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Recent weeks have revealed the immediate result of the European debt crisis: adoption of austerity measures, many of which prioritise an easy target, pharmaceutical expenditure. Governments tend to believe that reducing price will result in an instantaneous return on pharmaceutical cost-savings, rather than by controlling volume through prescribing guidelines and formulary. Therefore, many healthcare austerity measures have targeted pharmaceutical pricing.

Single Market & Cross-border Effects

Price cuts are planned in many European countries, ranging from fragile markets like Greece, to stalwart economies like Germany.

In addition to their depth, Greece’s price cuts drew the most ire due to the potential ‘knock-on’ – or domino-effects that the price cuts could have given its role within the EU single-market.

Reference Pricing List price reductions in Greece may cause other referencing markets to automatically reduce pricing, without enacting an actual decree to reduce price.

Policy Creep Perhaps the greatest threat is that the policy of significant, unilateral list-price cuts can be adopted by other governments seeking savings as part of their own domestic austerity measures. Other countries may look at Greece’s actions as justifiable precedence for their own heavy-handed price reductions.

Parallel Trade Exportation is often cited as a major negative side-effect of the price reductions in Greece and other low-priced markets. The degree to which this is true depends upon how major markets like Germany amend importation requirements, but this is decidedly a secondary effect.

The Pharmaceutical Industry’s Options

The fact of the matter is that pharmaceutical manufacturers doing business in Greece have two options: accept the cut and suffer the impact on profitability, or reject the cut and pull products from Greece. Neither of these options is particularly auspicious, however the latter is considerably more detrimental than the former. Some peripheral effects may include:

Patients will be switched to alternative therapy While the number and quality of substitutable therapeutic options may vary from one category to the next, in many cases, physicians can easily switch patients to competing treatments – many of which may be generic. Additionally, for diseases with limited therapeutic options, there obviously exists a more challenging ethical question about the impact on the patient’s health due to commercial motives.

Physicians will take note The first cut is the deepest. Even if other parts of a company’s portfolio remain on the market, physicians will be forced to consider the possibility that supply of a new prescription may not even be available by the time a refill is required.

Government / Payer will not forgive, nor forget Once a product-withdrawal is enacted, the politically-savvy government will position the move as one that imperils public health due to ‘corporate greed’. That message will become part of the government’s doctrine of distrust that guides future pricing and access negotiations. The recent actions by Novo Nordisk and Leo Pharma will doubtlessly affect the attitude which Athens takes during future access discussions.

The public will be unforgiving The public will interpret the actions of the company without complete information, and without understanding the economic considerations that factor into a decision to pull product from the market. This could have an impact that goes well beyond the confines of the original market – other countries will consider how they do business with the company due to real historical evidence, even if it was under separate and unique conditions. Novo Nordisk in particular is currently experiencing these effects first-hand, due to their decision to pull certain insulin products from Greece. Time will tell, but these actions have damaged the company’s public image, though perhaps not irreparably.

The cuts are likely temporary Greece, for example, claims that prices will gravitate back up to the average of the lowest three priced markets in the EU within a reasonable amount of time. Although there is nothing holding Athens to this, the fact that it is even being stated means that there is a real possibility that they will be true to their word.

Recommendations for Pharmaceutical Executives These are indeed challenging times for many, however these top-down decisions by governments must be received by the pharmaceutical industry with patience and discipline.

Work with the government as a customer The government is not simply a ‘payer’ – it is a customer who must understand the value associated with a price. This argument is difficult to make through public discourse over price cuts. Rather, a direct line of communication should be formed to convince the government that long-term and significant price cuts are a disservice to the innovative pharmaceutical industry, and ultimately the quality of healthcare for constituents. Certain governments are more open to this dialogue, including the UK and Germany.

Thoroughly assess the commercial and public repercussions of pulling a product Evaluation of the situation must properly consider not only financials, but also the impact on major stakeholders within the market and beyond. Do not proceed until these questions have been completely addressed:

- Are the price cuts actually making your business unsustainable?

- Can the cuts be managed within a defined period of time promised by the government?

- What is the likely impact on pricing in other markets referencing the market in question?

- Has the government acted in good faith with you and your portfolio in the past?

- Does your competition stand to benefit through your actions?

- Is the therapeutic area one which will rouse the media to make an example of your company?

- Will patients have treatment alternatives without the availability of your product?

- Will physicians’ negative perception spread across your portfolio for products still marketed?

Consider the optics of an action such as pulling product Diabetes, for example, is a high-prevalence therapeutic area where most people at least know someone affected by the disease. The impact of a company pulling a product for this area is far more ‘personal’ when this is the case. High profile diseases, like paediatric diseases, may also build additional public scrutiny.

Is it worth it? Certain signs indicate that the pricing conflict may be worth the battle, as well as the possibility of it spilling onto the front page of major international media outlets: a high-mortality disease state, deep list-price cuts in excess of 20%, no timeline for a return to reasonable price-levels, an undiplomatic government excluding the industry from the decision process. Only a thorough evaluation of the situation and options can elucidate the appropriate next step.

Few economists believe the European debt crisis will improve remarkably within the next six months. Recovery will be gradual, and so should governments’ pharmaceutical policies. In cases where policy adjustment is rushed and dismissive of pharmaceutical industry dialogue, industry’s reaction to such policies should be planned and orchestrated. The decision-making process should include a customised assessment of assets at risk, as well as the likely competitive reactions and effects on brand viability. Pulling product should be an action of last resort; short-term gains may be made by refusing to market products due to price-reductions, but the long-term impact may be more damaging than immediately visible.

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EU Price-Cut Pandemic: Managing with Discipline

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