For years, pharma companies have bemoaned the difficult operating environment in Europe, gloomily predicting the ultimate collapse of the industry due to healthcare authorities that seemingly have little regard either for innovation or value for money, but focus relentlessly on cost alone. The sense that the industry is unappreciated is all-pervasive, whether it be big pharma companies trying to get their novel products reimbursed or generic companies struggling to make a profit in rebate-driven pricing regimes.
To a certain extent, the industry has itself to blame for its predicament. Innovator companies have historically assumed that governments would pay for whatever they developed, irrespective of the degree of additional benefit the new products offered to patients. Meanwhile, generic companies, through their industry body, the EGA, have pushed hard for INN prescribing and pharmacy substitution, reinforcing the idea that their products have nothing to distinguish them but price. As healthcare bills have mounted and economic growth has stalled, payers have focused on cutting the pharma bill, by insisting that new drugs actually demonstrate real-world benefit over existing therapies and by allowing the naturally competitive tendencies of generics companies to force down prices.
Lengthy development timelines and tough regulatory requirements mean that it is difficult for the innovative end of the pharma industry to change direction rapidly. Companies have already made the transition from developing ‘me-too’ products to working on more genuinely novel drugs, but comparative studies against existing best-in-class treatments are only now becoming the norm, at least in part because such trials are extremely expensive to run and carry a high risk that the drug under study will be shown not to be significantly better than current therapies, thus limiting its ability to attract a high reimbursement price. In the generic world, things move much more quickly, but the pricing issue is a more intractable one, since generic companies in most European markets are unable to market their products based on any features other than cost and comparability. Moreover, their prices are almost always capped at some percentage of the innovator price, irrespective of how little competition there may be.
Even so, there are clear signs that the worm is finally turning and that the industry is moving on from simply complaining to voting with its feet. A number of generic companies have stated publicly that they will no longer take part in the tenders in Germany and others have presumably made the same decision in private, since the number of bidders for each molecule is visibly declining, at least for the products that have been through multiple tender rounds. This, combined with an increasing tendency to award tenders to multiple bidders, seems to be pushing up average prices, albeit by only a few percentage points so far. But in more specialist areas such as dermatology, with only a few possible suppliers, tenders are actually failing due to manufacturers refusing to bid, a phenomenon that is also being seen in smaller markets than Germany. For instance, the recent tender held by the Spanish region of Andalucía attracted bids for only16% of the lots on offer and it is notable that neither the big Spanish generic companies nor the leading international players chose to participate. Instead, the tender winners for those molecules that did attract offers were mainly low-cost importers such as Aristo (Bangladesh), Krka (Slovenia – not actually a particularly low-cost producer but presumably ready to sell at marginal cost), Ranbaxy (India) and Aurobindo (India). Another straw in the wind is Actavis’s decision to sell Aurobindo its loss-making units in France, Germany, Italy, Spain, Portugal, the Netherlands and Belgium. At first blush, this seems a crazy thing to do, since Actavis can hardly claim a global presence if it abandons four out of the top five European markets. However, further reflection makes us think that actually, it is Actavis’s competitors that are mad, if they are continuing to sell products at a loss simply for the sake of wanting to have a presence in all the large markets. Why not just focus on places where you can actually make money?
Big pharma companies seem to be coming to much the same conclusion. A stream of failed IQWIG assessments has resulted in several novel therapies not being launched in Germany, despite it being the largest pharma market in Europe. Innovator companies would seemingly rather do without German sales than accept a low price that would then be replicated across Europe via reference pricing. Consequently, German patients whose doctors want them to have access to these products will have to obtain them on a natmed-patient basis and import them at the full price.
The recent clamp-down by the FDA on sub-standard manufacturing, which is being accompanied by a much more intensive inspection regime for overseas plants, is also likely to have an impact on the level of future competition in the European generic market. Combined with ever-increasing pharmacovigilance requirements, it is likely to reduce the number of cut-price operators in the region, making it harder for health authorities to fill their requirements without the support of the major producers. So long as these companies are ready to insist on prices that actually give them a reasonable return on their investment, therefore, prices should rise. Of course, this is a big caveat, because one of the industry’s biggest weaknesses has always been its failure to take a strong line on pricing. However, with Teva seemingly taking a lead (albeit that its new CEO has not yet had the chance to articulate his strategy for generics) and the prospect of a slightly less competitive marketplace, it may be easier for the rest of major generics producers to fall in line. If so, 2014 might prove to be a genuinely happy new year.