With a mix of different national healthcare systems, negotiation mechanisms and patent issues between brand-name and generic medicines, drug pricing around the world is governed by an incredibly complex, interlocking network of bargains and deals struck between the healthcare markets that buy pharmaceuticals and the pharma companies that supply them.
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Awareness of the high cost of many beneficial new treatments has been building in recent years. US-based Gilead Sciences, for example, has come under fire internationally over the price of Sovaldi and Harvoni, which have become the gold standard for the treatment of hepatitis C due to the high levels of sustained virological response they have been shown to achieve. But their cost (a wholesale price of $84,000 for a single course of treatment, according to a US Senate Finance Committee report) has put a strain on the health budgets of developed countries and made them unaffordable in some poorer parts of the world.
“Current prices of these medicines are variable and unaffordable globally,” found a World Health Organization (WHO) study published in June 2016.
Early days for global drug price regulation
Given the essential role that innovative drugs play in public health and the sheer variability of costs under the current piecemeal systems of price control, there are early indications that the international community is taking its first tentative steps towards discussing the issue from a global perspective.
Beyond the consistent calls from medical and humanitarian organisations to make drugs more available at affordable prices, in March it emerged that French President Francois Hollande was intending to raise the prospect of international drug price regulation at upcoming meetings of the powerful G7 and G20 nations.
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By GlobalData“The idea is to be able to fight soaring medicine prices and allow for regulation to take place at an international level,” said Hollande at a WHO event in Lyon, France.
The idea was commended by the likes of Médecins Sans Frontières, which described the drug price situation as “a global crisis” that “merits the attention of the world’s most powerful countries”. But while unnamed French government sources confirmed to Reuters that Hollande’s plan to push for global regulation was still in place in May as the G7 summit in Japan approached, the sources acknowledged that talks were in the earliest stages and no breakthroughs were expected anytime soon.
This is unsurprising given the challenge of managing the implications of such a seismic shift, but observations of the global pharmaceuticals market as it stands could give some insight into the challenges and opportunities that lie ahead as the world begins to consider a more comprehensive system.
The US and Europe: life with and without price regulation
Although developing countries are shouldering the greatest burden of global pharma prices and poor access to life-saving drugs, the price of new patented medicines is high enough that the healthcare systems of advanced economies are straining to meet costs, meaning that difficult decisions have to be made.
In the UK, Roche’s breast cancer drug Kadcyla was rejected for routine use in the NHS because its £90,000 per-patient price tag was deemed too expensive, despite the drug potentially adding six months to the lives of patients with metastatic HER-2 positive breast cancer.
It’s also relevant to counterpoint the drug pricing situation between the advanced healthcare systems of the US, which has virtually no price regulation, and Europe, where countries regularly leverage the purchasing power of their public healthcare organisations to negotiate deals with pharma companies. In the US – where social healthcare programme Medicaid is forbidden by law from negotiating with pharma companies and private insurance companies are too fragmented to secure cheaper deals – drug prices can be as much as 50% higher than they are for similarly wealthy European countries.
The idea of introducing some form of drug price regulation to bring costs down has been gathering momentum in the US, with both recent Democrat presidential candidates – Hillary Clinton and Bernie Sanders – proposing price controls. Author and pricing strategy consultant Rafi Mohammed, in an editorial for the Harvard Business Review, argued for tethered price regulation, in which the US legislates that its market will pay only a certain percentage above or below the price paid by other developed countries. This system is already in place in 29 European countries in the form of external reference pricing (ERP), but the fact that confidential discounts and rebates are often not accounted for in the reference prices limits the transparency of the system.
As many have pointed out, the free-market situation in the American pharmaceuticals market – where profits are uncapped and competition can be low – means that the US provides easily the largest market for big pharma firms globally. This means that the high prices paid by US patients are effectively subsidising the cost of R&D and drug development in the industry.
This linkage between pharma profits and the pipeline of innovative drugs has a tremendous bearing on the pricing debate, and analysts have argued that if the US were to adopt price controls and pay roughly the same as their European counterparts for new drugs, companies’ R&D budgets would almost certainly be cut substantially. In the realm of unintended consequences, drug pricing is perched precariously, and it doesn’t get any simpler in the developing world.
Piecemeal progress for low-income countries
For developing countries, frustration over the price of many patented drugs has provoked a range of price control measures to improve access for the poorest patients. As well as tightening patent standards and competition law, India and other rapidly emerging economies have been prepared to issue compulsory licence orders to allow manufacturers to produce generic versions of drugs still under patent, and the price differential can be stark. When India issued a compulsory licence for the first time in March 2012, allowing generic production of Bayer’s liver cancer drug Nexavar, the price dropped by 97%.
These measures have prompted challenges from the industry on the need to fund future innovation, but they have also helped to make pharma companies more flexible in the way they approach important emerging markets. In March this year GlaxoSmithKline announced that it will not patent its drugs in low-income countries, allowing exporters to bring generic versions to the market with certainty. Gilead, meanwhile, has issued voluntary licences to 11 Indian manufacturers to produce cheaper versions of Sovaldi to sell in more than 100 developing countries.
While some countries have been able to achieve reasonable prices in the current piecemeal system, a more comprehensive tiered pricing system – in which countries pay different prices for the same drugs based on economic indicators and health needs – could provide the cohesion and transparency to put all countries on a more level playing field. A February 2016 report by the European Commission found that while tiered pricing had the potential to reduce prices and offer opportunities for pharma companies through high unit sales, as it stands the system “heavily relies on the willingness of the pharmaceutical industry”, which could have a negative effect on countries’ autonomy.
The road ahead
There has been momentum for a global tiered pricing system, culminating in the foundation of the Equitable Access Initiative (EAI) in December 2014 by the WHO and a slew of other international organisations with the purpose of developing a framework for an international tiered pricing mechanism “based on a broader set of economic and health indicators to better inform decision-making on health and development”.
This may well be what President Hollande is pushing for the G7 nations to discuss in more detail, but the challenges are undoubtedly still stacked high, including criticism from some campaign groups that encouraging generic manufacturing is more effective than reducing the cost of patented drugs. There are also untold intricacies that would need to be worked out for an international tiered pricing scheme to be effective, such as deciding who governs price setting, addressing competition concerns and calculating how much each country can afford for a given drug.
The road towards international drug pricing will be long and paved with obstacles, including getting the pharma industry on board, solving the dilemma over funding innovation and working out how the current scramble of fragmented deal-making can be distilled into a single, transparent framework that is fair for all.
But while the current landscape has developed mechanisms to increase global access and help national health systems to adopt new drugs affordably, there are enough inequities –among countries rich and poor – inherent to uncoordinated drug price regulation that a more coherent approach must be a worthwhile goal, no matter how long it takes to get there.
