Pharma sector faces pricing crisis in 2004, say industry commentators

The European pharmaceutical industry is facing another crisis on pricing in 2004, according to industry commentators at KPMG.

The balanced set of recommendations to emerge from the G10 discussions last year left many feeling that 2003 would mark the end of the price disputes between industry and governments. But KPMG now maintains that Member State health authorities may not be supportive, meaning that 2004 will be dominated by their efforts to further leverage down prices for newer patented products.

'There is a growing realisation that for the health sector budget holders at a national level, 2004 will be very much business as usual in terms of keeping prices low,' claims Stephen Oxley, head of pharmaceuticals at KPMG. He says the first indicator of this came as early as the middle of last year in the German Health Reform Plan, which imposed a 16% claw back on sales in 2004 of patented products not covered by the existing reference price controls.

However, the measure that hints at a wider EU conflict between Member States and the industry is the proposal to introduce a new reference pricing scheme, he warns. 'This would set an upper limit for the price that will be paid, not just for one patent expired brand and its generic equivalents but for whole classes or clusters of drugs, regardless of whether they are patented or not. Only those products judged to be true or genuine innovations by an expert group - as yet to be constituted - would be exempt. In the face of such reforms, the industry will need to mount a vigorous campaign at the Member State level if it is not to suffer a further erosion of its position in Europe and a widening of the price and revenue gap with the US.'

Several other Member States, with the notable recent addition of the Netherlands, have also proposed that maximum reference prices would be declared for mixed classes of patented and patent expired products, with the reference price set at, or close to, the cheapest generic versions of the patented products. This is often referred to as Phase II, or type II reference pricing. If implemented in a similar manner to Phase I reference pricing in the 1990s, KPMG feels that this could trigger the collapse in north European markets of whole classes of patented product prices.

'This time though the stakes will be higher as they [the pharma companies] have to decide whether to cut prices to the reference levels, in order to preserve market share, or to tough it out at higher prices in the hope that co-pay systems might work better this time,' Oxley predicts.

'In reality, the situation is that EU countries have got the balance wrong in the way that state pricing regimes set the balance in rewarding innovators and non innovators; being too generous to the latter at the expense of the former. If the balance is not redressed, then you have to wonder who will be bold enough to make the future investments in r&d if they are not in line to reap most of the reward themselves.'