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There’s No Easing the Price-vs.-Value Debate


Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-04-01-2020
Volume 40
Issue 4

With coronavirus a stark backdrop, European initiative pushes for “fair” drug prices to spur investment in pharma innovation.

It may seem inappropriate-not to say tactless-to be discussing a subject as mercantile as the price of medicines in the midst of a crisis of such dimensions as the novel coronavirus pandemic, with its growing human cost right across the world. But conspicuous among the many things that the current health crisis is demonstrating- from the heroism of healthcare professionals to the base cupidity of thefts of protective equipment-is the continuing need for the development of novel and effective medicines. And that, in crude terms, depends on putting investment as well as investigation into the process-investment that springs from the public purse, or from the revenues earned on earlier innovations, or from the expectation of a return on investment made now and in the future.

Who should put the money into research, who should benefit from the results, and who should pay for them are the questions that have underpinned these discussions for decades, and will doubtless continue to do so once the current crisis is resolved. But as the coronavirus began to wreak havoc on the ordered existence that two generations have come to take for granted in the developed world, the questions were thrown into high relief by a challenging initiative from one of the biggest organizations that pays the price for medicines: the Association Internationale de Mutuelles (AIM). AIM is a grouping of mutual benefit societies that spans 30 countries and meets the healthcare bills of a quarter of a billion people and pays out some $300 billion a year.

Much of AIM’s business is in Europe, and it has proposed “a European drug pricing model for fair and transparent prices for accessible pharmaceutical innovations.” The calls for “fair prices” and “access” are well-trodden ground in Europe (although the resulting footprints have tended to leave a confused jumble rather than any clear pattern), but the originality of the AIM approach is to set out an actual plan for how to achieve the objective.

Rethinking R&D

In summary, AIM suggests allowing an initial lump sum of €250 million for the R&D for each new drug, and to determine in advance the amount of R&D for the treatment of a single patient, based on theoretical prevalence of the condition. Adjustments upward could be made for “real” R&D expenses-to a cap of €2.5 billion-and for a smaller target population. For a high-prevalence disease, the model foresees R&D for the treatment of a single patient ranging from €20 to €1,200, according to the amount spent on R&D. For an ultra-rare disease, the allowable R&D for the treatment of one patient could rise to €1 million over the duration of the treatment, and for a life-long treatment, the model would consider a 10-year duration, meaning a cost for R&D around €100,000 per year. Allowances would be made for production and information costs and for a profit of 8%, and an “innovation bonus” of 5% to 40% could be granted in respect of added therapeutic value against available alternatives.

In a recognition of the diversity of national economies in Europe, AIM says the calculation method would deliver only an average fair price that would then be adapted to each country in line with its GDP. For an average price of €10,000 per treatment, actual prices would therefore range from €2,300 in Bulgaria to €20,500 in Ireland and €29,500 in Luxembourg. And that average price could be further adjusted in light of the price for the product in countries beyond Europe with a comparable standard of living and health system, unless the company could demonstrate that the resulting price does not cover the costs.

The formula would result, AIM says, in a hepatitis C medicine that today costs €40,000 being available at a European average price of €845 (and at €195 in Bulgaria and €2,500 in Luxembourg). Similarly, oncology products that today cost more than €50,000 would have been in the range of €5,000 to €10,000.

Policy potential

AIM has been promoting its concept around Europe’s political institutions, arguing that the current pricing system permits “excessive profitability as the final price bears no comparison with the development costs that are usually used to justify pharmaceutical costs.” It claims that its model would provide “fair prices of medicines to reward what (really) matters.” And it underlines, as a leading payer, that “the fairness toward industry would go together with fairness toward health systems.”

This is sensitive and controversial territory in European policymaking, and the AIM proposal touches on many issues where opinions are sharply divided. No drugmakers have yet come out with explicit comments on the proposed model, but there are inevitably many questions and definitions that would need further refinement for it to gain political momentum.

Meanwhile, amid the confusions and uncertainties of the rapidly-growing healthcare emergency, the European private-sector pharmaceutical industry is pointing to what it has done and what it is trying to do to respond to

the need for care. The main industry body, the European Federation of Pharmaceutical Industries and Association (EFPIA), is repeatedly emphasizing its commitment to seeking solutions, and is flagging up its members’ engagement in collaborative research programs to fast-track therapeutics and diagnostics, their donations of investigational compounds with potential as emergency treatment and for clinical trials, and their work in researching vaccine candidates.

But the messages carry a far-from-subliminal reminder that there is a bottom line to this activity. “The type of research effort needed to address a global health threat cannot be created in a vacuum or turned on and off when Europe needs it. It takes decades to build the right research ecosystem that can respond quickly to such a public health emergency,” said EFPIA Director General Nathalie Moll, as isolationist shutdowns were biting into normal life across the continent.

The industry’s public pronouncements tend to shy away from direct mention of needing adequate prices, preferring more nuanced allusions to ensuring patient access to innovation, maintaining a dynamic environment, or other similar circumlocutions.

One of the crucial conditions, Moll said, was “an intellectual property framework that inspires long-term investment into our R&D infrastructure.” Her trade expert Koen Berden reinforced the message: “Research in general, and research into innovative medicines and treatments in particular, can be characterized by being long-term, high-risk, and expensive.”

Moll reiterated that standard argument that one successful medicine has to earn back not only the R&D costs of the development of the drug itself, but also the costs made for all other failed R&D attempts and compensate capital providers for the risk they have taken with their investments.

Backing outcomes

The message is even clearer in a paper circulating within EFPIA  that calls for a shift toward outcome-based pricing for medicines. This shares with AIM the conviction that “current pricing approaches are simply not fit for purpose for some of the innovations now coming to market”-but it diverges widely in its conclusions.

It candidly states that “a sustainable system should balance budgetary needs (i.e., budget limits and predictability) while maintaining the necessary incentives for continued innovation. The failure to reach such a sustainable approach to medicines pricing is already leading to a situation where many patients do not receive the treatments they need and deserve.”

Core issue

With the current prominent display of society’s dependence on medical innovation to provide solutions to new diseases, the tide of public opinion may be flowing at present in favor of funding innovators to come up with vaccines and treatments that have real value, with less attention to price. But in the post-corona relaxation-whenever it comes-the discussion will again be reignited about where value and price converge. And the old dictum will again be cited: “A cynic is someone who knows the price of everything, and the value of nothing.”


Reflector is Pharmaceutical Executive’s correspondent in Brussels