In Search of a Silver Lining: A Global Market Access Outlook

Just weeks into 2017, pharmaceutical pricing is making the headlines in countries all around the world and storm clouds are gathering for the life sciences industry. Neil Grubert asks, what are likely to be some of the key trends in market access this year and beyond, and what are the implications for the life sciences industry?

Growing use of innovative pricing arrangements

The rapid commercial success of Gilead’s Sovaldi and other direct-acting antivirals has prompted a shift of focus among payers from cost-effectiveness to budget impact, and a search for new ways to manage costs. Price-volume agreements and conditional reimbursement are increasingly common methods of controlling expenditure. Payers are also exploring other approaches to cost containment, including annuity pricing, payment for a licence for treatment, indication-specific pricing, product-service bundling and deferred payments.

“Trumpcare” replaces “Obamacare” in the United States

Even before Donald Trump was inaugurated as President, the Republicans in Congress began to lay the groundwork for repealing and replacing the Affordable Care Act (ACA), more commonly known as “Obamacare.” However, the Republicans have yet to reach a consensus on the replacement legislation-predictably dubbed “Trumpcare.”

Draft legislation is expected to eliminate penalties on the uninsured and larger employers that do not offer coverage, end funding to states that have expanded eligibility for Medicaid and repeal subsidies for private insurance purchased through state exchanges. The new administration could give health insurers financial assistance to protect them against financial damage and to contain premium increases.

Other likely reforms include measures to help insurers sell policies across state borders and assist small businesses to purchase insurance through association health plans. Consumers would probably be offered subsidies or tax credits to offset premium costs and incentives to make greater use of personal health savings accounts.

The President has stated that “everybody’s got to be covered,” and has expressed support for maintaining the ban on discrimination against pre-existing conditions and continuing to allow children to be covered by their parents’ health insurance until the age of 26.

Supporters of Obamacare fear that the replacement system to be introduced by the Republicans will erode the quality of health benefits offered by many policies, and limit funding for the Medicaid program on which many millions of less-affluent Americans depend.

Implementation of the ACA repeal legislation will likely be delayed by 2-4 years to avoid disruption of coverage.

Moderation of drug prices in the United States

In an interview with Time magazine in early December 2016, Trump declared: “I’m going to bring down drug prices.” He has also spoken of a need to “create a new bidding procedure for the drug industry because they're getting away with murder,” and stated that, “for Medicare, for Medicaid, we have to get the prices way down.” A White House spokesman has confirmed that the President “supports increasing bidding and competition for all drugs in Medicare.”

Trump believes that Medicare price negotiation could save tens of billions of dollars. However, the current requirement for Medicare Part D to cover all drugs in six key therapeutic categories would likely limit the scope for negotiation.

The President has also expressed support for the reimportation of medicines, and he could conceivably issue an executive order to open up this trade. Such a policy might help to curb costs in the short term. In the longer term, however, Trump wants other countries to pay more for their medicines. In a recent meeting with senior pharmaceutical executives at the White House, he declared his intention to put an end to “global freeloading.” In his view, “foreign price controls reduce the resources of American drug companies to finance drug and R&D innovation.”

Trump also declared his intention to cut the costs of drug development in the United States by substantially reducing the fiscal and regulatory burden on the pharmaceutical industry. The corollary of reduced drug development costs may be an expectation of lower prices.

In response to the swelling chorus of criticism of drug prices in the United States, Allergan, Novo Nordisk, AbbVie, and Takeda have pledged to limit future price increases to less than 10% a year, and called on other manufacturers to follow suit. Merck has published a Pricing Action Transparency Report that details its average price changes and discounts in each of the last seven years. Similarly, Johnson & Johnson plans to disclose its average price increases “to create a better understanding of the industry and .... ultimately improve patient access to medicines.” However, Pfizer believes it has always priced its drugs responsibly and sees no need to make any commitments with regard to its US pricing policy.

These commitments still allow price increases far greater than in other major markets, and do not address the issue of initial pricing, but they may signal a growing recognition by the life sciences industry that pre-emptive self-regulation is preferable to increased government regulation in the world’s dominant pharmaceutical market.

Presidential promise to streamline access to the US market

In the aforementioned meeting with senior pharmaceutical executives, the President deplored the enormous time and cost required to bring new drugs to market in the United States. He expressed the view that the US market is currently over-regulated, whereas “other countries have no regulation and you go there for that reason.”

