Angered by the moves European nations are taking to cut drug prices, one big drugmaker commissioned a study that finds - guess what? - price cuts will severely reduce the number of new meds making it to market. The study was undertaken by the European School of Management and Technology's Competition Analysis and funded by Novartis.
The Berlin-based group claims to have modeled and quantified a "direct link between strict regulation and low innovation." And the new meds that are likely to be "hit hardest under tough pricing regulation" include drugs for treating heart disease, multiple sclerosis and chronic meningitis, as well as antibiotics.
"Our study shows the consequences that pricing and reimbursement regulation can have on pharmaceutical innovation," Hans Friederiszick of ESMT CA says in a statement. "It also shows that, incorrectly applied, regulation can reduce the value of pharmaceutical projects and curtail the resources available to carry them out." Here is the complete report.
The group argues that External Price Benchmarking (EPB), which it says is used in OECD countries, causes a 5.7 percent drop in the "optimal pharmaceutical portfolio value" of a typical drugmaker in its simuation. And Internal Reference Pricing (IRP), which is used in 17 EU-member and 3 non-EU OECD countries, causes an 11.7 percent drop. "Having some regions of the world under IRP and others under EPB magnifies the problem, since internal prices are then exported to external markets, leading to a 19.8 percent drop in portfolio value, according to ESMT.
Many European governments, as you know, are slashing prices (see here and here), and some drugmakers are trying to fight back by withdrawing products, as Novo Nordisk did recently before reaching a compromise (see this). Earlier this week, for instance, Germany's government approved a draft bill that would save up to $2.4 billion annually by forcing drugmakers to negotiate prices (look here).
11 Comments
The whole drug business has been turned inside out by the emphasis on me-too product development.
How much innovation is embedded in new GERD, SSRI, ADD stimulant, anti-psychotic, sleep aid, ED aid, statin...meds that have essentially the same efficacy and side effect profiles as existing products? (Many of which are generic.)
The less marginal clinical improvement delivered by a me-too drug, the more money that must be spent to create an illusion of superior benefit-cost value through deceptive marketing.
Big Pharma has made its bed by emphasizing marketing over science and now it's time to lie in it.
Have to agree with SteveM, but at the same time there are disease states and areas of medicine which are not well treated with existing medications. In some of the area where there has been innovation in product development, the studies conducted (for marketing approval) are not adequate to define the real utility (or lack) of a new treatment approach. Instead (for example) we get cancer chemotherapy agents which are approved based on markers of tumor progression, not cure or even survival benefits. If I had cancer, would I want to spend tens of thousands of dollars on a chemo agent that would not prolong my life, but that would permit me to die on the same date as without treatment, but with a lower tumor burden?
Clearly innovation is in the eye of the beholder. Nevertheless, I'm convinced that researchers and entrepreneurs will continue to investigate new treatments for conditions which are not well managed now. As we continue to learn more about the basic science of human life and the pathophysiology of disease, there will be new opportunities for developing new treatments. It may be that rather than innovation being driven by large companies, we see an era when true innovations come from small companies and university settings. Nevertheless, when (and if) a true innovation becomes available, the maker profits - even if there are contraints on price.
Limitations on intellectual property protections is probably a greater barrier to innovation. If a treatment (even if composed of older medications combined in a novel/synergistic way) can't be patent-protected or a market-exclusive for the makerto for a sufficient period of time, that product will not be developed, even if it is a significant innovation. I've seen this personally in PhRMA companies where I have worked.
So according to this, when prices are cut, branded drug companies get out of the branded drug business. Does this mean that a branded drug company like Pfizer will diversify into other industries like beer and wine for example?
Get rid of the development and marketing to treat assinine conditions. Such as "restless leg syndrome", additional research and marketing of diet drugs, drugs such as Prevnar (who do you - those like me - that never had penumococcal disease have had Prevnar???) Nicotine patches with more holes than Swiss cheese in it's safety, efficiency, etc. that you assume are rosy - yeah, those may be likely doing more than good.
I think a new approach must be mandated by those way up the totem pole, and their or his deputies, and ENFORCED. So much is thrown at sales reps, that it does make a difference in how much a company can use these funds to do what is truly needed. Not what a development of a substance that is later found out does something completely different. Then, pass it on to marketing and sales to convince the public of this "drug by accident" and how glorious it is.
