Could international compulsory licensing reconcile tiered pricing of pharmaceuticals with the right to health?

Background

The heads of the Global Fund and the GAVI Alliance have recently promoted the idea of an international tiered pricing framework for medicines, despite objections from civil society groups who fear that this would reduce the leeway for compulsory licenses and generic competition. This paper explores the extent to which an international tiered pricing framework and the present leeway for compulsory licensing can be reconciled, using the perspective of the right to health as defined in international human rights law.

Discussion

We explore the practical feasibility of an international tiered pricing and compulsory licensing framework governed by the World Health Organization. We use two simple benchmarks to compare the relative affordability of medicines for governments – average income and burden of disease – to illustrate how voluntary tiered pricing practice fails to make medicines affordable enough for low and middle income countries (if compared with the financial burden of the same medicines for high income countries), and when and where international compulsory licenses should be issued in order to allow governments to comply with their obligations to realize the right to health.

Summary

An international tiered pricing and compulsory licensing framework based on average income and burden of disease could ease the tension between governments’ human rights obligation to provide medicines and governments’ trade obligation to comply with the Agreement on Trade-Related Aspects of Intellectual Property Rights.

     

Impact of Cross-Reference Pricing on Pharmaceutical Prices

Objective

Several EU countries are determining reimbursement prices of pharmaceuticals by cross-referencing prices of foreign countries. Our objective is to quantify the theoretical cross-border spill-over effects of cross-reference pricing schemes on pharmaceutical prices in the former EU-15 countries.

Methods

An analytical model was developed estimating the impact of pharmaceutical price changes in Germany on pharmaceutical prices in other countries in the former EU-15 using cross-reference pricing. We differentiated between the direct impact (from referencing to Germany directly) and the indirect impact (from referencing to other countries that conduct their own cross-reference pricing schemes).

Results

The relationship between the direct and indirect impact of a price change depends mainly on the method applied to set reimbursement prices. When applying cross-reference pricing, the reimbursement price is either determined by the lowest of foreign prices (e.g. Portugal), the average of foreign prices (e.g. Ireland) or a weighted average of foreign prices (e.g. Italy). If the respective drug is marketed in all referenced countries and prices are regularly updated, a price reduction of € 1.00 in Germany will reduce maximum reimbursement prices in the former EU-15 countries from €0.15 in Austria to €0.36 in Italy.

Discussion

On one side, the cross-border spill-over effects of price reductions are undoubtedly welcomed by decision makers and may be favourable to the healthcare system in general. On the other side, these cross-border spill-over effects also provide strong incentives for strategic product launches, launch delays and lobbying activities, and can affect the effectiveness of regulation.

Conclusions

To avoid the negative effects of cross-reference pricing, a weighted index of prices from as many countries as possible should be used to determine reimbursement prices in order to reduce the direct and indirect impact of individual countries.     

Access to medicines and hepatitis C in Africa: can tiered pricing and voluntary licencing assure universal access,health equity and fairness?

Background

The recent introduction of Direct Acting Antivirals (DAAs) for treating Hepatitis C Virus (HCV) can significantly assist in the world reaching the international target of elimination by 2030. Yet, the challenge facing many individuals and countries today lies with their ability to access these treatments due to their relatively high prices. Gilead Sciences applies differential pricing and licensing strategies arguing that this provides fairer and more equitable access to these life-saving medicines. This paper analyses the implications of Gilead’s tiered pricing and voluntary licencing strategy for access to the DAAs.

Methods

We examined seven countries in Africa (Egypt, Ethiopia, Nigeria, Democratic Republic of Congo, Cameroon, Rwanda and South Africa) to assess their financial capacity to provide DAAs for the treatment of HCV under present voluntary licensing and tiered-pricing arrangements. These countries have been selected to explore the experience of countries with a range of different burdens of HCV and shared eligibility for supply by licensed generic producers or from discounted Gilead prices.