By way of a solution, Trump proposes to eliminate 75-80% of FDA regulations: “We’re going to be cutting regulations at a level that nobody has ever seen before. And we’re going to have tremendous protection for the people. Maybe more protection for the people. But instead of being 9,000 pages, it can be 100 pages.”The President also pledged to cut taxes to make the United States a more attractive location for drug manufacturers to do business. In return, he will expect companies to increase their manufacturing activity in the United States.

Greg Walden, the chairman of the House Energy and Commerce Committee, has suggested that implementation of the 21^st Century Cures Act might offer a way to expedite the marketing authorization process and promote increased competition. However, some observers believe Trump’s “one in, two out” executive order, which requires the repeal of two regulations for each new one that is introduced, could make it difficult to implement complex legislation such as the 21^st Century Cures Act.

It remains to be seen if it is remotely feasible to streamline the regulatory process to the extent suggested by Trump without compromising patient safety. In any event, the industry will be encouraged to know that the President supports faster market access in principle.

Plans to amend Canada’s international reference pricing system

In a recent television interview, Jane Philpott, Canada’s Minister of Health, complained that the country is “paying much higher prices than other countries” for prescription drugs. Her response to this situation is a plan to force manufacturers of patent-protected drugs to cut their prices by amending the country’s international reference pricing system.

At present, Canada benchmarks the prices of new drugs against prices in seven comparator markets: France, Germany, Italy, Sweden, Switzerland, the UK, and the United States. However, Philpott proposes to replace the United States-one of the highest-priced markets in the world-with a much lower-priced market, such as New Zealand.

Implementation of this reform process will begin in the coming months. The government expects to save billions of dollars per year from this change.

One unintended consequence of excluding the United States from the list of comparator countries would be to make drug reimportation from Canada to the United States more attractive. If the Trump administration were to authorize this trade, Canada could potentially face the possibility of shortages of some medicines.

The number of countries practicing international reference pricing has grown steadily in recent years. Like Canada, many of these countries can be expected to adjust their baskets of comparator countries, alter the methodology of international reference pricing, or increase the frequency of updates.

Healthcare reform in China-a double-edged sword for Pharma

The Chinese government’s 13^th Five-Year Plan, which covers the period 2016-2020, includes proposals to improve healthcare services, simplify the approval process for new therapies, and increase controls on pharmaceutical pricing. The focus of the government’s strategy will be on “major diseases,” including hypertension, diabetes, stroke, infectious diseases and mental illnesses.

As an early demonstration of its commitment to controlling prices, in May 2016, the government imposed price cuts of more than 50% on several drugs, including GlaxoSmithKline’s Viread (tenofovir disoproxil fumarate) and AstraZeneca’s Iressa (gefitinib).

The prospect of increased volume sales in China’s lower-tier cities may help to offset the impact of lower prices. However, the government has also declared its intention to slash the substantial mark-ups on medicines that have historically played a major role in funding hospitals and have been a powerful influence on physicians’ prescribing behavior.

To that end, the government is rolling out a new two-invoice drug procurement system intended to slash the number of distributors in the supply chain. Pharmaceutical companies will issue the first invoice to the distributor, which will then issue the second invoice to the service provider. Ex-manufacturer prices will likely increase, but streamlining the supply chain is expected to reduce the prices paid by end users.

Pilot programs for the new invoicing system in several provinces and more than 200 cities found a decline in pharmaceutical sales. The new system will be tested in further pilot projects in 2017, before being implemented nationally in 2018.

Faced with this growing pricing pressure, the life sciences industry in China can draw some comfort from the news of an update to the National Reimbursement Drug List (NRDL), the key formulary in China. More than 300 drugs, including approximately 130 Western medicines, are being added to the NRDL in the first update to the list since 2009. Inclusion in the NRDL can substantially boost a drug’s sales in China.

Annual price reviews in Japan

Healthcare reform in Japan has always tended to be evolutionary, rather than revolutionary, in nature. One of the defining features of the Japanese pharmaceutical market for more than half a century has been the government’s regular biennial price revision process, conducted every other April.

In December 2016, however, the Japanese government announced plans to supplement the biennial price revision process with annual price reviews in off-years. Price cuts could be imposed on drugs that have a large discrepancy between their reimbursement prices and their acquisition prices. In addition, the government intends to conduct quarterly reviews of drugs that experience substantial sales growth-for example, as a consequence of a label expansion.

