The U.S. always stood out as a different healthcare system. Well, maybe not anymore.
The Trump Administration released an International Drug Pricing blueprint in 2018 and it was received with cautious optimism by the overall market. The blueprint has been highly commented on and discussed by the industry and other stakeholders. The Centers for Medicare & Medicaid Services (CMS) released an Advance Notice of Proposed Rulemaking (ANPRM) in November 2018 in response to get public comments on multiple policies aligned with the blueprint.
These policies show how some of the ideas would be operationalized (e.g., the International Pricing Index). Of course, industry watchers have discussed the pros and cons given the complexity of the U.S. life sciences market. However, so far there has only been limited thoughts on the potential impact of the blueprint changes to the international market. This blog will bridge that gap and explain the impacts to initiate the thought process and discussion.
PRICING INDEX, REFERENCE PRICING
Perhaps, one thing worth noting from the start, is that the indexing would only be for Medicare Part B drugs. Medicare Part B has drugs focused on age related diseases given its scope of population. Of course, this could encompass some pricey medications but some of the headline products aren’t affected by the change. In fact, Medicare Part B covers 90% of the high-cost biologics. The scope of Medicare Part B leads to a different strategy for companies, as well as the need to reinforce the launch governance processes to ensure a strategy is followed.
Let’s look at primary consequences. The dimension of the proposed change is striking; the idea of indexing the U.S. list price to other countries. In short, as most of the countries are already doing, the U.S. would start to use other regions’ list prices (or tenders) to set up the ceiling price within the U.S. The ANPRM proposal follows other countries, such as Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, and the United Kingdom.
Whether this would be the final list is still to be validated but this could have consequences, foremost for the patients. Also, the ANPRM would finalize the formula for referencing. Nevertheless, given the current price gaps between the countries, as well as a share of the profit in the U.S. and the rest of the world, there is a high risk that companies may simply delay the launch in Europe or even walk away completely from these markets given the price referencing. This represents an access issue for patients because manufacturers may avoid launching their product early in some of these counties based on new international price referencing (IRP) rules and therefore, these drugs would be available later in some countries. This is one of the effects on the international market. This could materialize, simply as a delayed launch in Europe, Canada, or Japan as a result of a Launch Sequence Optimization (LSO) analysis which now includes the U.S. Or, it could mean that companies may sell their rights to the molecule outside of the U.S. while ensuring their pricing power is not affected in the U.S. This could result in fierce competition, exponentially adding pressure on the manufacturers.
The alternative scenario is where a company would not enter a market, though that seems unlikely. Nevertheless, the initiative would probably have a negative consequence in Europe. Also, significant IT investments will be needed to increase the capabilities of the current strategic planning tools, such as the IRP simulations and LSO analysis solutions. The inclusion of the U.S. rules may require modelling with much more accuracy, as the decision would result in a disproportionate amount of the sales affected. The additional investments would add more pressure on the profitability and expectations of returns. GTN systems in Europe may also be implemented, leveraging the focus away from companies
Another scenario that could have less of an impact, links to the ability of Medicare to negotiate directly with manufacturers, this may turn out to be a situation similar to government negotiations in Europe or Japan. In fact, U.S. affiliates will have to learn how to participate in such newly government issued RFPs, which would be similar to what the rest of the world is doing with tenders.
This may increase the importance of certain skillsets and capabilities, far more common internationally, and, therefore, may shift talent to the U.S., as well as require a re-organization of some market access organizations and structures globally. In addition, these more formal types of RFPs issued by the Medicare may need the support of technology and either lead to new requirements for existing pricing and contracting tools or ideally specialized tender management solutions fitting the changing requirements of the business.
Overall, international referencing is widely used within the life sciences industry and list prices are usually available online for governments and public authorities to use. This approach could be implemented fairly efficiently without a huge administrative burden. On top of that, the ANPRM details the way the shift would occur by slowly moving from the average selling price (ASP) as the basis for Medicare to the International Pricing Index over five years. All those precisions are adding credibility to the proposal even though it may take more time than anticipated to implement.
Moving to another perspective of a further possible impact, it’s obvious that the overarching outcome of the Blueprint, as well as the ANPRM would be a decrease in the pricing power of U.S. manufacturers. In cases where the pricing pressure from the authorities materialize and profits within the U.S. decrease, companies will seek new profit sources. This could turn into more holistic global pricing strategies, this time effectively including the U.S. within the pricing governance and global pricing strategy.
This may result in less access for patients due to delays in medication launches if the target list prices are not achieved at the various Health Technology Assessments (HTAs) in referenced countries, or worse, companies may even be more likely to walk away and not just delay the launch, but not introduce at all. To counter this fact, companies may shift the focus of their evidence creation strategy to ensure a better fit with HTAs in Europe as it will have a disproportionate impact on revenues. Price targets would likely be set higher to avoid the “negative” spill over, the affordability of some drugs internationally may become an issue. Of course, the U.S. market on its own may be able to offset the pricing by the increasing volumes but it would be unlikely given the known low elasticity of price of pharmaceuticals.
Furthermore, looking for new sources of growth, companies may explore, with an increased focus, opportunities in emerging markets on the private side. Second, the unexpected impact of the updated U.S. policies may shift the focus to private markets and emerging markets (for example, privately held insurance companies in Europe or the Middle East). Generally, a decrease in U.S. profits could mean more focus on emerging markets, as well as higher profit targets for developed countries such as some European markets, Canada, and Australia.
Acknowledgement: Luca would like to thank Neelabh Saxena, Heenal Patel, and Ruven Remo Eul for their review and input in creating this blog.
 Biosimilars Medicines Summit, FDA
 Estimated to 1.8
 Estimated to 70% by the White house – Revenues from the top 5 Pharmaceutical manufacturers are on average of 46% in the US and 54% in the rest of the world
 SIMON & FASSNACHT, Herman & Martin, Price Management, 2019, p. 105