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Opportunities and Constraints in the European Market
Cambridge Pharma Consultancy
08/13/2002

Fewer new products but bigger challenges.

As the number of new product launches falls further, attention focuses on maintaining economic value throughout the life cycle.

The number of new molecular entities (NMEs) gaining market access fell for the second consecutive year in 2001, with only ten new products launched by the top 16 pharma companies in Europe. Among these, only Novartis' Gleevec may be viewed as a breakthrough medical product. There are two major pricing and reimbursement implications for pharmaceutical management:

  • as every new product is an increasingly valuable commodity, achieving optimal prices and rapid market access for each new product becomes an imperative on which management cannot compromise
  • more focus needs to be devoted to maintaining prices over products' life cycles as increasing financial returns will come from products in their post-launch stages.

These management imperatives are becoming more challenging as a result of:

  • increased regional cost containment controls
  • an increased awareness by price regulators of the sense of urgency felt by manufacturers to achieve rapid market access for new products
  • pricing remains the single most effective tool driving product returns. There are significant rewards for management/shareholders from getting P&R decisions right and effectively implementing these over the full life-cycle.

Outlook for 2002

Based on the number of products filed for regulatory approval in 2001, we do not expect to see a significant increase in the number of new products entering the European market in 2002. All countries will create additional layers of decision making designed to contain launch prices and erode post-launch yields:

  • price controlled countries (eg, Spain and Italy) have devolved budgetary responsibilities and controls to regional bodies
  • conversely, traditional regional or prescriber led market access countries have begun to impose national hurdles eg, NICE and potential positive list in Germany.

In this environment pharma management has been slow to focus on developing the skill bases and processes necessary to improve P&R performance. No more than one or two companies have devoted management attention to developing effective lifestyle competencies.

Significant opportunities to excel

We see three key opportunities for companies to succeed in this toughening environment.

Maintaining net price yields over time

As payers (eg, France and Spain) revise prices more frequently and where negotiations have to take place at regional or local level, the opportunity for year-on-year price erosion has escalated significantly. Managing prices over the life cycle and optimising yields at more local levels are neglected disciplines in many companies. There are huge value opportunities from planning for life-cycle pricing at launch and implementation of effective tools to sustain post-launch prices.

Patient pay' products can deliver greater value

A consensus is emerging across payers and public that the growing range of 'lifestyle' or health enhancing drugs (to treat erectile dysfunction, obesity, flu symptoms and smoking cessation, for example), will not be widely reimbursed, if reimbursed at all. With effective pricing strategies, the non-reimbursed market can yield high returns. For such 'patient pay' products, ongoing price management skills at the company-consumer interface are key success factors. The traditional 'once-and-for-all' pharmaceutical pricing model will ensure poor market performance for patient pay products.

The restrictive EU regulatory environment can provide P&R opportunities

While recent EMEA decisions to restrict the patient base for new products (for example in the anti-diabetes sector) may disappoint brand teams, they create P&R opportunities which may actually improve the overall yield from such products over time. However, such P&R opportunities are not an automatic result of restrictive labelling. Companies have successfully exploited these opportunities through tailored P&R strategies, appropriate support plans and ongoing implementation and price maintenance initiatives.

Planning P&R strategies beyond launch will increase ROI

Pricing strategy can no longer focus solely on target launch prices. Strategies must be multi-dimensional, reflecting the needs of different audiences, and go beyond launch to identify a sustainable strategy. European authorities have historically taken different approaches to controlling drug budgets, with some focusing on limiting demand (via devolved budgets, such as in Germany, UK) and others on regulating price (such as in France, Italy and Spain). Countries are increasingly adopting both approaches and Italy, Spain and Sweden have given regional bodies greater autonomy for healthcare and budget delivery. This devolution of budgetary control will result in greater scrutiny/control of drugs costs, and has already led to initiatives restricting the use of expensive drugs. Examples of these cost containment measures include:

  • treatment guidelines and monitoring systems for expensive or widely used drugs such as NSAIDs and anti-hypertensives
  • approval committees to evaluate use of expensive products - in Catalonia, Spain these committees are evaluating growth hormones, interferons and drugs for Alzheimer's disease
  • target levels for the use of generics in specific therapy areas, such as antibiotics, anti- ulcer drugs and NSAIDs
  • limiting the use of expensive drugs to hospitals, such as antiretrovirals in Spain
  • reference pricing for ambulatory care products. Several Spanish regions have set reference prices that are significantly below those in the national price reference scheme; for example, the highest prices authorised by the Andalucian government are on average 17% lower than those established by the Ministry of Health.