Look at Pfizer and Viagra. Was meant to be a cardiovascular disease, but :: oops :: look what it REALLY does... Before you know it, the marketing department has the Young Rascals on the horn, and suddenly "It's a Beautiful Morning" with kites flying around.
~ M. Black (soon to be M. Blue)
Until then, when your leg becomes restless, just don't kick anyone. It will pass.
~ M. Black
Dr. Helm I agree with you. The subtext that I failed to elucidate is that truly innovative therapies that provide clearly superior clinical value would provide pricing leverage to the pharma developer. And the over the top marketing expenditures would not be required to move the product.
But the emphasis on me-tooism meant Big Pharma investment portfolios had to be much more heavily weighted to sales and marketing and away for R&D.
The fatal strategic mistake those management teams made was in not realizing that benefits managers would eventually use price and formulary hammers on me-too brand names that provide little additional value over generics.
So now Big Pharma's pipelines are crap and their gooses are cooked. Oh well...
One incentive would be to make the R&D tax credit permanent. Given the current economic climate I don't think that automatic renewal of this creit is necessarily a given. Making it permanent would encourange R&D into tougher disease states where ROI is neither immediate nor guaranteed.
Pharmavet, you may be right that the R&D tax credit possibly should not be taken for granted. On the other hand, SteveM and and I could probably construct a pretty good case to argue that the tax credit hasn't resulted in innovative therapies, but rather new ways to reformuate/repackage old drugs to maintain high prices and a protected revenue stream.
Don't get me wrong, there are some innovative products which have come to market in the past decade or so, but these are the minority of new approvals. Many of the innovative products are in "orphan" disease states. I'm fairly certain that university and other public-supported endeavors, as well as the occasional start-up will continue even if the tax credits went away - the potential reward is still significant.
The big problem for PhRMA is that the common conditions can now be well-managed with a robust set of very good medications - most of which are generic (or soon will be). Given that fact, if you are the central pricing authority, why not cut reimbursement? The bigger problems for improving health outcomes are actually getting doctors to use guideline recommendations for diagnosis and treatment, and getting patients to actually treat their conditions (which can include taking their medications) as recommended.
No matter how you cut it, I see a rough 5-10 years for PhRMA ahead, largely because of strategic errors relating to the search for continued market exclusivity and/or the next "blockbuster." Don't need to remind anyone that there are scores of less common/complex conditions which are poorly treated/cured. SteveM is correct that true innovation will be rewarded - but there is still a need to actually fulfill a real unmet need.
Dr. Helm, since you mentioned orphan drugs, those firms get or at least used to get to to write off 50% of the R&D costs for the first seven years post-approval. What you cite is an excellent example of the benefits of the R&D tax credit.
Of course cutting prices reduces R&D. I don't know why a study had to be commissioned to determine such an obvious connection. The real issue (as raised tengentially by the previous posters) is whether the world CARES if pharma R&D is cut. The majority of the industrial world (I think) is pretty satisfied with the current medication that is available. We (as an industry) have done a pretty darn good job of delivering relatively safe and effective treatments. The real question is whether the public wants to continue to pay big bucks for what will undoubtedly be only modest improvements in medications over the coming years. My gut feeling is that society is ready (more or less) for medical innovation to slow down and allow us to focus our dollars on other things in life. (ie, more leasure time, more "toys" and gadgets, etc) As a pharmaceutical researcher, that is a very scary prospect.
Nathan, while I agree that the industrialized world may care less about Pharma R&D spending, the non-industialized and developing countries care very much. Diseases such as AIDS, malaria, pneumonia, TB, river blindness and others still kill or disable millions of impoverished people around the world. Check out the link for the Bill and Melinda Gates Foundation, whose philanthropy supports development of drugs and vaccines for these conditions. I heard Bill Gates interviewd this morning on the radio, and he believes, as do I that more and more philanthropic organizations will play a role in drug development.
I believe that the hidden benefits for Pharma is that resources will be refocused in these unmet medical conditions and away from the world of me me-too, lifestyle drugs, etc. This will also mean that clinical trials will increasingly move out of the US and into those countries where these disease occur. It is already happening in China. I see it as less a matter of cost cutting and more of cost shifting.
http://www.gatesfoundation.org/global-health/Pages/overview.aspx
In other words, with widespread payer-mandated drug price cuts taking place around the globe, Americans should be prepared to continue to pay full or premium prices to continue to fund the pharmaceutical business. Otherwise, drug development will cease? Sounds like they want the government and payers to fund their research for them.