Results

The cost of 12-weeks of generic DAA varies from $684 per patient treated in Egypt to $750 per patient treated in other countries. These countries can also procure the same DAA for 12-weeks of treatment from the originator, Gilead, at a cost of $1200 per patient. The current prices of DAAs (both from generic and originator manufacturers) are much more than the median annual income per capita and the annual health budget of most of these countries. If governments alone were to bear the costs of universal treatment coverage, then the required additional health expenditure from present rates would range from a 4% increase in South Africa to a staggering 403% in Cameroon.

Conclusion

The current arrangements for increasing access to DAAs, towards elimination of HCV, are facing challenges that would require increases in expenditure that are either too burdensome to governments or potentially so to individuals and families. Countries need to implement the flexibilities in the Doha Declaration on Trade Related Intellectual Property Rights agreement, including compulsory licensing and patent opposition. This also requires political commitment, financial will, global solidarity and civil society activism.

     

Canadian policy makers’ views on pharmaceutical reimbursement contracts involving confidential discounts from drug manufacturers

Pharmaceutical policy makers are increasingly negotiating reimbursement contracts that include confidential price terms that may be affected by drug utilization volumes, patterns, or outcomes. Though such contracts may offer a variety of benefits, including the ability to tie payment to the actual performance of a product, they may also create potential policy challenges. Through telephone interviews about this type of contract, we studied the views of officials in nine of ten Canadian provinces. Use of reimbursement contracts involving confidential discounts is new in Canada and ideas about power and equity emerged as cross-cutting themes in our interviews. Though confidential rebates can lower prices and thereby increase coverage of new medicines, several policy makers felt they had little power in the decision to negotiate rebates. Study participants explained that the recent rise in the use of rebates had been driven by manufacturers’ pricing tactics and precedent set by other jurisdictions. Several policy makers expressed concerns that confidential rebates could result in inter-jurisdictional inequities in drug pricing and coverage. Policy makers also noted un-insured and under-insured patients must pay inflated “list prices” even if rebates are negotiated by drug plans. The establishment of policies for disciplined negotiations, inter-jurisdictional cooperation, and provision of drug coverage for all citizens are potential solutions to the challenges created by this new pharmaceutical pricing paradigm.     

The impact of price regulation on the launch delay of new drugs--evidence from twenty-five major markets in the 1990s

We analyze the effect of price regulation on delays in launch of new drugs. Because a low price in one market may 'spill-over' to other markets, through parallel trade and external referencing, manufacturers may rationally prefer longer delay or non-launch to accepting a relatively low price. We analyze the launch in 25 major markets, including 14 EU countries, of 85 new chemical entities (NCEs) launched between 1994 and 1998. Each NCE's expected price and market size in a country are estimated using lagged average price and market size of other drugs in the same (or related) therapeutic class. We estimate a Cox proportional hazard model of launch in each country, relative to first global launch.Only 55% of the potential launches occur. The US leads with 73 launches, followed by Germany (66) and the UK (64). Only 13 NCEs are launched in Japan, 26 in Portugal and 28 in New Zealand. The results indicate that countries with lower expected prices or smaller expected market size have fewer launches and longer launch delays, controlling for per capita income and other country and firm characteristics. Controlling for expected price and volume, country effects for the likely parallel export countries are significantly negative.     

The consumer welfare implications of governmental policies and firm strategy in markets for medicines

This paper empirically examines the consumer welfare implications of changes in government policies related to patent protection and compulsory licensing in the Indian market for oral anti-diabetic (OAD) medicines. In contrast to previous studies on the impact of pharmaceutical patents in India, we observe, and estimate the welfare effects accruing from differential pricing and voluntary licensing strategies of patent-holding innovator firms. Three novel molecules belonging to the dipeptidyl peptidase-4 (DPP-4) inhibitor class of OADs have been launched in India by the patent holders, at lower prices than those prevailing in the developed countries. Using aggregate market transaction data, we structurally estimate demand and supply and use the parameter estimates in our model to simulate consumer welfare under various counterfactual scenarios. Our results suggest that the introduction of DPP-4 inhibitors generated a consumer surplus gain of around 7.6 cents per day for a typical DPP-4 inhibitor user under the existing differential pricing and voluntary licensing strategies. If the innovators decide to price at developed-country levels, this surplus is eliminated almost entirely. The issuance of compulsory licensing does not always improve consumer welfare because if innovators defer or delay the introduction of new drugs in response, the loss in consumer welfare could be substantial.     