Cost containment measures will become more common as regional bodies attempt to provide effective health care within limited budgets, and while formal P&R negotiations will continue at national level, regional budget holders will be increasingly influential.

Relationships with regional decision makers must be maintained on a par with those at the national level. Significant advantage can be gained by developing a multi-layered approach similar to that used with US HMOs. Effective global pricing strategies must be tailored to the objectives of these new customer groups and include policies and tools to help guide local implementation.

Procurement at regional level may lead to contract tendering and preferred product lists. Skill sets/tools which optimise the yields obtained from these 'local' customers will generate significant incremental profit by avoiding excessive discounting or rebates. This process will require additional skills and approaches in central and local pricing groups.

'Patient pay' products can deliver greater value

Most lifestyle drugs are not reimbursed in Europe. In our view, current pricing approaches are not maximising the economic value of these products. Pricing to the patient involves a fundamentally different approach to the pricing of reimbursed medicines. The differences arise both in price setting and in the challenge of ongoing price management at the company-consumer interface. Patient pay (lifestyle) drugs have so far yielded a very different revenue profile to reimbursed drugs - showing explosive initial growth that rapidly flattens or even declines. We believe that inappropriate price management is a contributor to the difficulties experienced in generating sustained growth.

Opportunities exist for utilising price to drive more sustained performance for lifestyle products. In a patient pay environment, price is a significantly greater driver of consumer behaviour than in the reimbursed market and therefore offers greater opportunities as a growth lever. Opportunities arise from:

  • better matching of pricing strategies to consumer motivation for purchasing lifestyle drugs
  • understanding consumers' priorities for spending their disposable income
  • leveraging the inevitable episodic pattern of consumer expenditures in this area
  • managing consumers' price discussions with physicians and pharmacists.

A restrictive regulatory environment provides P&R opportunities

European authorities have recently required longer clinical studies, greater limitations on dosage (eg, Enbrel and Remicade in rheumatoid arthritis) and reservation of treatment to a later stage of disease management (eg, Starlix and the glitazones in type 2 diabetes).

Differences between US and EU labelling may increase over time and this regulatory trend has P&R implications: restricting the indication to fewer patients could offer the opportunity to negotiate higher prices. This opportunity is, however, by no means automatic. It requires good preparation throughout the development and commercialisation process to make the most of its potential. Over-optimistic projections of the eventual label will only lead to under-preparation for the P&R opportunities of a more restrictive label.

Potential differences in US and European labels may have implications on global pricing opportunities and appropriate tailoring of P&R strategies. P&R strategies should cover a range of potential outcomes from the labelling discussions rather than simply focusing on the most optimistic labelling wishes of brand teams.

In an environment where the full potential market penetration of products is only achieved progressively over time, life-cycle planning of P&R strategies becomes increasingly important and could contribute to a greater overall return over the product lifetime.

As labelling evolves over time, effective P&R strategies will avoid the trap of losing any initial pricing gains in progressive price cuts as labels are widened. The inclusion of follow-on combination products in the life cycle planning could increase the returns from combinations that are usually introduced without a premium over the component parts.

Only a few launches achieve premium prices

Products launched in 2001, and those launched towards the end of 2000 with significant rollout during last year (Abbott's Kaletra, Novartis' Starlix and GSK's Trizivir), exhibited patchy performance in terms of the consistency of price premia achieved.

Despite being launched in a relatively few markets, early launches indicate companies are achieving premium prices in the oncology sector. Both Fasturtec and Gleevec have set new price points in their indications, while BMS has achieved an average 43% premium for Uftoral over Roche's Xeloda, ie, where both products are available.

