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European P&MA Consolidation: A Paradigm Shift and Implications for Pharma

Earlier this month, Italy’s Health Minister, Beatrice Lorenzin, announced that two additional countries- Slovenia and Croatia- had signed up to the Valletta Declaration. Of the 28 EU member states, over a third (10 countries*) are now part of the initiative which aims to strengthen their bargaining power over pharmaceutical companies through collective price negotiations and procurement. The latest expansion along with similar other arrangements between countries in Europe will force pharma companies to sit up and take notice particularly on its impact on their pricing strategy.

Faced with rising treatment costs and shrinking budgets, national healthcare systems are increasing scrutiny of the value of therapies, especially their prices.

Similar arrangements

To achieve economies of scale, the trend in healthcare-goods acquisition has been towards consolidation and centralization. In the UK, the NHS London Procurement Partnership was set up in 2006 to negotiate prices for and procure drugs and other healthcare products on behalf of multiple NHS trusts in the capital; similar bodies have also sprung up across other regions in the country. On a cross-national level, Belgium and the Netherland were European pioneers of this approach to pricing and reimbursement negotiations for medicines. In 2015 the two countries signed a declaration of intent to jointly negotiate with the pharmaceutical sector on pricing and reimbursement, starting with orphan drugs; Luxembourg and Austria soon joined to form what is now known as BENELUXA.

Orphan drug impact

The focus on orphan drugs is not surprising. There is increasing view among payers that some drug developers are exploiting the regulatory incentives provided for developing therapies for rare diseases, which tend to carry higher price tags. In fact, over half of FDA and EMA newly approved drugs started their development path with an orphan drug designation. The less stringent data requirements, amongst other advantages, represent an easier and quicker path to market. While these suspicions are not always justified they certainly signal that payers are expecting more robust data packages on efficacy, safety and cost effectiveness even where there is a high unmet need for treatment options.

Impact on pharma

The first high-profile consequence of the BENELUXA agreement was when the Netherlands and Belgium rejected the reimbursement of Orkambi, a drug developed by US-based manufacturer Vertex. Despite the small target-disease population (1250 patients) and severity of the condition (a rare and debilitating form of cystic fibrosis), payers in the two countries deemed the asking price to be 82% more than its perceived value. (Link)

The BENELUXA declaration is not just limited to price negotiations. Member states are also looking to collaborate on Health Technology Assessments (HTA), Horizon Scanning and exchange of strategic information. It is likely that the scope of collaboration set by the Valletta declaration will expand similarly.

What does all this mean for orphan drug manufacturers as well as the wider industry? On one hand, the prospect of negotiating with a single body to gain access to multiple markets unravels complexity and saves time and money while allowing for potentially larger sales volume. Conversely, industry should be prepared to develop more robust data packages that satisfy the increasingly stringent criteria set by payers and HTA bodies. There will undoubtedly be downward pressure on drug prices given that a failure to agree on a price will lock manufacturers out of many countries; still, manufacturers that design their drug development programs with payers’ and HTA bodies’ requirements and expectations in mind will likely reap rewards for the innovativeness and added benefit of the therapies they bring to the clinic.

*EU Countries that have signed the Valletta Declaration: Cyprus, Greece, Italy, Malta, Portugal and Spain, Ireland, Romania, Croatia, Slovenia