Market-based licensing for HPV vaccines in developing countries

Human papillomavirus (HPV) vaccines hold great promise for preventing cervical cancer, but 93 percent of mortality worldwide occurs in low- and middle-income countries, where high vaccine costs can restrict dissemination. Current models for promoting international access to health care innovations include differential pricing, advance market commitments, and voluntary and compulsory licensing. Some of these mechanisms have been effective, but much room for improvement remains. We discuss the usefulness of a new type of license that uses market forces to lower prices through generic competition in low- and middle-income countries while ensuring that pharmaceutical companies are appropriately reimbursed for their research and development.     

Managed care. Purchasers seek relief from drug price hikes

Public and private groups are seeking a consensus on replacement legislation for a federal law that requires drug manufacturers to give rebates to state Medicaid programs based on the "best price" available in the market. Critics of the law, including the Dept. of Veterans Affairs and other high-volume purchasers, claim the law is drying up their discounts and driving up prices overall.     

The implications of external price referencing on pharmaceutical list prices in Europe

External price referencing (EPR) is a frequently applied cost-containment measure to control pharmaceutical prices. This study aims to determine the implications of EPR on ex-factory pharmaceutical prices in European countries.Prices of 21 pharmaceuticals and 17 non-pharmaceutical services were collected with a survey and price corridors were defined in 7 countries. To increase the sample size for further analysis, pharmaceutical prices were retrieved from EURIPID database for 8 additional countries. Regression analyses were applied to evaluate explanatory variables on pharmaceutical list prices including EPR components, GDP per capita, and population size in 15 European countries.Price corridor was narrower for pharmaceuticals compared to non-pharmaceutical services. In univariate regression analysis, higher GDP per capita and population size were associated with higher prices, and taking lowest price from referenced basket of countries was associated with lower prices. In multiple regression analysis, GDP per capita, population size and number of countries referencing a country had modest, but significant association with prices.Findings indicate small price variation for pharmaceuticals that points towards the occurrence of price-convergence. The relatively minor association of EPR with pharmaceutical list prices could be explained by manufacturers’ compensatory mechanisms including confidential price reductions and discounts while maintaining high list prices in countries with strong price-control measures or delayed product launch in countries with traditionally lower prices. Consequently, EPR cannot be directly associated with narrow European price corridor, and lower income countries still have slightly lower list prices.     

Impact of parallel trade on pharmaceutical firm’s profits: rise or fall?

Most existing studies on parallel trade conclude that it reduces pharmaceutical firms’ profits. One special feature of the pharmaceutical industry is the presence of price regulation in most countries. Taking into account the impact of parallel trade on the regulated pharmaceutical prices [Pecorino, P.: J. Health Econ. 21, 699–708 (2002)] shows that a pharmaceutical firm’s profit is greater in the presence of parallel trade. The present paper relaxes the assumption on identical demands among countries, and takes into account transaction costs. The results of our model show that a firm’s profits may increase or decrease in the presence of parallel trade, depending on its bargaining power in the price negotiation and market size of the drug. Changes in social welfare due to the transition to parallel trade regime are also considered.     

The End of the International Reference Pricing System?

All 28 EU member states except Sweden and the UK apply international reference pricing (IRP), international price comparison, external reference pricing or cross-reference pricing. The attractiveness of using prices of other countries as a benchmark for decisions within a national price control is obvious. Alternative models for price and reimbursement decision making such as value-based pricing (VBP), i.e. cost-effectiveness analyses, are more complicated. However, IRP provides incentives for stakeholders to take action not in line with optimal (welfare-maximizing) pricing. IRP is costly for two reasons. First, manufacturers are incentivised to limit or delay access to new innovative treatments in countries with small markets and/or a low income, which can be costly in terms of loss of health. Second, all countries also experience a loss of welfare (health) because IRP reduces the opportunities for differential pricing (Ramsey pricing), i.e. using the fact that the ability and willingness to pay differs between countries. Thus, IRP results in less sales revenue to finance research and development of new innovative drugs. We can now observe that payers and manufacturers are engaged in different types of risk-sharing schemes, price–volume negotiations, payback arrangements, confidential discounts, coverage with evidence developments, etc., all with the purpose of returning to the old model of price discrimination and Ramsey pricing. Shortly, real prices for use in IRP systems will cease to exist and, thus, we expect to soon see the end of IRP, a new system for price discrimination and an increasing demand for VBP.     

