Pharmaceutical Pricing and Market Access
Lecture 1: Life Cycle Management of Drugs
Learning goals:
- The life cycle of a drug
- Challenges that the pharma industry is currently facing
- Life cycle management at different phases of the life cycle
History of drug discovery
Serendipity = making desirable discoveries by accident penicillin was a coincidental discovery in the lab.
As time progressed dose decreased. Early aspecific drugs were dosed in grams, modern drugs are dosed in
milligrams or micrograms.
1930s: biochemical products
1940/1950s: psychotropic
discovery of medication for people
with mental health problems. H2-
antagonists: first innovation of
blocking medication.
Up to 1990 drugs were small micro
drugs from natural source or
synthetic source. After that, drugs
from proteins from biologically
engineered products.
Now we know much more of cell
and molecular biology
entering precision medicine and
advanced therapy medicinal
products
Precision medicine
Pharmaco-genetic guided treatment
• Germline DNA testing inform on the choice of treatment and/or its dosing + likelihoord treatment
is effective and or has side effects
• DNA profiling of tumours and other somatic cells to target the therapy to their characteristics (e.g.
immunotherapy, Car-T)
Gene therapy: drugs that target/alter genetic profile
The lifecycle of a drug
Longer developing phase
Slow growth rate (less steep)
Lack of a true maturity phase usually sales peak
at some point but that doesn’t happen. Here sales
are stable for a long period of time after which
competitors enter after which there is a decline.
Quick decline phase the patent expires before
the full mature period is reached followed with a
steep decline of the sales.
Discovery cycle that goes on and on candidate cycle goes on and on safe? Enter phase of 1 2 and 3 studies =
human development phase number of components that makes it to this phase is low final stage = registration
,Development phase: from discovery to patent
- Patent lasts 20 years
- 15 years of development.
- 6 or 7 years left to make profits in order to
regain R&D costs.
Why patents?
- Stimulate innovation
- Temporary monopoly for manufacturer to recoup R&D costs, manufacturing, invest in innovation
- Profit maximization and high ROI necessary to attract private investors into this risky business
Patent duration
- Patent duration is 20 years + option for supplementary patent protection (max 5 years) different than SPC
- Effective patent period after drug is on the market is 7-8 years
- Largest part of development costs come from phases 1, 2 and mostly 3!
- Phase 4 are the post marketing surveillance studies that focus on safety issues (real life patients)
- 9,6% of the drugs make it from phase 1 to approval
- 2.2 billion dollars on average for the development of a drug all the costs of the failures need to be
covered by the successful drug result into high prices!
Introduction phase: centralized approval by EMA on safety, quality and efficacy and decentralized pricing &
reimbursement
• EMA provides market authorization for medicines using a centralized procedure (submit one single dossier
to get market approval for the whole EU)
• One central evaluation on quality, safety and efficacy sufficient = marketed in all countries of the EU
, • Reimbursement is a decentralized, national process based on cost-effectiveness
International/external reference pricing used in most European countries, drives price of a drug.
- In NL price of a drug is determined as average price of drugs in surrounding countries
- Look at 4 surrounding countries Belgium, UK, Germany and France
- Price is set at average of surrounding countries. UK doesn’t do reference pricing
- The price is referenced to the MNF price = manufacturing price
Differences in the uptake of innovation Sales of innovative products is higher in France positive attitude of the
French to innovative medicines. French people are more willing to try new pharma products. Approval is also faster
than in other countries.
Geographical breakdown of sales of new medicines launched 2011-2016 better to enter US market because of
higher sales potential
Launch US market = 64.7% of sales of new medicines launched
Launch EU market = 17.5% on the European market (top 5 markets).
Growth phase: not very steep & slower rate of growth than typical industrial products
- Switching patients to other drugs may be risky
- Established drug classes (me-too drugs) are doing well not driven by medical need but by companies
wanting a share of a highly profitable market.
- Cost containment policies affecting supply, demand and price
- Promotion limited
- Safety issues health authorities cautious about letting new drug be introduced to a broad population
- More biologics that target multiple smaller indications, which are introduced successively over the life of a
drug
- Medical breakthroughs rarer than incremental improvements of existing drugs.
- Sense of urgency drives up sales quickly than it is steeper
Maturity phase
• Often lack of true maturity phase
• No plateau as sales continue to grow right up to a sudden decline because of patent expiry sets in
• Multiple lower-priced generics may enter the market after patent expiry while the brand drug was still in the
growth phase
• In some segments of the market (e.g. orphan drugs) the competition is less and prices remain high
Decline phase
• Sales are lost quickly because cheap generics enter market
• Rate of conversion to generics depends on:
• Payer policy (next part)
• Disease area (how risky is switching?)
