Drugs price harmony elusive

Date: 28/03/1996

By Tim Jones

EUROPEAN pharmaceutical companies have long urged the creation of a level playing-field for drugs pricing across the EU if they are to sink the necessary cash into developing new treatments.

But this aim is years away if 18 months of wrangling over a simple analysis of the industry by the European Commission is anything to go by.

A study of the industry - combined with a shopping list of measures to improve its competitiveness - was published in September 1994, but has been held up in the Council of Ministers ever since.

The reasons for the delay lie in a deep-rooted suspicion among member state governments that the Commission is trying to take a first step towards harmonising the EU's different systems for pricing drugs.

Drugs prices vary widely across the EU, with the most marked differences between the low prices in the south of the Union and high prices in the north.

In 1994, the unit price of the ten best-selling drugs in the EU varied by as much as 220&percent;.

The recent case of Bayer and its Adalat heart drug (see below) brought the issue to the fore, as the German company sought to end the practice of 'parallel exporting' from low-price to high-price countries.

As long as they are registered in both member states, drugs can be bought by a wholesaler in one country and sold to pharmacists or hospitals in another. In 1990, parallel imports were worth 400 million ecu and are believed to have grown to 600 million ecu last year.

Europe's wide range of price regulation systems are at the heart of this problem: free prices without restrictions apply in most member states for over-the-counter drugs sales; free prices with a set time-limit for reimbursement by a health insurance fund in Germany and the Netherlands; drugs firms' profit-targeting in the UK; and direct state determination of prices in France, Italy and Spain.

Nobody would suggest that this kind of diversity is ideal, least of all the drugs firms who claim that the variety of price control systems makes it difficult for them to establish a consistent pricing policy, or to recoup their research and development (R&D) costs on a predictable basis.

However, member states are keen to ensure that acceptance of this fact of life does not translate into extra powers for the Commission.

“If you admit there is a problem with pricing, then it is a small step to doing something about it,” said a diplomat. “There is always a suspicion that, in the longer run, the Commission would not object to taking on this competence.”

The EU was given some competence in the area of health by Article 129 of the Maastricht Treaty, but it is not empowered to step into the area of healthcare services. These programmes are supposed to be coordinated between governments with the help of the Commission.

Even before Maastricht, a 1989 transparency directive sought to ensure that governments made decisions on drugs pricing in an open and non-discriminatory way.

Progress has been made in the construction of a European system for granting approval of new products.

The new era began in October last year when the London-based European Medicines Evaluation Agency (EMEA) gave the first pan-EU approval to Ares-Serono's 'Gonal-F' fertility treatment.

While headway has been made in creating a single market in some areas of health, a Danish proposal to insert a commitment to harmonising the pricing systems during negotiations on the member states' response to the Commission's 1994 study was quickly killed by other governments. “The response went from silence to hostility,” said a diplomat.

Drugs pricing and purchasing are still considered to be the untouchable prerogative of the member states as governments liberally wield the axe in health spending in pursuit of single currency membership.

The capping of drugs pricing is a key element of policy and a major determinant of pharmaceutical firms' profitability. Last year, share prices in the pharmaceutical sector rocketed, outperforming stock markets by 25&percent;, partly because the prospect of price-capping in the US receded with the demise of First Lady Hillary Clinton's healthcare reform plan.

Prices were also given a boost by the round of mega-mergers taking place across the industry, as firms sought to cut operating costs and divert resources into the kind of R&D that yields highly profitable patented drugs.

The creation of the world's largest pharmaceutical company in January last year, when Glaxo bought Wellcome for 7 billion ecu, provoked a stampede of speculation that further mergers would follow.

The markets then went quiet until the gigantic 21-billion-ecu merger between Swiss firms Sandoz and Ciba-Geigy was announced at the beginning of this month.

Each round of mergers is designed to reduce costs. Within a year of its creation, Glaxo-Wellcome identified 850 million ecu in cost-cutting measures and Novartis (the merged Ciba-Geigy/ Sandoz) can be expected to follow suit. Glaxo-Wellcome has redirected resources into R&D, aimed at boosting productivity three-fold and bringing three major new drugs to the market by the year 2000.

The Commission report emphasises the need for member states to do everything they can to ensure pharmaceutical companies concentrate heavily on investing in R&D. For some member states, this has been seen as code for allowing drugs firms to charge more for their products.

Industry ministers meeting today (28 March) will call on the Commission to carry out a series of studies into various areas of the industry, while taking into account the competence of member states in this field. Noting the increasing number of major mergers in the sector, they will urge the Commission to keep an eye on the implications of this for competition policy.

Competition Commissioner Karel Van Miert, while making it clear that the global nature of the industry tends to avoid the creation of dominant market shares, has warned that his services will look closely into national product markets to make sure none of these mergers undermines free competition in the EU.

Novartis is unlikely to be the last merger in this sector, as companies scramble to spend as much of their available cash as possible on finding the next 'wonder drug'.

What the argument over the Commission report confirms is that the companies' hopes that the question of pricing could find its way on to the agenda of the Intergovernmental Conference are likely to be dashed.