Pricing of Medicines

An immediate policy response to the financial crisis in Europe was to trim spending, and the pharmaceutical sector was one of the industries to feel the squeeze of cuts the most.  The pharmaceutical industry has adjusted to the market conditions, but as the pressure on prices persists we need to make sure we still have a viable business model that can innovate in areas of unmet medical need. 

The European pharmaceutical industry works within the confines of an array of price regulations: price control, profit control, international price comparisons, reference pricing and health technology assessment. With the majority of healthcare systems in Europe being largely state funded it is wholly reasonable for governments to expect that the prices they are paying are fair and reflect value for money. At the same time industry and governments need to work together to ensure balance is struck between paying the lowest cost today, allowing for enough investment to meet medical challenges of the future.  

It takes a huge investment of time, manpower, and money to develop a new treatment to the point that it can be used by patients - and most attempts fail along the way. When a potential medicine is discovered, its creators begin the process of seeking patent protection. Patent protection is necessary to allow a temporary period of exclusivity on the making, enabling companies to both recoup the costs of development and cover the cost of the inevitable failures that occur during the innovation process. However, from the point of patent protection, years of research are often still ahead, as the safety and efficacy of the potential medicine must be established by regulators. Preparing the necessary data for regulators requires a lengthy and costly process of preclinical testing, and at least three phases of clinical testing.  After licensing, in many countries there are additional hurdles to overcome before a medicine reach patients, such as health technology assessment processes or other pricing and reimbursement negotiations.

All in all, it can take 13 years to bring a medicine from its origins as a candidate molecule to a treatment with tangible benefits for patients. Once a medicine loses its patent protection, any manufacturer can produce the exact same medicine. Generic competition after the expiry of patents reduces the cost of the medicines dramatically, generating savings for healthcare systems. Competition after patent expiry is a crucial part of the medicines life cycle. For every new medicine that comes on to the market, there are others that lose ‘exclusivity’ becoming cheaper and helping to keep the medicines bill in check. And this dynamic works. For the last 10 years the amount spend on medicines has fallen as a proportion of the total amount spent on healthcare.[1]

Despite this, in recent years the medicines life cycle has come under challenge. Costs of research and development have risen exponentially; there are more regulatory and administrative hurdles to overcome to get a medicine on the market and as new science goes towards personalised medicines research will be for smaller numbers of patients. All this adds up to innovation becoming more difficult. The effective time on the market during which innovators can recoup their development cost – and that development cost has become more significant.

Medicine prices rightly come under intense scrutiny. This should continue, as medicines need to offer value for money. But we also need to get the cost of medicines into perspective. Medicines generally account for less than 15% of the cost of healthcare and that proportion has been falling for the last decade.[2] We need an open debate about how much future innovation is worth – the pharmaceutical industry is ready to have that debate.

“The practice of international price referencing prevents differential pricing between markets – something that is standard in other parts of the world where it is not only accepted but indeed welcomed that companies charge lower prices in low- and middle-income countries. In Europe too, access to medicines could be improved for patients if governments embraced differential pricing.”

Richard Bergström, EFPIA Director General

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