescribed, since, "it's they [the local authorities], not the central government, that hold the budgets," notes Furniss. The new U.K. government's proposal to devolve budgets and drug-related decision-making down even further to many hundreds of local GP consortia appears likely to exacerbate the problem. And indeed Sweden, an HTA pioneer, is already seeing the need to introduce measures to try to incentivize local authorities to buy and provide innovative drugs (Also see "Swedish Pharma Looks For More Substance In Innovation Procurement Plan" - Pink Sheet, 24 Jan, 2011.). Local controls also are becoming a barrier in Spain, according to Gregorian, who notes that autonomous communities are becoming more sophisticated in their ability to rationalize care and control their budgets. Germany: The One to Watch in 2011 The picture's not going to get any better in 2011, according to the experts, although views differ on whether, and by how much, it may worsen. "Prices can only be expected to hold or go down from where they are now," declares Gregorian. Germany is the market that's most concerning, however, not only because it's Europe's biggest, but because legislative changes announced during 2010 will effectively put an end to – or seriously limit – the free upfront pricing that companies have enjoyed in this market to date. "I'm reluctant to predict what sort of net price cut we'll see this year [in Europe], but the most interesting development will be how the German reforms are actually implemented," remarks Gregorian. The pharmaceutical sector restructuring law, passed late in 2010, limits free pricing to one year following launch, ahead of a review by the country's reimbursement agency, the G-BA. If added benefit isn't proven, the product risks being priced as a me-too; otherwise, a price will be negotiated with insurers with G-BA input. The precise criteria used for G-BA's assessment, and any pricing thresholds, will likely remain unclear until the first products go through the system (Also see "Tweaks To German Pharma Law Require Firms to Prove Drugs' Value Within a Year" - Pink Sheet, 8 Nov, 2010.). The timing, however, means that any cuts that do take place are most likely to hit during 2012; "it will take more time to analyze the impact of longer-term measures such as the new price-setting process for new products," write analysts at Macquarie Research in a Jan. 12 note. Furniss predicts that some companies may hold back – i.e. delay – rather than be first to test the new German system, but Macquarie reckons AstraZeneca PLC will be among the pioneers, with recently approved Brilique (ticagrelor), a blood thinning product (Also see "AstraZeneca's Brilique Approved In The EU" - Pink Sheet, 6 Dec, 2010.). Germany has already frozen drug prices at August 2009 levels, until the end of 2013. Rebate Contracts Likely to Spread The impact of rebate contracts negotiated directly between drug firms and insurers in Germany may yet overshadow – or at least exacerbate – the pricing impact of the new laws. This trend has been growing since 2007 when such negotiations became legal (Also see "Pricing Experiments: Pharmas Get Creative in Germany" - In Vivo, 1 Jul, 2009.). They were initially implemented only around generics, where insurers issue tenders every two years for preferred supplier contracts, resulting in significant pricing pressure on generics. Now they are starting to affect branded drugs, too, although discounts on these are negotiated on a case-by-case basis. Furniss predicts that such discount negotiations will spread beyond Germany into markets including Spain and Italy, where "autonomous regions will start to do the same. If you want preferred status in a particular area, you'll have to negotiate a discount," he says. Such negotiations may also begin to occur in the U.K. as local decision-makers take hold from 2013; even if they don't, though, in order to encourage uptake, "companies will have to increasingly focus on building relationships with local decision-makers," says Furniss. Southern And Eastern Europe Offer No Haven IHS's Melck suggests that more price cut shocks could occur in Greece, whose struggling economy has already been bailed out by the European Union and IMF. A new positive list (a list of preferred drugs, which favors generics and lowest-cost treatments in certain categories) is due to come into force shortly, and from March 2011, Greece will start to use a reference price basket consisting of the three lowest-priced EU countries. (Greece and several other European countries already use reference pricing, but Greece had previously averaged out prices from more than three states.) Italy will also see cuts, Melck says, although these may primarily hit generics, whose prices will be reset at the average of the 27 EU member states' prices, rather than those of the EU 15 (which would be higher). Further downward pressure on prices both of branded and generic drugs in Eastern Europe, too, is likely, with the Czech Republic going through a big health care reform program. It has plans to scrap the current system that permits a phased decline in generic prices after patent expiry, and to instead allow low prices straightaway. Similar changes could occur in Poland (although October 2011 elections make predictions difficult) and Romania, which has passed generic-friendly legislation that will likely pull prices down during 2011 according to Melck. Premium Prices Still Available, But Not As Premium Notwithstanding the continued pricing pressure that Europe is likely to face during 2012 and beyond, new drugs whose clinical benefit over conventional therapies can be unequivocally proven will continue to get premium prices, "but the premiums are unlikely to be as large as they were a decade ago," suggests Simon Kucher's Gregorian. As such, it's still worth launching innovative drugs in Europe, but it's possible that "selected countries are unwilling to pay the prices that their neighbors are, so we might see limited launches, and reimbursement," of some drugs across the region. More products may be available on the private market, predicts Gregorian, but not through standard [national] reimbursement. As for those products judged – using increasingly tougher criteria – as 'me-toos', they will be more likely to be priced not even at parity to, but at a discount to first-in-class counterparts, even in countries like Germany which used to enjoy free pricing. That discount could be as high as 10%-20%, according to Gregorian. In sum, he continues, "it will not be a calm year" for drug prices in Europe. But the message to drug firms is the same one they're already hearing, just louder: go after truly innovative products meeting unmet need, and make sure you can demonstrate their value. – Melanie Senior ([email protected]) with additional reporting by John Davis ([email protected]) and Faraz Kermani ([email protected]) |
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