Expanding drug access in Brazil: lessons for Latin America and Canada

This paper discusses Brazil's efforts to provide essential medicines for its population while meeting international trade obligations. In the 1950s and 1960s, Brazil's pharmaceutical industry was largely overtaken by foreign companies. To counteract this, Brazil enacted a law in 1971 that allowed the production of patented drugs in order to provide affordable medicines, encourage research and development, and reduce dependency on imports. Eventually, pressure from the United States government (through tariffs and sanctions) drove Brazil to introduce pharmaceutical patent laws. Local interests prevailed, however, through Brazil's liberal interpretation of the TRIPS Agreement, which included a provision that pharmaceutical products must be "worked" or manufactured locally or the government could turn to the use of compulsory licensing. Brazil's willingness to use the threat of compulsory licensing compelled drug companies to lower HIV/AIDS drug prices substantially. Finally, the paper discusses how Canada can facilitate improving drug access in Latin America through helping Brazil expand its role as a manufacturer and providing medicines to countries without manufacturing capabilities.     

Is Europe still heading to a common price level for on-patent medicines? An exploratory study among 15 Western European countries

Background

Previous studies have suggested that medicines prices in Europe converge over time as a result of policy measures such as external price referencing.

Objective

To explore whether ex-factory prices of on-patented medicines in Western European countries have converged over a recent period of time.

Methods

Prices of ten on-patent medicines in five years (2007, 2008, 2010, 2011, 2012) of 15 European countries were analyzed. The unit of analysis was the ex-factory price in Euro per defined daily dose (exchange rate indexed to 2007). A score (deviation from the average price) per country as well as the ranges were calculated for all medicines.

Results

The prices between countries and selected products varied to a great extent from as low as an average price of € 1.3/DDD for sitagliptin in 2010–2012 to an average of € 221.5/DDD for alemtuzumab in 2011. Between 2008 and 2012, a price divergence was seen which was fully driven by two countries, Germany (up to 27% more expensive than the average) and Greece (up to 32% cheaper than the average). All other countries had stable prices and centered around the country average. Prices of less expensive as well as expensive medicines remained relatively stable or decreased over time, while only the price of sirolimus relatively increased.

Conclusions

Our study period included the time of the recession and several pricing policy measures may have affected the prices of medicines. Instead of the expected price convergence we observed a price divergence driven by price changes in only two of the 15 countries. All other European countries remained stable around the country average. Further research is needed to expand the study to a bigger sample size, and include prescribing data and Eastern European countries.     

Pharmaceutical Pricing in Emerging Markets: Effects of Income,Competition, and Procurement

This paper analyzes determinants of ex‐manufacturer prices for originator and generic drugs across countries. We focus on drugs to treat HIV/AIDS, TB, and malaria in middle and low‐income countries (MLICs), with robustness checks to other therapeutic categories and the full income range of countries. We examine the effects of per capita income, income dispersion, competition from originator and generic substitutes, and whether the drugs are sold to retail pharmacies versus tendered procurement by non‐government organizations. The cross‐national income elasticity of prices is 0.27 across the full income range of countries but is 0.0–0.10 between MLICs, implying that drugs are least affordable relative to income in the lowest income countries. Within‐country income inequality contributes to relatively high prices in MLICs. Although generics are priced roughly 30% lower than originators on average, the variance is large. Additional generic competitors only weakly affect prices, plausibly because generic quality uncertainty leads to competition on brand rather than price. Tendered procurement that imposes quality standards attracts multinational generic suppliers and significantly reduces prices of originator and generic drugs, compared with their respective prices to retail pharmacies. ©2013 The Authors. Health Economics Published by John Wiley & Sons Ltd.     

