Europe’s current fiscal crisis, symbolized by the meltdown in Greece, is seen by big pharma as a temporary situation to be taken in stride—after all, the EU southern and eastern tier, with its chronically shaky finances and per capita incomes as low as a third of the EU norm, has historically been a marginal player against the “big five” countries that account for the biggest share of innovator revenue in the region. However, closer scrutiny suggests a widening circle of repercussions that could destabilize P&R through the emergence of new “worst practices” in cost containment, with a negative impact on the sector, not only in Europe but globally.
Action by the Greek government to slash reimbursed drug prices by more than 25 percent has proved so draconian that some companies, led by Novo-Nordisk, say they refuse to drop prices, and are promising to withhold products or even withdraw from Greece entirely. Over the years, the industry has consistently avoided this “nuclear option” to avoid jeopardizing its reputation and license to operate with key regulators like the European Medicines Agency (EMA).
Harsh government and media reaction to what in their view amounts to the “abandonment” of Greek patients also threatens what is fundamental to current industry strategy in Europe—positioning itself as a health care insider and customer-focused “national champion” against the destabilizing forces of globalization. Any industry pushback begins from a constrained political dynamic: Can we point to the street riots that occur when governments announce cutbacks on drug spending, when compared to closing hospitals or laying off physicians?
Looking ahead, there are a number of scenarios that pose a negative outcome for industry. And these prospects will only accelerate in tandem with widening government deficits, compounded by a long-term public debt burden that for a majority of the 27 EU member states now exceeds the 60 per cent of GDP “sustainability threshold” set by the International Monetary Fund (IMF).
Removal of remaining political and institutional barriers to European-wide price coordination: Powerful new players are emerging in the regulatory space, led by the European Central Bank and the IMF; both support cutbacks in subsidized health entitlements against tax alternatives that might suppress economic growth. Each favors greater regional integration of fiscal policy drivers to maintain the viability of the Euro as a global currency, and leadership is not susceptible to influence by big pharma. More directly, the fiscal crisis provides a opportunity to expand the remit of the 1989 EU Price Transparency Directive, from what has primarily been a defensive tool advantageous to industry in promoting fair access to new drugs to a price monitor that will accelerate a “race to the bottom” in pricing based on a low benchmark covering all EU states. Country P&R data and strategies are now shared through the Directive’s Committee of member state P&R representatives; because at least 11 countries use Greek prices as a reference point in calculating their own prices, the impact of these deep cuts outside the country will be hard to contain, especially in mandating lower prices for affected medicines in at least two of the big five market countries: Italy and Spain.
A switch in cost-containment strategies—from limiting wholesale prices for new patented innovations to slashing volume growth: The latter is likely to carry a far more significant impact on the industry, particularly as diversification strategies now emphasize returns from reimbursed OTC medicines, generics and off-patent brands. In this regard, no access—by restricting the size of the reimbursement market itself—is a worse scenario than a lower price point. As France and other governments have noted, the easiest way to save on healthcare is to simply lowball a fixed budget on a commodity “silo” purchase like drugs. And just when the industry appears to be making progress in restricting legal recourse to parallel trade, interest in the tool could increase—although it is interesting to note that in the case of Greece, prices now may be too low to attract even the parallel traders.
A higher profile for the EMA as arbiter of product “value”: European drug legislation requires that any centrally approved medicine must be marketed and made available to patients in all EU countries; it is not left to the applicant’s discretion. This places the EMA in a position to question a company’s right to unilaterally withdraw a medicine based on narrow criteria like a low price. Expect as a corollary to this a revival of interest in formal “medical needs” clauses, which entail action by government payers to remove products from reimbursement on grounds that they don’t contribute to the standard of care.
Further globalization of the intellectual property and access debate: Far-fetched it may be, but it is possible that if Greece or other EU countries are confronted with companies that want to pull local access to medicines, they could seek to implement provisions of the 2001 World Trade Organization (WTO) Doha Ministerial Declaration on TRIPS and Public Health. Paragraph six allows countries to override company patent rights and compel local production of medicines to confront a public health pandemic or other situations of “extreme urgency.” The EU as a negotiating group renounced use of this option at the WTO, but there is no guarantee that one of the smaller EU members might raise it as a way to up the stakes and provoke an internal debate around the broader societal obligations of the industry.