Affordability of health care for an aging population, the emergence of innovative drugs with promising impact on patient lives and the continuing concerns over prescription drug costs have resulted in a deluge of political attention to drug pricing around the world. Immediately following the launch of Gilead’s Sovaldi, European governments declared an intent to more intensely collaborate on drug price negotiations. The Netherlands, Belgium and Luxembourg (later joined by Austria) created an alliance to jointly negotiate with the pharmaceutical industry. Today, the landscape has evolved further. What are the implications of pricing alliances for pharma companies? Will this evolve to one European price negotiation? Or will it disintegrate as countries fail to agree on common standards? Let’s analyze.
Drug Pricing Alliances
There are three important initiatives concerning European collaboration on price determination and underlying methodologies: EuNetTHA, BeNeLuxA and the Valetta Group. All three initiatives have a slightly different emphasis but essentially a similar underlying goal: help to support EU member states in the negotiation of drug prices
EuNetTHA has been active since the 1980s and helps standardize European health technology assessment (HTA) methodologies and perform joint technology assessments for specific drugs. Three subsequent joint actions (EUnetHTA JA) have been carried out aiming at building alignment on methodologies for health improvement assessments and organizing voluntary joint HTA reviews. A third joint action (EUnetHTA Joint Action 3) was launched in June 2016 and runs until 2020.
Early this year, the European Commission has moved forward in the process to further formalize the joint assessment process across member states. However, while individual members can participate in the process and take advantage of the outcomes of the findings, actual drug pricing discussions and underlying methodologies continue to be the responsibility of individual member states.
The BeNeLuxA group was formed to foster collaboration on horizon scanning, health technology assessment, information-sharing and joint price negotiations. After some initial hurdles, the group has moved forward with a Netherlands/Belgium joint price negotiation and some pilots. In early February, Ireland has formally expressed an intent to join the BeNeLuxA group.
The Valetta Group was formed when Spain, Italy, Portugal, Greece, Malta, Cyprus, Ireland and Romania signed the Valetta Declaration in August 2017. Slovenia joined in January 2018, Croatia signed a letter of intent and France was awarded observer status. The Valetta Declaration mentions the intent to set up a “technical committee to explore possible ways of voluntary cooperation including but not limited to sharing information, identifying best practices, horizon scanning of innovative medicines and therapies, exploring possible mechanisms for price negotiations and joint procurement.”
Today, only the BeNeLuXA group has moved to active joint price negotiations. The larger Valetta Group is still exploring joint negotiations as an option and EuNetHTA is focusing on assessment methodology alignment. It is highly uncertain whether evolutions will lead to limited joint negotiations between selected countries or a full-blown single EU-wide negotiation.
Conversations about joint technology assessments and price negotiations are not new to Europe. Discussions about a “Euro-NICE” have taken place since the 1990s. At various stages, the European Medicines Agency has made overtures toward extending its remit into health technology assessment, as well as drug pricing and reimbursement. However, in each case, individual EU member states have pushed back strongly, as they were not ready to shift budget-related decision-making to any central European authority.
Political motivation to interfere in drug pricing has grown, particularly following the public attention over Solaldi pricing at $1,000 per pill in the United States, increasing concerns over the budget impact of a new generation of immuno-oncology drugs and the emergence of gene therapies. Another driving concern for the initial collaboration between the Netherlands and Belgium, which ultimately led to the BeNeLuxA Group, was the high volume of orphan drugs with reduced evidence requirements flooding the market at very high (perceived as unreasonable) prices.
Force or Farce?
These changes give considerable additional force in negotiations, particularly smaller countries. This is certainly not a farce by any means. The question is, How much impact will this have on actual drug prices around the world? When all European countries sign up to an EU-wide negotiation, it would comprise almost 25% of global prescription drug revenue for an average drug. However, larger European countries such as France and Germany may have little to gain from the collaboration as smaller countries are just riding on their market power and limiting their flexibility in negotiations. Because of limited incentive for larger countries, the evolution could merely add a few larger blocks of smaller countries (BeNeLuxA and a subset of the Valetta Group) to the large EU5 markets to result in an EU7 situation. It could slightly lower prices in smaller countries, but in most cases these differences are small to begin with, as parallel trade and international price referencing mechanisms address these already in most cases.
Drug company leadership is increasingly concerned with gaining access for important drugs in government-controlled markets at lower prices than in the U.S., while being sensitive to U.S. political and public pushback on the resulting U.S. public subsidies to ex-U.S. citizens and the impact of an increasingly complex network of international price referencing laws. Joint negotiations and insistence on equal pricing across countries goes opposite to affordability-based pricing, which are the fundament to economically derived pricing strategies. Specifically, insisting on global prices will result in restricted access to drugs in lower-income markets. This is a global political issue over which the drug industry has little influence. It will, however, have an impact on the pricing environment and its sensitivities.
Implications for the Drug Industry
In today’s environment, any drug company needs to be highly concerned about the impact of the formation of pricing alliances, as well as the many other initiatives related to drug pricing. Maintaining an active dialogue with the medical community, government and private payers, patient organizations, media and other active stakeholders in healthcare and drug-related issues is crucial. This includes providing evidence and communicating the value of the drug innovations, as well as finding solutions to funding and affordability issues for healthcare systems and individual patients.
Specifically to the impact of the pricing alliances, drug companies should consider the following:
- Closely monitor further evolution of pricing alliances with respect to each of the components of collaboration, including information exchange, methodology development and actual price negotiations.
- Carefully institute and manage global pricing strategies and policies based on an intimate understanding of pricing potential and willingness to pay in individual markets, as well as the international impact of individual pricing decisions.
- As information exchange is likely to accelerate between countries, even if they don’t negotiate jointly, avoid confidential or non-confidential outliers in pricing: that is, be ready to offer any deal to other countries with similar characteristics (income level, patient population size, competitive situation, prescribing control, etc.).
- Tightly manage global pricing policies as exceptions, even in smaller markets, can rapidly cascade to smaller and larger countries around the world.
- Use scenario analyses to address uncertainties in the evolution of pricing alliances, as well as uncertainties in individual price negotiations.
The evolution of price alliances across Europe is worthwhile to consider as part of a changing global pharmaceutical landscape. However, they are merely a component in a wave of change that impacts the medical community, payers and the public. The recommendations above should therefore be considered as part of a set of changes that drug company management should consider to ensure alignment of development and commercialization decision-making with the evolving evidence needs of value by critical decision makers worldwide.