Analysis of Medicine Prices in New Zealand and 16 European Countries

ObjectiveTo compare prices of medicines, both originators and generics, in New Zealand and 16 European countries.MethodsEx-factory price data as of December 2012 from New Zealand and 16 European countries were compared for a basket of 14 medicines, most of which were at least partially funded by the state in the 17 countries. Five medicines had, at least in some countries, generic versions on the market whose prices were also analyzed. Medicine price data for the 16 European countries were provided by the Pharma Price Information service. New Zealand medicine prices were retrieved from the New Zealand Pharmaceutical Schedule. Unit prices converted into euro were compared at the ex-factory price level.ResultsFor the 14 medicines surveyed, considerable price differences at the ex-factory price level were identified. Within the European countries, prices in Greece, Portugal, the United Kingdom, and Spain ranked at the lower end, whereas prices in Switzerland, Germany, Denmark, and Sweden were at the upper end. The results for New Zealand compared with Europe were variable. New Zealand prices were found in the lowest quartile for five medicines and in the highest quartile for seven other products. Price differences between the originator products and generic versions ranged from 0% to 90% depending on the medicine and the country.ConclusionsMedicine prices varied considerably between European countries and New Zealand as well as among the European countries. These differences are likely to result from national pricing and reimbursement policies.     

The Chinese medicines market: moving towards a market system?

This paper presents a review of the Chinese pharmaceutical policy in order to analyse the forms of effective market competition introduced or not in the system. Registration, pricing and trade are three areas showing the limits on competition. The government limits the duration of the registration procedure to three years, which leaves some opportunities for challengers to market similar products afterwards. The pricing system in place is a maximum price ceiling. The price structure reveals a net difference of treatment between foreign products and domestic products. With respect to trading policy, the government applies a selective licensing policy for exports and imposes variable custom taxes on a product-by-product basis on imports. At a micro level, the Chinese market has instant market conditions with fair trade where manufacturers, importers and distributors can meet. Different cost-sharing experiments between the state, the working units and the patients also introduce more sensitivity to prices from the consumer. Such a duality between the limits imposed on competition by public policy tools and the experiments or market conditions in place at the level of the organisations underlines the ambiguity of the move towards a market economy in the Chinese pharmaceutical market.     

Biosimilar Granulocyte Colony-Stimulating Factor Uptakes in the EU-5 Markets: A Descriptive Analysis

Background

Biosimilars are copies of biological reference medicines. Unlike generics (copies of chemical molecules), biologics are complex, expensive and complicated to produce. The knowledge of the factors affecting the competition following patent expiry for biologics remains limited.

Objectives

The aims of this study were to analyse the EU-5 Granulocyte-Colony Stimulating Factor (G-CSF) markets and to determine the factors affecting the G-CSF biosimilar uptakes, particularly that of biosimilar prices relative to originators.

Methods

Data on medicine volumes, values, and ex-manufacturer prices for all G-CSF categories were provided by IMS Health. Volumes were calculated in defined daily doses (DDD) and prices in Euros per DDD. In the EU-5 countries, there is 5 years of experience with biosimilar G-CSFs (2007–2011).

Results

Two G-CSF market profiles exist: (1) countries with a high retail market distribution, which are the largest G-CSF markets with low global G-CSF biosimilar uptakes (5.4 % in France and 8.5 % in Germany in 2011); and (2) countries with a dominant hospital channel, which are the smallest markets with higher G-CSF biosimilar uptakes (12.4 % in Spain and 20.4 % in the UK). The more the decisions are decentralized, the more their uptakes are high. The price difference between G-CSF biosimilars and their reference plays a marginal role at a global level (price differences of +13.3 % in the UK and ?20.4 % in France).

Conclusion

The competition with G-CSF biosimilars varies significantly between EU-5 countries, probably because of G-CSF distribution channel differences. Currently, this competition is not mainly based on prices, but on local political options to stimulate tendering between them and recently branded second- or third-generation products.