Balancing interests in launching medicines

Bringing new drugs to market at the right price is a complex issue that must balance the interests of multiple stakeholders, including manufacturers, healthcare systems and patients.

Most European countries use the International Reference Price (IRP). This is the practice of comparing product prices with prices in other countries, improving the affordability of newly launched products and regularly revising prices for older products.¹ To combat the impact of the IRP, manufacturers set the highest publicly available list prices while secretly negotiating discounts with the healthcare system. These discount rates vary and range from about 25% to over 60%.²

IRP impact on revenue

By negotiating separate discounts for each country, manufacturers can tailor the prices they offer based on individual willingness to pay, maximizing profits. Countries benefit from agreeing to discounts because they are more likely to have access to innovative medicines. Studies show that manufacturers may delay or not launch their products in certain countries if the IRP could lead to lower prices in other countries. .³

To show the impact of IPR on revenue, an interesting old study from 2013 showed that a 10% reduction in list prices in Switzerland was followed by a decrease in revenue of around €430 million. The IRP further reduced his earnings by €495 million in the rest of the world. In other words, the IPR could more than double the global revenue impact of the price cut in Switzerland.^Four

One problem with sensitive discounts is that they may not yield optimal results for all countries. This is a classic example of the prisoner’s dilemma, where individual decision makers are motivated to act in ways that produce sub-optimal outcomes for the group as a whole. Regardless of other countries’ choices, the best strategy for each country is to negotiate discounts confidentially, with the overall result being a more complex and less transparent pricing system.

A Financial Problem, Not a Scientific Problem

In 2019, WHO passed a resolution calling on countries to take steps to make price discounts public.^Five However, Germany, Hungary and the UK abstained from supporting the resolution due to concerns that the potential unintended consequences of such practices were not sufficiently considered.⁶ For example, manufacturers may focus only on the most profitable disease departments. This is a phenomenon already observed in depleted antibiotic pipelines.

The main problem in this scenario is not a scientific one, but one that is financial in nature.⁷ Also, if wealthy countries use price transparency to demand lower prices for their own markets, prices may rise in less wealthy countries. Therefore, a comprehensive review of pricing practices and policies established by industries and countries around the world should be taken before making any policy changes.

Still, manufacturers can take comfort in the fact that the WHO resolution is ultimately just a set of recommendations. Ironically, Switzerland, one of her most transparent countries, initially backed the resolution but is now trying to amend its health insurance law to justify the practice of confidential discounts. I’m doing it.

Shaping future pricing policy

However, manufacturers should not settle for the status quo. A push towards pricing transparency and various collaboration schemes (EUnetHTA⁸Benelux⁹and FiNoSE^Ten This process inherently increases price transparency and therefore bargaining power between participating countries. For example, in October 2021, Belgium, Ireland and the Netherlands signed a confidential agreement with Novartis on the price of Zolgensma®.¹¹

Therefore, what should manufacturers do in shaping future pricing policies to determine the “fair price” of medicines (the balance between affordability for the health system while encouraging investment in innovation)? You should consider whether you can play the role. Form initial launch and pricing strategy. Importantly, the lack of research on the impact of international reference pricing and confidential discounting limits the availability of evidence to guide policy making.

About the author

David Ringger leads the Market Access team at Initiate Consultancy, helping life sciences companies secure pricing and reimbursement for medical products worldwide.