Download Pharm Science,technology and public health

What is in the Price of Medicines?
The costs and benefits to civil society of
the research based pharmaceutical industry
Brussels 26th November 2008
David Taylor
Professor of Pharmaceutical and Public Health Policy,
The School of Pharmacy, University of London
This presentation
This contribution discusses issues
relating to Belgian and EU wide public
policy on pharmaceutical pricing and
spending. It attempts to build an
understanding of the cost of medicines
today within a broad social and
economic development framework
Professor Sir Michael
Rawlins and Mr Oscar
Wilde
The public has multiple, sometimes
conflicting, interests in medicines and
health care. They range from ensuring
optimally affordable access to existing
treatments to investing in therapeutic
and scientific progress for future
generations
“A fool knows the price of everything and the value of nothing."
– Medicines can serve not only as
treatments for individuals but as
stepping stones to overall public
health improvement. They are
atypical high technology
products. Once developed and
introduced to the medical market
they can normally be copied at
relatively low cost. In economic
terms, their supply typically
involves high ‘sunk’ costs and
low marginal costs of production
– The inherent complexity of many
policy issues in the
pharmaceutical sector can be a
barrier to balanced public
debate. But a failure today to
value pharmaceuticals
appropriately could impose very
significant costs on twenty first
century Europe
George Orwell and
streptomycin in 1947/48
Agenda
Medicines in health improvement
Pharmaceutical prices and spending in Belgium
Issues relating to medicines pricing at the
European Union and global levels
Some suggested topics for further discussion
Stages of health development
–Demographic transition
(Warren Thompson,
1929)
–Epidemiological
transition (Abdel
Omran, 1972)
–Care transition, and the
processes of social
adjustment to
increased wealth and
longevity
King James 1 granting the British Apothecaries
their first Royal Charter in 1617
Dimensions of later stage ‘care
transition’ include…..
– Increasingly assertive
consumerism in health care –
greater demands for both personal
autonomy and medicines safety
and effectiveness, even in extreme
circumstances
– Decreased tolerance of gross
health inequalities, and higher
expectations of universal care
access
– A shift of aspects of care quality
protection from professional to
regulatory agency and managerial
control
For sources see, for instance, the work of
Inglehart, Giddens, Sennet, Flynn and Salter
In the nineteenth and early twentieth centuries European
health improvement was primarily driven by better nutrition
and factors such as enhanced sanitation, housing and child
care
Since the 1940s we have experienced health challenges
associated with ‘wealthy’ lifestyles, counterbalanced by the
development and use of presently available medicines
The next few decades should see more effective support for
‘healthy’ lifestyles (with a trend towards the elimination of
tobacco use, increased exercise rates and better diets),
coupled with the earlier and better targeted use of future
medicines to fit the requirements of specific phenotypes
Medicines pricing in Belgium
–Medicine prices are set by the Minister of Economic
Affairs, and reimbursement levels by the Minister of
Social Affairs. In most instances these are the same
–When a generic variant of an original medicine becomes
available because of patent expiry, the reimbursement
base rate of all forms of the original is reduced by 30%
–There is a further 14% price cut when a molecule has
been reimbursed for more than 12 years and additional
2.3% price cut when it has been reimbursed for more
than 15 years
Belgian market outcomes
– Overall, medicine prices in Belgium are – whichever way they are
calculated – close to the European average. But within that overall
picture prices for patented medicines are relatively low in
international terms, while those for off-patent medicines are relatively
high
– There is significant use of off-patent branded products, supplied at
the ‘reference reimbursement’ (generic price) level
– The country spends a little over 1 per cent of its GDP on
pharmaceuticals at manufacturers’ prices, which is in line with OECD
average data
– In per capita terms, Belgium is one of the world’s major beneficiaries
from pharmaceutical exporting and enjoys significant pharmaceutical
sector investment and employment
0
8.9
8.8
8.7
8.4
8.4
8.3
8.2
8.2
OECD
Australia (3)
Norway
Spain
United Kingdom
Hungary
Finland
Japan (4)
6.4
6.2
Korea
Poland
5.7
6.6
Mexico
Turkey (4)
6.8
Czech Republic
7.1
9.0
Italy
Slovak Republic (4)
9.1
Iceland
7.3
9.1
Greece
Luxembourg
9.2
Sweden
7.5
(1) Public and private components are current expenditure,i.e. investments are not separated.
(2) Current expenditure.
(3) Data refer to 2005/06. (4) Data refer to 2005.
Source: OECD Health Data 2008 , June 2008.
Ireland
9.3
New Zealand
10.0
Canada
9.3
10.1
Austria
Netherlands (2)
10.2
Portugal
9.5
10.4
Belgium (1)
Denmark (1)
10.6
Germany
11.1
4
France
8
11.3
12
Switzerland
United States
15.3
Health spending in the OECD, 2006
Chart 2: Health Expenditure as a Share of GDP, 2006
% of GDP
16
Public
Private
Pharmaceutical spending in total health spending
Source: Pharmaceutical pricing in a global market, OECD, 2008
Pharmaceutical spending in Belgium
Proportion of pharmaceutical specialities expenditures in % of total public healthcare expenditures 1990-2007
Mio EUR
En %
20.000
19
18.000
16.000
17
14.000
12.000
15
10.000
8.000
13
6.000
4.000
11
2.000
0
9
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Public healthcare expenditure (INAMI)
Pharmaceutical specialities expenditures
Proportion of pharmaceutical specialities expenditures in total public healthcare expenditures (in %)
Effective proportion of the pharmaceutical industry in the total public healthcare expenditures (in %)
2005
2006
2007
Pharmaceutical retail price components
Source: Pharmaceutical pricing in a global market, OECD, 2008
Retail price levels for medicines, 2005
Source: Pharmaceutical pricing in a global market, OECD, 2008
Pharmaceutical sector trade balances, 2003
According to (2002) Eurobarometer data
some 65% of people in Belgium believe
their health system runs well, or is in need
of only minor changes. This compares with
an EU average of 44%, around 30% in the
UK and Italy and 14% in Portugal.