As a foretaste of this process, the government imposed an ad hoc 50% price cut on BMS/Ono’s Opdivo in November 2016. The government is also reported to be considering measures to restrict the prescribing of certain drugs to specialist centers, or limiting use to particular patient sub-populations.

The life sciences industry has warned that the government’s policy could discourage investment in Japan and reverse recent progress in tackling long delays in launching new medicines in that country.

International collaboration on pricing

In July 2016, the EU Council published its conclusions on strengthening the balance in the pharmaceutical systems in the EU and its member states. Among many other proposals, the Council recommended greater cross-border collaboration on pharmaceutical pricing, including joint horizon scanning, pro-active sharing of pricing information and joint price negotiations in “coalitions” of member states.

Several European countries have been exploring such opportunities for some time. Bulgaria and Romania have been working together since 2014, and Poland, Serbia, Macedonia and Moldova have shown interest in joining this alliance. The Greek government has reportedly hosted similar discussions among Mediterranean countries.

A pricing coalition launched by the Netherlands and Belgium in April 2015 has since expanded to include Luxembourg and Austria, with Ireland set to become the next member. Marisol Touraine, the French Minister of Health, recently said that she “could imagine that France will follow suit, even if it does not happen immediately.”

Ireland is also eager to work with England, Scotland, Canada and Australia to negotiate a lower price for Vertex’s Orkambi, a treatment for cystic fibrosis.

Other countries outside Europe are similarly looking to work together to reduce drug prices. For example, in September 2015, the Union of South American Nations (UNASUR) announced its intention to undertake joint negotiation of drugs with a major budget impact.

In January 2016, Kuwait’s Ministry of Health announced proposals for the six countries of the Gulf Cooperation Council (GCC)-Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates-to set unified pharmaceutical prices. The objective is "securing safe medicines at competitive costs." The Kuwaiti Ministry of Health has reportedly developed outline policies to set prices before registration.

It will be interesting to see how the growth of these international coalitions is aligned with established national pricing procedures.

The impact of Brexit on the European pharmaceutical market

More than seven months after the UK voted to leave the EU, very little is known about the likely impact of Brexit on both the UK and the remainder of the EU. Drug manufacturers are particularly unsettled by the uncertainty, a reflection of the fact that London-the home of the European Medicines Agency (EMA) and the new European Unified Patent Court’s pharmaceutical unit-lies at the heart of a highly integrated regulatory ecosystem.

Sir Andrew Witty, the outgoing CEO of GlaxoSmithKline, is optimistic that the EMA could remain in London. Speaking at the World Economic Forum in January, he suggested that “the disruption [of a move] would be harmful for everybody and we have got to remember this agency is responsible for the safety of 400 million people across Europe.” However, the consensus within the industry is that the EMA will have to relocate. In addition to the impact of a move, the EU would have to find capacity elsewhere to replace the UK’s substantial contribution to the drug licensing process in Europe.

Given that the UK government has declared its intention to make a clean break with the EU, and that the European Commission has ultimate responsibility for marketing authorization in the EU, it is difficult to see how the UK could remain subject to the EU regulatory system. In that event, Witty believes “the UK is taking quite a robust view on how it will manage its own regulatory regime and there are some opportunities there.” However, some industry observers fear that the need for a separate marketing authorization process could prompt companies to delay the launch of new medicines in the UK in the future.

The industry is also concerned that the UK will not be covered by the EU Clinical Trials Regulation, which is expected to streamline access to trials across the EU when it begins operation in 2018. The UK has been one of the pre-eminent players in cross-border collaboration on health technology assessment (HTA), a role that might be jeopardized by Brexit. Furthermore, the UK’s departure from the EU could have significant implications for parallel trade and external reference pricing.

The Accelerated Access Review-potential harbinger of a two-class market access system in the UK

The British government is at pains to emphasize that the UK will remain open to international business following Brexit. The life sciences industry certainly hopes that the recently completed Accelerated Access Review (AAR), along with the established Patent Box regime, will make the UK a more attractive market for innovative medicines.

The AAR recommends the creation of an Accelerated Access Pathway to speed up access to the most promising new therapies by up to four years. However, only 5-10 technologies-not just drugs, but also diagnostics, medical devices and digital products-are expected to qualify for this provision each year.