The price achieved by Novartis for Zometa in its home market shows a 25% premium to its predecessor Aredia, amid a selection of more modest premia. Similarly, Starlix managed to achieve a significant premium over Avandia in Switzerland, while achieving parity prices or a discount in other markets.

It is not only the Swiss companies that are successfully pricing above comparator products in some markets. Symbicort achieved a 50% premium over Seretide in Norway and Switzerland, versus a mixture of more modest premia and even a discount (UK) elsewhere.

Abbott's pricing of Kaletra suggests a strategy of pricing the brand within a +/-30% band across Europe. This has resulted in some impressive premia over its older protease inhibitor Norvir (26% in Switzerland) counterbalanced by heavy discounts in Austria and the UK. The average premium across all launched markets is 5%. GSK appears to be following a value strategy for Trizivir which has been priced at a discount to the sum of its components in most markets. This has resulted in relatively rapid market access.

Schering-Plough has priced Aerius/NeoClarityn, the follow-on product to Clarityn (loratadine) at a significant discount (in many cases more than 50%) presumably to ensure rapid uptake and to maintain Schering-Plough's successful franchise in the oral antihistamine allergy market. A similar strategy is apparent for Pfizer's Relpax, which has been priced at a 15% to 45% discount to Imigran (sumatriptan) in most markets.

Few new products are achieving consistent premia over direct comparators and there is still a tendency for companies to launch follow-on products at a discount to the first-in-class product. There is evidence that prices are being traded-off in order to achieve rapid uptake in the non-price regulated markets. It is still an open question whether many of these products seeking to achieve new price points will achieve rapid P&R approval in price-regulated markets.

Existing P&R hurdles continue to limit EU roll-out

Products launched in 2001 generally accessed European markets significantly faster than the average over the last decade. However, this improvement is largely due to companies' ability to achieve faster pan-European regulatory approval rather than improved performance in P&R negotiations.

Almost all the products launched since Q3 2000 are still held up in reimbursement negotiations in France, Spain and Italy. The only exception to this is Symbicort. Trizivir is available in Italy, but still held up in France and Spain. Apart from Symbicort, Uprima is the only other product which has been able to access a significant proportion of the European market since launch - like most ED products it is available non-reimbursed in all the price-controlled markets.

There was a time when pricing negotiations were held up as companies negotiated significant premia for new products. These days, prolonged pricing negotiations are occurring even for products where no premium is being sought. This reflects two factors: reimbursement authorities are using their negotiating advantage to push down prices even further, and some companies have wrongly assumed that a parity/discount pricing strategy assures rapid market access. As a result they have been under-prepared for price negotiations which are proving just as challenging.

Price consistency: not an objective for many companies

Despite mounting concerns over parallel trade, pharma companies still have a long way to go in pursuit of pan-European price consistency. Two of the ten products launched in 2001 (Gleevec and Fasturtec) exhibit greater price variation across markets. It is surprising to see such wide differentials for these two products, as they have no existing price benchmarks. Both these products are only launched in a handful of markets perhaps giving an unrealistic picture of the likely situation after more widespread rollout.

The three products from 2000 (which are included in this analysis due to continuing rollout in 2001) also exhibit variation in terms of price consistency. Of these, Novartis shows the greatest consistency across markets, with over 40% of Starlix prices falling within 5% of the average European price. Several other products including Relpax, Uftoral and Uprima also exhibit a consistent approach to pan-European prices with a third of prices falling within 5% of the average European price.

By contrast, only a fraction of Trizivir's 11 European launch prices fall within this band, and prices vary widely - from minus 34% to plus 51% of the European average price. Overall price bands are tightening marginally relative to the five-year historical average, although wide differentials remain.

This report is a regular annual review of pricing and reimbursement issues and performance across Europe and was produced by Cambridge Pharma Consultancy.

For further information or to discuss any of the issues raised in this report, please contact Ron Baynes (ron_baynes@cambridge-pharma.com) or Chris Sutton (chris_sutton@cambridge-pharma.com).

E: pharmafocus@pharmafile.co.uk

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