• Size brand (the larger the brand the more generics)
• Greater brands erode quicker there was a shortage of Taxus Baccata as raw material to
produce taxol
• Brand loyalty
• In Southern Europe erosion is less because of less generic market penetration and greater
brand loyalty epilepsy concerns over loss of seizure control keeps generic penetration
low
• Hospital-only drug or outpatient drug (loyalty; existing discounts)
• Difficulty to source raw material/active substance (barriers higher for biogenerics)
Generics penetrate the market when it is structured to promote their use
, GP Prescribe lowest cost drugs because then they have more space in their budgets
Pharmacies:
- Generic substitution switch brand prescription into generic prescription
- Tendering insurer approach industry asks for lowest bid – requires pharmacists to prescribe drug with
lowest bid only (they are not free to choose among all drugs but only the lowest price drugs)
Internal reference pricing drug placed in a class of similar drugs one average price is determined for that class
of drugs (grouping drugs in same classes and setting an upper limit for the price of that class) patients have to pay
the difference out of pocket when they do charge more (but this influences the uptake)
Price has nothing to do with the development of the drug (actual R&D costs) it is more related to value than it is
to manufacturing/distribution costs (if perceived value is high than drug price is also likely to be high)
Challenges from pharma companies’ perspective
1. Perception that spending on drugs is too high
Why are prices of drugs in eastern Europe high?
Relative prices in eastern European countries are high compared to other components in healthcare (salaries of
nurses) that is why pharmaceutical spending as % of GDP is high in eastern European countries (also due to
reference pricing of higher income countries)
Why is spending in Denmark low?
1. Generic prescribing
2. Parallel trade they buy drugs in countries where price is lower and then import those
Price objections have two sources:
1. Value has not been communicated and is thus poorly understood by the customers (Communicating value
is very important! If the value is unclear any price is too high.
2. Price objections stem from customers attempting to negotiate a lower price
2. Avoid pipeline drying
- Pharmaceutical R&D pipeline is growing significantly
there are more medicines in development today than ever before
Number of new drugs approved however doesn’t really show a decline or an increase
- Number of new chemical or biological entities
No more low hanging fruit: most easy wins have been made.
Big pharma organizations not ideal breeding ground for innovation (innovation has come from small
biotech companies)
- Pharmaceutical industry measure innovation in terms of new molecular entities as a stand-in for
therapeutically superior new medicines however, only minor clinical advantages over existing treatments.
3. Higher development costs
a) Number of new drugs approved per billion Euros spent on R&D has decreased
Lecture 1: Life Cycle Management of Drugs
Learning goals:
- The life cycle of a drug
- Challenges that the pharma industry is currently facing
- Life cycle management at different phases of the life cycle
History of drug discovery
Serendipity = making desirable discoveries by accident penicillin was a coincidental discovery in the lab.
As time progressed dose decreased. Early aspecific drugs were dosed in grams, modern drugs are dosed in
milligrams or micrograms.
1930s: biochemical products
1940/1950s: psychotropic
discovery of medication for people
with mental health problems. H2-
antagonists: first innovation of
blocking medication.
Up to 1990 drugs were small micro
drugs from natural source or
synthetic source. After that, drugs
from proteins from biologically
engineered products.
Now we know much more of cell
and molecular biology
entering precision medicine and
advanced therapy medicinal
products
Precision medicine
Pharmaco-genetic guided treatment
• Germline DNA testing inform on the choice of treatment and/or its dosing + likelihoord treatment
is effective and or has side effects
• DNA profiling of tumours and other somatic cells to target the therapy to their characteristics (e.g.
immunotherapy, Car-T)
Gene therapy: drugs that target/alter genetic profile
The lifecycle of a drug
Longer developing phase
Slow growth rate (less steep)
Lack of a true maturity phase usually sales peak
at some point but that doesn’t happen. Here sales
are stable for a long period of time after which
competitors enter after which there is a decline.
Quick decline phase the patent expires before
the full mature period is reached followed with a
steep decline of the sales.
Discovery cycle that goes on and on candidate cycle goes on and on safe? Enter phase of 1 2 and 3 studies =
human development phase number of components that makes it to this phase is low final stage = registration
,Development phase: from discovery to patent
- Patent lasts 20 years
- 15 years of development.
- 6 or 7 years left to make profits in order to
regain R&D costs.
Why patents?
- Stimulate innovation
- Temporary monopoly for manufacturer to recoup R&D costs, manufacturing, invest in innovation
- Profit maximization and high ROI necessary to attract private investors into this risky business
Patent duration
- Patent duration is 20 years + option for supplementary patent protection (max 5 years) different than SPC
- Effective patent period after drug is on the market is 7-8 years
- Largest part of development costs come from phases 1, 2 and mostly 3!
