Pharmaceutical companies are breaking new ground on drug pricing

The U.S. presidential election has brought new relevance to an irritant topic: Price excesses for medicines are an excellent way to raise the profile of a company. The fight against "profiteering" in the pharmaceutical sector was written on the banner of Democratic candidate Hillary Clinton more than a year ago. Her Republican opponent Donald Trump also picked up on the theme. The industry now needs to rethink and is looking for new approaches to pricing. "The old way of pricing our drugs based on ampoules or milligrams is really no longer appropriate in the current environment. We need more flexible solutions," says Jens Gruger, Head of Global Pricing Market Access at Swiss pharmaceutical giant Roche.

Until now, there have been few limits to what pharmaceutical companies can charge for their drugs in the United States. In some cases, this led to astronomically high prices and outright scandals – for example, when it became known at what a premium the drug EpiPen for the treatment of allergic shocks from Mylan was sold, or the drug Daraprim against toxoplasmosis from Turing Pharmaceuticals. Debt-ridden governments, health insurers and patients have been questioning the pricing practices of pharmaceutical companies for some time now. Health systems are reaching their limits, partly because therapies are becoming more complex. Especially in cancer treatment, which is already expensive, two or more drugs are often used at the same time.

No matter who moves into the White House as president, the pharmaceutical industry will be more scrutinized when it comes to pricing in the future. However, stricter rules are likely to make the industry's revenues less abundant. The U.S. is by far the most important market for the one-trillion-dollar industry – it generates 40 percent of its sales there. And the groups earn well, in the operational business remain fast once 30 per cent or more of the conversion. This is difficult to reconcile with the argument that high prices are necessary to fund expensive research and keep reserves for failures.


So the pharmaceutical industry has to change, develop new concepts for pricing and justifying it. "Innovation is not just about the product. What is also innovative is how we design our business model, especially the pricing," explains Roche manager Gruger. One way he describes is the idea of value-based pricing: "Basically, that means if they can't demonstrate an additional benefit to the patient, they shouldn't charge a premium for the drug."

The head of pharmaceutical giant Novartis, Joseph Jimenez, also sees opportunities in this: "I believe that pricing will become more difficult in the U.S.," he said recently. "But I also believe that the U.S. is a place where innovation is rewarded." Providers of first-rate drugs would do well. Everyone else is threatened with being punished like never before in the next three to five years, they say. Jimenez therefore expects to see a shift in the industry's thinking, with research more focused on achieving treatment breakthroughs rather than incrementally improving drugs.

The demand is for drugs that significantly prolong patients' lives, promising them a better quality of life, a normal life or a faster return to everyday life. This quickly leads to the question of evidence of impact. In the future, good clinical data alone will probably no longer be a guarantee that big money can be charged for drugs. Much more tangible evidence will be needed on what the remedies actually do for patients on a day-to-day basis. Depending on this, they will then cost more or less.


Examples of performance-based pricing models already exist. In Italy, for example, insurers pay differently for the Roche drug Avastin, depending on the type of cancer the drug is used to treat and how well it works. Novartis has signed an agreement with several health insurers in the U.S. for its new heart drug Entresto, which links the amount of payment to how many patients have to be hospitalized for heart failure. "The bar for that evidence has been raised in recent years," said Roche expert Gruger.

At present, however, these approaches are rapidly reaching their limits. Often the data needed for an evaluation is not available or is difficult to access. But companies are gearing up in this regard. Roche earlier this year joined Flatiron Health, a New York-based company specializing in electronic documentation of cancer data in the U.S. "Big Data can bring insight if used effectively," says Hilary Thomas, chief medical advisor at consulting firm KPMG. "The industry needs to capture this data to prove the impact of their medicines in the real world."

The Pharmariesen trust however not alone on good effect and innovative price models, in order to protect their profitable medicines. In the last ten years, the industry has spent $2.3 billion on lobbying the U.S. Congress.

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