London Friday January 26 2007- As European governments struggle to provide patients with adequate medical cover without plunging into debt, the focus on rising drug costs has intensified. To maximize profit in a market where payers ie the NHS, are increasingly focused on containing costs, drug developers should look firstly to better differentiate their drugs against competitors, and secondly use pharmacoeconomic and budget-impact analysis to justify formulary access and a high reimbursement level, according to a new report* by independent market analyst Datamonitor (DTM.L).

Across Europe, healthcare is becoming increasingly expensive. Although drugs make up a relatively small percentage of overall healthcare spending, they are a highly visible target. As a result, rising drug costs are being increasingly singled out for budgetary cutbacks by healthcare providers. Governments are the leading healthcare provider, and as a result, the monopsonistic nature of the European healthcare market means that they are powerful drug purchasers with significant leverage. Across Europe, governments have become significantly focused on cost containment, and are becoming increasingly restrictive in the extent to which they allow patient drug choice. Combined drug sales in the five major European markets** represent the second-biggest market globally after the US, says Datamonitor healthcare strategy analyst Dr Mark Belsey. As a result, "increasing restrictions on drug prescription through pricing and reimbursement controls carried out in the name of cost containment are restricting the profit margins of drug developers," he says.

The way that European governments target drug spending using pricing and reimbursement (P&R) controls is controversial. Governments use a broad range of both pricing and reimbursement controls, and the primary focus of these is to ensure that they do not run up too much debt. As a result, the environment for drug developers operating in these markets is increasingly tough. The UK environment, dominated by the PPRS (Pharmaceutical Price Regulation Scheme) has historically been viewed favorably by drug developers, however the increased adherence to the NICE appraisal process has raised the importance of prioritizing strong pharmacoeconomic justification for drugs. "Although many governments claim to be willing to reward innovative drugs, this is being increasingly viewed as a smokescreen as debt-ridden governmental payers increasingly prioritize cost containment", Dr Belsey says. "This is in contrast to the US environment, which is largely dominated by reimbursement controls, and aims to provide access to all forms of treatment, relying on tools such as patient co-payment to shape patient choice," he says.

The increased focus on containing costs is ramping up the pressure on the European drugs industry, highlighting the importance that drug developers prioritize P&R as a key factor in drug development, and focus on securing strong P&R justification before green-lighting ‘me-too’ drugs, Dr Belsey adds. "It is vitally important that these companies implement an efficient P&R strategy to handle the wide range of pricing and reimbursement cost controls that are being employed in the European markets to contain costs," he says. Therefore, companies must develop and implement a range of strategies to maximize profits in the increasingly cost containment-focused market. "The most important priorities for drugs companies are firstly to better differentiate their drug from competitors and, secondly, to be able to justify their drug on a cost effectiveness basis," Dr Belsey says. "If companies are successful at these factors, they will improve formulary access and gain access to higher levels of reimbursement". There are a number of strategies available to improve the drug’s profile on these parameters: firstly, companies should look to demonstrate effectiveness rather than simply efficacy. Secondly, European P&R bodies are increasingly turning to pharmacoeconomic and budget impact analysis to support decisions, therefore drug companies should look to base their arguments supporting favorable reimbursement on these metrics. This involves integrating trials that demonstrate such metrics earlier into the clinical trial process and not simply tacking them onto the end of Phase III trials, or addressing the issue for the first time in post-approval trials. Additionally, the way that drug companies show drug superiority in efficacy and safety is also of central importance. Although head-to-head trials are significantly more risky for the drug developer, they are viewed by payers as being significantly more relevant than the traditional placebo-benchmarked trials. Above all, to better differentiate their drugs, it is important for drug developers to carry out a greater level of dialogue with healthcare providers, Dr Belsey says. "This is not without problems: healthcare provider devolution has led to further fragmentation of the key European markets, making it difficult to identify and reach all the key P&R stakeholders. Drug developers should therefore look to better understand the increasingly fragmented markets, tracking them and maintaining a presence in the key markets," he says. 

With mounting cost pressures facing the European drugs industry, it is becoming increasingly important for drug developers to clearly demonstrate differentiation and superiority of their drug against its peers. It is also vital that companies demonstrate that their drug is cost effective, Dr Belsey says. "As European governments increasingly prioritize cost containment over innovation, the most significant issue going forward will be how governments handle non-cost effective innovation."

"As a result, developing a clear strategy to navigate the European P&R environment is becoming a vital competency for drugs companies operating in this market."

Datamonitor’s (DTM.L) report Pricing & Reimbursement in Europe: Can the drive for cost effectiveness overcome cost containment? is a comprehensive overview of the current state of the pricing and reimbursement (P&R) environment in the five major European markets, providing detailed analysis of P&R controls in each market and identifying key trends shaping overall market evolution.

For further details regarding the report contact Matthew Dick    email mdick@datamonitor.com

(29/1/07)