All other drugs face the less-appealing prospect of disinvestment in older products, new flexible pricing arrangements, substantial charges for the services of NICE, and a budget impact ceiling of £20 million in any of the first three financial years on the market. NHS England reportedly plans to introduce the new budget impact threshold from April of this year. The measure is projected to affect 20% of new drugs and could lead to access delays of as much as four years, as well as the possibility of restrictions on patient eligibility for treatment.

Reform of Germany’s AMNOG early benefit assessment system

The German government is expected to pass legislation in February to alter the AMNOG system that has been the basis of new drug pricing since January 2011.

The life sciences industry has welcomed the promise that drug rebates will no longer be published, a significant change, given that dozens of countries reference German prices. Drug manufacturers are also heartened by the government’s plans to continue free pricing for the first year after launch, though the threat of rebates if sales in that period exceed €250 million is a concern.

The other key proposals are unwelcome news for the industry: the extension of the current price freeze on reimbursable medicines until the end of 2022, the threat of early benefit assessment of older drugs that are licensed for significantly different new indications, and the possible imposition of prescribing restrictions on drugs that are judged to offer no additional benefit overall, but that might benefit certain patient sub-groups.

Increasing pressure on prices from French politicians

Ahead of the forthcoming national elections in France, Marisol Touraine used a press conference at the end of January to counsel the pharmaceutical industry to “lower your prices. That’s some friendly advice.”

The minister returned to the familiar theme of the cost of direct-acting antivirals for the treatment of hepatitis C. She noted that MSD and AbbVie had recently agreed to substantial price cuts for their products, but Gilead-the pioneer of this drug class-continued to resist appeals to reduce its prices. She also took the opportunity to sound a warning that the government will not hesitate to use a provision in the Social Security Finance Act 2017 that allows the Comité Economique des Produits de Santé (CEPS; Economic Committee for Healthcare Products) to unilaterally set drug prices at the level of the lowest-priced competitor (including generics) if negotiations with a manufacturer prove unsuccessful.

Pharmaceutical pricing is likely to be a significant issue in the French elections. At least one presidential candidate has expressed a willingness to resort to compulsory licensing if manufacturers refuse to be reasonable with regard to pricing.

Cross-border cooperation on HTA in Europe

The European Commission and the European Parliament would like to see much closer cross-border collaboration on HTA in Europe to reduce duplication of effort, promote convergence in procedures and methodologies, improve the reuse of joint work by member states and ensure the long-term sustainability of EU HTA cooperation. To that end, the Commission plans to explore five options for the future of HTA collaboration in the EU, ranging from maintaining the status quo until 2020 to joint production of full HTA reports, with mandatory uptake by member states. Legislation would be required to implement the more extensive options for HTA collaboration, and the EU would likely need to provide substantial funding for such initiatives.

Threat of increased compulsory licensing in emerging markets

On January 23, the World Trade Organization (WTO) announced the adoption of a significant amendment to the Trade Related Aspects of Intellectual Property (TRIPS) agreement. The original agreement allowed low-income nations to use compulsory licenses to authorize the production of generic versions of patent-protected drugs for their domestic markets. However, countries that lacked an indigenous pharmaceutical industry were effectively denied the opportunity to benefit from this provision.

In 2003, WTO members agreed to a temporary waiver to allow countries without manufacturing infrastructure to import drugs under compulsory license. Two years later, the waiver was made permanent, subject to the approval of two thirds of the WTO’s 164 members. This milestone was finally reached in January 2017.

Roberto Azevêdo, the WTO’s Director General, is now encouraging low-income countries to work together to improve access to affordable medicines: “There is considerable scope for pooling demand and coordinating use of the system, to build economies of scale and to service regional needs in an efficient way.”

It will be interesting to see if the number of compulsory licenses increases substantially, and if developing nations that have a strong generics industry (e.g., India China, Brazil, Argentina, and South Africa) use the waiver to increase their penetration of emerging markets in their respective regions. For its part, the research-based industry will need to think carefully about the best response to the prospect of increased competition in developing nations.

Implications for the life sciences industry

The cost of prescription drugs has been the subject of criticism for many years, but it does seem that we have now reached a tipping point. Governments in mature and emerging markets alike are considering unprecedented measures to control pharmaceutical prices. The life sciences industry urgently needs to have a constructive dialogue with governments on how to create market access environments that are affordable to payers and patients, but also sustainable for research-based drug manufacturers.

Neil Grubert is a Global Market Access Consultant.