[Ip-health] Two FT articles on increased adoption of tiered pricing by pharma

Suerie Moon suerie_moon at yahoo.com
Tue Sep 27 01:24:51 PDT 2011


Financial Times

September 25, 2011 8:52 pm
Roche to offer discounts to developing nations
By Andrew Jack in London
Roche is to set to begin offering substantial discounts in developing 
countries, marking an important strategic shift for pharmaceutical 
companies selling high-priced patented biological medicines.

Severin Schwan, chief executive, told the FT that Roche had run a 
successful pilot programme in Brazil involving a “really high, 
substantial double-digit discount” on its cancer drug Mabthera. The CEO 
said he anticipates similar deals with other countries in the coming 
months on its medicines, which typically sell for $30,000-50,000 for a 
course of treatment.

A number of companies including Sanofi, GlaxoSmithKline, Merck and Novartis have begun offering discounts on their own medicines in recent years, 
notably for cheaper chemical-based drugs used in primary care. But Roche and other groups primarily selling speciality biological drugs, such as those used in the treatment of cancer, have resisted. 

Their concern has been that even if they introduced substantial 
discounts, the drugs would still not be affordable to patients on low 
incomes, while richer countries would demand similar price reductions or allow the reimportation of medicines from those lower priced markets, 
undermining their profits.

But there is increasing commercial pressure on the industry to expand into fast-growing emerging markets as western countries stagnate, as well as rising political calls to provide access to a wider range of treatments for more patients in low-income parts of the world.

Mr Schwan said: “I would love it if we had a model that made 
differential pricing possible around the world. That would really allow 
us to massively improve access to our medicines and have a sustainable 
business model. Now in principle we are open to tiered pricing.”

He stressed that unlike most other products, medicine prices are 
tightly regulated and often set directly by governments, which limits 
the ability of pharmaceutical groups to vary prices more equitably by 
aligning them more closely with income levels.

In Brazil, Roche negotiated a substantial discount on condition that 
the government now pays for the drug, where previously only richer 
patients could gain access when they paid for it at a higher price out 
of their own pocket. The result in recent months has been a doubling of 
annual uptake to 2,000 patients with non-Hodgkins lymphoma.
Roche previously ran another pilot in Egypt, where since 2005 it has 
offered substantial rebates on Pegasys, its drug to treat Hepatitis C. 
It has avoided “leakage” into other markets partly by using a different 
packaging and formulation.

Last week’s high-level UN’ summit on non-communicable disease, endorsed support for measures to encourage broader and more affordable 
use of medicines to tackle leading killers in developing as well as 
developed countries, including cardiovascular disease. 

While many medicines to prevent and treat such diseases are already 
low-cost generic drugs, campaigners expressed frustration at the need 
for greater efforts at affordability for patented medicines.

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September 25, 2011 11:28 pm
Tiered pricing opens new markets to pharmas
By Andrew Jack
When executives at Sanofi recently studied variations in the prices of their medicines around the world, they found that poor patients in Senegal were paying more for 
some of their products than their counterparts in France.

They fed the information into their “next billion consumers” 
programme, an effort by the Paris-based pharmaceutical group to tailor 
their prices and drugs to better suit local income levels and needs.
Similar actions are being taken by a growing number of the large drug groups, many of which traditionally charged a single high ‘global’ price 
reflecting the markets that mattered to them most and offered the 
greatest returns: the industrialised countries. 

That has begun to change, highlighted most recently by Roche’s decision to begin experimenting in Brazil  with pilot programmes to sell very high-priced cancer drugs into emerging markets at substantial discounts. 

One factor has been pressure from patient activists, especially those who began militating around high prices as a barrier to the treatment 
of HIV. World leaders debated Aids at the United Nations in 2001, and 
last week they focused for the first time on non-communicable diseases, 
such as heart disease, which are now killing far more people in the 
poorer as well as richer world than infectious illnesses.

Profit has been just as important in introducing ‘tiered’ or differential pricing linked to income levels. Stagnation and budgetary pressures in the 
developed world are forcing 

drug companies to find new sources of 
revenue, driving them to tap into much faster growth in middle and lower income countries.
Sophia Tickell, head of PharmaFutures, a thinktank, says: “Since 
2001, the situation has evolved massively. When we first started, 
investors didn’t think emerging markets were important. Now there’s an 
enormous amount of thinking and experimentation by companies, largely as a result of emerging markets being seen as growth markets.” 

The result has been special investor days by many of the larger drug 
companies focused on their potential in emerging markets, which chief 
executives such as Andrew Witty at GlaxoSmithKline see as a vital source of diversification from the traditional business model focused on “white pills in western markets”.

His company has pledged that prices in low income countries should be capped at a quarter of their UK levels. In middle income countries, GSK has introduced smaller but significant discounts designed to trade off 
lower margins against higher volumes.

Duncan Learmouth, responsible for market access in developing 
countries at GSK, says: “We’re probably two-thirds of the way there.” He cites data from IMS, the industry analyst, that his company has the 
largest market share – at about 4 per cent – among its peers in emerging markets, with the lowest average prices. 

Yet companies are concerned about “leakage”. They fear either 
intermediaries will re-export their medicines to other higher-priced 
markets; or richer governments will adopt “price referencing”, demanding the lower prices paid by their poorer peers. Either process undermines 
profits and the ability to reinvest in research.

They also argue that in the absence of strong government- or 
insurance-backed health systems, few people in lower income countries 
are able to afford medicines even with very high discounts. That is why Roche has insisted in its Brazilian programme that the government pays for its medicines and makes them available for free.

Another approach has been adopted by Novartis. It launched Gipap, a 
patient assistance programme for its cancer drug Glivec, which now 
provides the treatment free to 13,000 Indians and 30,000 low-income 
patients worldwide. Others with higher incomes make a co-payment to gain access. 

To activist groups such as Médecins Sans Frontières, such an approach is unsustainable. They call instead for patents to be overturned on 
high-priced drugs such as Glivec, currently the focus of a legal battle in the Indian courts.

“If the drug companies only charged a reasonable amount, they could 
have a good market share,” says Yusuf Hamied, head of Cipla, an Indian 
generics company that has challenged many patents and argues the costs 
of production are far lower than the prices still charged.

But Prashant Yadav, director of the William Davidson Institute at the University of Michigan, cautions: “Changing prices at the corporate 
level doesn’t always quickly translate into lowered retail prices.” He 
says it requires fundamental changes in operations and incentives by the company’s staff in each country. 

It also requires greater investments in health systems, removal of 
tariffs and the reduction of large profits often taken by intermediaries in developing countries. Discounting by the manufacturers may be a 
start but it is far from the solution to the burden of global disease.


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