However, more recent EHCI data suggest
that Belgian consumer satisfaction levels
may be declining, in part due to delays in
access to new medicines
Issues relating to medicines pricing internationally
The research based pharmaceutical industry’s
cost structure – an illustrative outline
Total production costs
Promotion and information
Research and development
Other costs
Profit
30 per cent of gross income?
25 per cent?
15 - 20 per cent?
10 - 15 per cent?
10 - 15 per cent?
Cost structures vary significantly between countries (and companies)
because of regulatory and other factors. For example, in the UK the
Pharmaceutical Price Regulation Scheme has historically limited
promotional and information costs to less than 50 per cent of the
allowable research investment
The World Pharmaceutical Market is presently
‘worth’ about $500 billion per annum
World region
Af rica + Asia + Australia
Europe
4.2
Japan
Latin America
10.7
USA + C anada
47.0
30.0
8.2
As already noted, innovative medicines typically have
low marginal costs of production relative to their
average costs. Disputes over what a ‘fair price’ is can
stem from problems such as those relating to the
allocation of research and development outlays
The research based (bio) pharmaceutical industry
has the highest ratio of research investment to
income found in any sector. It is a major contributor
to therapeutic innovation and bio-scientific
development, and a vital partner for publicly funded
researchers
For the research based industry’s business model to
remain viable, high investment risks must be
counterbalanced by opportunities for above average
profit. This in turn demands adequate intellectual
property protection
Parallel trading, patents and welfare
In Europe different national
authorities set varying medicine
price/reimbursement levels. This
has led to the ‘parallel trading’ of
patented (and other) medicines
within the EU ‘single market’
There has been debate in the US
on the desirability of ‘low cost
drug re-importation’ from
Europe. But this could harm EU
public interests. Such concerns
highlight the complexity of
issues relating to pharmaceutical
intellectual property rights and
the funding of private (and
public) sector pharmaceutical
research
Byron Dorgan and Olympia Snowe
In the UK a recent UK Social and
Economic Research Council
study found that although the UK
is one of Europe’s largest
parallel importers, the net impact
on the British economy is
probably negative
There is research evidence from
the US that reducing innovative
medicine prices cuts research
investment in a ratio of around
2:1
Patented medicine prices are
above the EU average in the US,
while those of generic drugs are
relatively low. High absolute
medicine spending in the US is
also due to high use of newer
medicines to treat conditions
such as cancer
Armatya Sen
Conflicting pressures on medicine prices and
spending
Ernest Solvay and the
structure of soda ash
– Since the start of the 1950s health
spending in Western Europe has
increased from about 3 to around 10
per cent of GDP. Of this total, medicine
costs typically account for a highly
visible 10-20 per cent
– Pharmaceutical research spending has
risen consistently since the 1950s. But
the number of marketed innovations
has fallen and the age of high volume
use ‘blockbusters’ appears to be
drawing to a close
– Particularly in EU Member States with
weak pharmaceutical sectors,
governments may subject to strong
pressures to limit new medicine prices
in ways which are not necessarily
consistent with long term
national/European public interests
–There is in most markets a growing divergence between
the prices of patented and non-patented medicines
–All aspects of pharmaceutical research, testing,
production and promotion are today heavily regulated.
Nevertheless, it remains inherently costly to introduce
new treatments and inform professionals as to their
appropriate usage
–Despite opportunities for further therapeutic gains, the
use by agencies such as the UK’s NICE of incremental
cost effectiveness analysis to assess the value/affordable
price of new medicines may, in any given therapeutic
area, make research on new treatments uneconomic in
once very low cost generic medicines become available
Questions for debate
– To what extent (if any) would
Belgian public interests be served
by changes in pharmaceutical
pricing that would further decrease
the prices of off patent medicines
relative to patented products?
– To what extent (if any) would
Belgian and European public
interests be served by reforms that
would reduce pharmaceutical
parallel trading in Europe, or
harmonise EU wide medicines
pricing?
– To what extent (if any) would
Belgian and European public
interests be served by reforms that
could in future increase the duration
of pharmaceutical patent protection
in the EU or globally, balanced by
appropriate changes in pricing and
supply strategies?
Conclusions
To date Belgian approaches to pharmaceutical pricing and allied
issues appear to have been consistent with public interests. But
further national and/or EU wide reforms will in time be required
Any future failure to take a constructive approach to fostering
(bio)pharmaceutical science based industry and therapeutic
innovation could well impose heavy costs on Europeans, and
ultimately humanity as a whole
In the modern context open and constructive public dialogue
between the all the members of the complex network of
stakeholders involved in pharmaceutical pricing and wider health
policy formation and implementation is needed to protect against
damaging errors. Belgium is well placed to lead 21st century Europe
in this area
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