- Phase 4 are the post marketing surveillance studies that focus on safety issues (real life patients)
- 9,6% of the drugs make it from phase 1 to approval
- 2.2 billion dollars on average for the development of a drug all the costs of the failures need to be
covered by the successful drug result into high prices!
Introduction phase: centralized approval by EMA on safety, quality and efficacy and decentralized pricing &
reimbursement
• EMA provides market authorization for medicines using a centralized procedure (submit one single dossier
to get market approval for the whole EU)
• One central evaluation on quality, safety and efficacy sufficient = marketed in all countries of the EU
, • Reimbursement is a decentralized, national process based on cost-effectiveness
International/external reference pricing used in most European countries, drives price of a drug.
- In NL price of a drug is determined as average price of drugs in surrounding countries
- Look at 4 surrounding countries Belgium, UK, Germany and France
- Price is set at average of surrounding countries. UK doesn’t do reference pricing
- The price is referenced to the MNF price = manufacturing price
Differences in the uptake of innovation Sales of innovative products is higher in France positive attitude of the
French to innovative medicines. French people are more willing to try new pharma products. Approval is also faster
than in other countries.
Geographical breakdown of sales of new medicines launched 2011-2016 better to enter US market because of
higher sales potential
Launch US market = 64.7% of sales of new medicines launched
Launch EU market = 17.5% on the European market (top 5 markets).
Growth phase: not very steep & slower rate of growth than typical industrial products
- Switching patients to other drugs may be risky
- Established drug classes (me-too drugs) are doing well not driven by medical need but by companies
wanting a share of a highly profitable market.
- Cost containment policies affecting supply, demand and price
- Promotion limited
- Safety issues health authorities cautious about letting new drug be introduced to a broad population
- More biologics that target multiple smaller indications, which are introduced successively over the life of a
drug
- Medical breakthroughs rarer than incremental improvements of existing drugs.
- Sense of urgency drives up sales quickly than it is steeper
Maturity phase
• Often lack of true maturity phase
• No plateau as sales continue to grow right up to a sudden decline because of patent expiry sets in
• Multiple lower-priced generics may enter the market after patent expiry while the brand drug was still in the
growth phase
• In some segments of the market (e.g. orphan drugs) the competition is less and prices remain high
Decline phase
• Sales are lost quickly because cheap generics enter market
• Rate of conversion to generics depends on:
• Payer policy (next part)
• Disease area (how risky is switching?)
• Size brand (the larger the brand the more generics)
• Greater brands erode quicker there was a shortage of Taxus Baccata as raw material to
produce taxol
• Brand loyalty
• In Southern Europe erosion is less because of less generic market penetration and greater
brand loyalty epilepsy concerns over loss of seizure control keeps generic penetration
low
• Hospital-only drug or outpatient drug (loyalty; existing discounts)
• Difficulty to source raw material/active substance (barriers higher for biogenerics)
Generics penetrate the market when it is structured to promote their use
, GP Prescribe lowest cost drugs because then they have more space in their budgets
Pharmacies:
- Generic substitution switch brand prescription into generic prescription
- Tendering insurer approach industry asks for lowest bid – requires pharmacists to prescribe drug with
lowest bid only (they are not free to choose among all drugs but only the lowest price drugs)
Internal reference pricing drug placed in a class of similar drugs one average price is determined for that class
of drugs (grouping drugs in same classes and setting an upper limit for the price of that class) patients have to pay
the difference out of pocket when they do charge more (but this influences the uptake)
Price has nothing to do with the development of the drug (actual R&D costs) it is more related to value than it is
to manufacturing/distribution costs (if perceived value is high than drug price is also likely to be high)
Challenges from pharma companies’ perspective
1. Perception that spending on drugs is too high
Why are prices of drugs in eastern Europe high?
Relative prices in eastern European countries are high compared to other components in healthcare (salaries of
nurses) that is why pharmaceutical spending as % of GDP is high in eastern European countries (also due to
reference pricing of higher income countries)
Why is spending in Denmark low?
1. Generic prescribing
2. Parallel trade they buy drugs in countries where price is lower and then import those
Price objections have two sources:
1. Value has not been communicated and is thus poorly understood by the customers (Communicating value
is very important! If the value is unclear any price is too high.
2. Price objections stem from customers attempting to negotiate a lower price
2. Avoid pipeline drying
- Pharmaceutical R&D pipeline is growing significantly
there are more medicines in development today than ever before
Number of new drugs approved however doesn’t really show a decline or an increase
- Number of new chemical or biological entities
No more low hanging fruit: most easy wins have been made.
Big pharma organizations not ideal breeding ground for innovation (innovation has come from small
biotech companies)
- Pharmaceutical industry measure innovation in terms of new molecular entities as a stand-in for
therapeutically superior new medicines however, only minor clinical advantages over existing treatments.
3. Higher development costs
a) Number of new drugs approved per billion Euros spent on R&D has decreased
