The European financial crisis is creating a tug-of-war between the pharmaceutical industry and governments as austerity measures clamp down on reimbursements, especially for new drugs.
GlaxoSmithKline Plc (GSK) and Boehringer Ingelheim GmbH are among drugmakers delaying introductions or partially withdrawing their products in markets including the U.K. and Germany as governments raise the bar on what they’re willing to cover.
In Europe, which accounts for about 30 percent of industrywide sales, governments have turned to price cuts and close scrutiny of new drugs’ benefits to help rein in budget deficits amid austerity measures. Cost reductions may continue in 2013 after economic growth forecasts for the region declined, Bloomberg Industries analysts said Nov. 15.
“More than ever it’s important to understand the benefit of these new products,” said Jose Aymami, a fund manager at Merchbanc in Barcelona, which holds shares in Roche Holding AG (ROG), Bristol-Myers Squibb Co. (BMY) and ThromboGenics NV (THR), among other health-care stocks. “We are concentrating on companies that will get a payback for development costs.”
The European Medicines Agency, the European Union’s drug regulator, makes recommendations to the European Commission on whether drugs should be approved for marketing in the 27-nation bloc. Once cleared, drugmakers then negotiate with payers in each country over pricing.
In Germany, companies are required to show that a new product works better than older medicines before they can charge a premium for it. The review process falls under a 2010 drug pricing law passed with the intention of saving 2 billion euros ($2.6 billion) a year.
German authorities said Boehringer Ingelheim hadn’t compared its diabetes treatment Trajenta with appropriate existing treatments in a first-round evaluation in March. Boehringer started a second review process in September, and if the product is given “additional benefit” status, the Ingelheim, Germany-based company will proceed with pricing negotiations. Otherwise, “we will consider our next steps carefully,” spokeswoman Judith von Gordon-Weichelt said in an e-mail.
Glaxo in May withdrew its epilepsy drug Trobalt from the German market for newly diagnosed patients after local authorities said it would compare it with two generic medicines. Glaxo plans further pricing discussions with Germany to make Trobalt available to new patients, the London-based company said this week.
“Recent years have seen the introduction of a series of punitive measures in Germany,” Richard Bergstroem, director general of the European Federation of Pharmaceutical Industries and Associations, said in a statement. “This is not good for German patients and not good for the country as it strives to retain companies and attract new investments.”
More than two dozen therapies have gone through benefit assessments in Germany, with companies leaving the market in four cases, according to the industry group VFA.
The first product to go through the process, AstraZeneca Plc (AZN)’s Brilique blood thinner, was found by German reviewers to have an additional benefit compared with older drugs for patients with mild heart attacks or chest pain. In total, five products have shown a considerable additional benefit, nine a minor additional benefit and three a non-quantifiable additional benefit, according to the G-BA, the German body that makes drug reimbursement decisions.
“The results show that this compulsory and fast comparative assessment in the first year of marketing is producing a valid basis for therapy decisions in health care and price negotiations between industry and statutory health insurance providers,” G-BA Impartial Chairman Josef Hecken said in an e-mailed statement.
In the U.K., the biggest purchaser is the state-run National Health Service. A separate body formed in 1999, the National Institute for Health and Clinical Excellence, known as NICE, advises the NHS on which treatments represent value for money.
Between January 2010 and August of this year, 26 drugs, or 33 percent of 79 approved by the European Medicines Agency, were rejected by NICE, according to a Bloomberg Industries analysis. Of the 26 rejections, 15 were based on insufficient benefit to justify the cost, even though some drugmakers offered to discount their prices, the analysis found.
Among those that NICE didn’t recommend were Glaxo’s breast- cancer treatment Tyverb and Benlysta for lupus, though final guidance hasn’t been issued on the products.
With drug prices in the U.K. among the lowest in Europe and the rate of adoption of new medicines significantly lower than on the continent, NICE isn’t adequately valuing innovation, said Stephen Whitehead, chief executive of the Association of the British Pharmaceutical Industry.
“It is increasingly becoming difficult to make any kind of return on drug development,” Whitehead said in an interview. “Patients are also not getting optimal treatment” with delayed decisions or rejections of the latest therapies.
Price comparisons between countries can be misleading because some require patients to pay for part of the cost of some medicines, while in the U.K., many people are eligible for free treatment, NICE said in an e-mailed statement.
“NICE has approved some of the most expensive medicines made available in recent years, including Herceptin for breast cancer and Sutent for renal cancer,” the agency said.
France said last month it’s planning to cut 2.1 billion euros in health-care expenses next year by pushing drug prices lower, urging doctors to write fewer prescriptions and spending less on hospitals.
Such measures are easier to implement than reorganizing hospitals and other system-wide changes, said Graham Lewis, vice president at consulting firm IMS Health Inc. in London.
“Governments and politicians are unwilling to recognize how inefficient things are,” he said. “Structural changes are politically very difficult to deliver.”
Programs to rein in health-care costs will lead to between a 1 percent decline and 2 percent growth in European spending on medicines from 2011 to 2016, compared with an almost two-fold increase in emerging markets, according to IMS Health.
There are some exceptions to the cost-cutting rule, especially among treatments for rare diseases, said Rajesh Varma, who helps manage 5 billion euros for DNCA Finance SA in Paris. Sanofi’s Genzyme unit has even been able to raise prices on its orphan drugs, which can cost “a couple hundred thousand dollars a year,” he said.
“You have to look at how long these drugs have been around, if there are generics around, if they are orphan drugs,” Varma said. Complaining about pricing pressure “is a lot of hot air.”
Investment opportunities can still be found even among companies with substantial sales in Europe, said Merchbanc’s Aymami.
His picks include Basel, Switzerland-based Roche, which will continue to see growth from its existing and forthcoming cancer drugs; Heverlee, Belgium-based ThromboGenics, whose Jetrea eye treatment was approved in the U.S. last month and may be cleared in Europe this year; and New York-based Bristol- Myers, whose Eliquis treatment developed with Pfizer Inc. (PFE) for preventing strokes was approved in Europe this month.
To help cope with declining revenue, Pfizer, Eli Lilly & Co. (LLY), Bristol-Myers and AstraZeneca will probably increase spending on acquisitions beyond their normal budgets because of “deep operating challenges coupled with deep pockets,” Fitch Ratings said last week. Partnerships such as ViiV Healthcare Ltd., a joint venture between Glaxo, Pfizer and Shionogi & Co. focused on HIV medicines, may also be replicated by others, said Thomas Rudolph, principal at McKinsey & Co. in Stuttgart, Germany, which consults for all of the top 20 drugmakers globally.
“We’ll see a lot more industry and site consolidation,” Rudolph said. “Efficiency reserves are there, and companies haven’t been forced to look at them very closely until now. They need to be a lot bolder about it.”
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