In 2003, Big Pharma produced only a dozen new drugs. At the same time, it came under new pressure to create value from those thin pipelines. In that "hot squeeze" of a climate, pharma companies needed price premiums for every product in every market. They were more successful in some countries than in others. Other pricing trends also took their toll."

It was a landmark year from a cost-containment and pricing and reimbursement perspective. We experienced some major events that will have lasting effects on the pharma industry," says Ron Baynes, Cambridge Pharma Consultancy executive vice-president and co-author of a new pricing/reimbursement report for 2003. Among Baynes' highs and lows for the year:
- slowdown in parallel trade in Europe
- preparations for the enlargement of the European Union
- passage of a Medicare drug benefit
- growth of cross-border activity in North America
- failure of R&D pipelines to deliver new molecular entities
- tightening of the cost containment screw.

Baynes' main concern is the dearth of new products. "Following a brief rally in Europe in 2002, the number of NMEs [new molecular entities] gaining access to market continued to decline in both the US and Europe in 2003," he says. In fact, the top 16 companies launched just 12 new products in the United States and Europe combined, compared with 15 in the United States, plus 16 in Europe in 2002. (See "Bad News for Europe" and "Worse News for United States.") Of the top 16 companies, 33 percent failed to launch a new product in United States, and 25 percent failed to launch one in Europe. "We are unlikely to see a dramatic change in this trend in 2004," Baynes warns.

With fewer new products coming to market, the industry must squeeze maximum economic value from every new drug-both at launch and during a brand's lifecycle. To achieve that, it is crucial for companies to negotiate optimal price levels and gain rapid market access while minimizing the level of prescribing restrictions. "This can only be achieved by including pricing, reimbursement, and positioning considerations into clinical and health economic studies for the brand at first launch, and also for line extensions and further indications," Baynes comments. But the pricing and reimbursement report also notes that pharmaceutical companies appear to be spending greater resources in developing new indications and line extensions of their existing blockbusters.

Price Premium

So how successful were the leading companies at driving the economic value of their pipelines in 2003? The picture was different between the continents: In Europe, one-third of launches were priced at a premium to the closest comparable product; in the United States, two-thirds were. (See "European Shortfalls" and "US: Premium Market," page 68.) Overall, new HIV treatments fared particularly well. Roche's first-in-class fusion inhibitor, Fuzeon (infuvirtide), established a new price benchmark in Europe, and both Fuzeon and Bristol-Myers Squibb's Reyataz (atazanavir) were priced at
a 70 percent premium to Merck's Crixivan (indinavir) in the United States. GlaxoSmithKline's Lexiva (fosamprenavir) achieved a 20 percent premium in the United States.

Another first-in-class entry, Wyeth's InductOs (dibotermin alfa), secured a higher European price point in its therapy area (acute tibial fractures), as did Lilly's Forteo (teriparatide) in osteoporosis and Abbott Labs' Humira (adalimumab) in rheumatoid arthritis, where it launched at a premium to Wyeth's Enbrel (etanercept) in most markets.

In the United States, Genentech/Tanox's Xolair (omalizumab) established a new biological price benchmark in moderate to severe persistent asthma. But the new oncolytics didn't do as well. Glaxo- SmithKline/Corixa's Bexxar (tositumomab) and AstraZeneca's Iressa (gefitinib) were priced below Roche/Genentech's Mabthera/Rituxan (rituximab) and Aventis' Taxotere (docetaxel), respectively.

Market access. Although innovative products may consistently achieve premium prices, pricing and reimbursement hurdles hinder market access in both Europe and the United States. Most of the 2003 drug launches in Europe have yet to be granted reimbursement status in the major priceregulated markets of France, Italy, and Spain. And the speed of market access is not improving significantly. "[European Union] products launched in 2003 showed patchy performance in terms of rollout, but generally accessed European markets slightly faster than the average of the past five years," Baynes notes. "Both Lilly's Cialis [tadalafil] and Bayer/GSK's Levitra [vardenafil] achieved rapid launches, though without reimbursement. The only community product to launch rapidly with reimbursement was Roche's Fuzeon."

Price harmonization. The current pressure on the industry to create value from thin pipelines means that global or European price harmonization is no longer a strategic objective (if it ever was).

Just two products launched in 2003-Fuzeon and Forteo- achieved similar price levels in the United States and Europe. For the rest, the lower price of existing benchmark products in Europe meant a significantly reduced price. (See "The Price Gap," page 70.) AstraZeneca's Crestor (rosuvastatin), Lilly's Cialis, Pfizer's Bextra (valdecoxib), and Merck's Emend (aprepitant), for example, have average European prices that are more than 60 percent below their US prices.

Despite the public and political rhetoric calling for similar price levels in the United States and Europe, there is little progress on the ground because pricing in Europe is still constrained by price-sensitive payers, prescribers, and health systems.

Companies are prepared, more than ever before, to take a high price where they can and deal with the ramifications of wide price differentials as a separate issue. Baynes advises, "Senior management should continue to develop and communicate clear corporate policies regarding differential pricing and be prepared to manage the inevitable political debates that will arise."

Parallel Trade Eases

Although price disparity continued, parallel trade growth in the major import markets of Germany and the United Kingdom slowed in 2003. After two consecutive years of 66 percent annual growth, parallel imports in Germany grew just 4 percent in 2003. In the United Kingdom, Europe's largest parallel import market-with 2002 sales of 2 billion euros ($2.4 billion)-growth was 1 percent, compared with an average of 30 percent growth during recent years. (See "Imports Ease Up.") UK parallel trade had been concentrated in a handful of market- leading brands. It is becoming less concentrated. Twelve products accounted for 50 percent of parallel imports in 2002, while 15 drugs accounted for half the market in 2003.

All of which indicates a shift in parallel trade dynamics not entirely explained by price changes and patent expirations. Prices were constant in the United Kingdom and Germany during the period, and although the exchange rate meant that prices in pounds fell relative to the whole Eurozone, some products and companies continued to experience growth in parallel trade. Cambridge parallel trade specialist, Janice Haigh, explains: "For the first time, we have evidence that it is possible to make a difference to parallel trade. Companies with effective supply management strategies are limiting, or even reducing, parallel trade in their products. Companies that do not implement such strategies face a significant increase in parallel trade, as traders look to fill the gaps." After many years in which the industry's legal actions backfired in favor of parallel traders, the tide finally may have turned. "The European Court of Justice's final ruling upholding Bayer's supply management system for Adalat [nifedipine] in France and Spain provides further evidence of this sea change," adds Haigh.

Until the enactment of the drug benefit-and quite possibly beyond-price-conscious US consumers are expected to continue filling their prescriptions at Canadian internet pharmacies. IMS Health estimates that US importation of prescription drugs from Canada was about $1.1 billion in 2003, an increase of 134 percent from 2002.

Despite the numbers, imports remain a small component of total US sales (0.5 percent), but the issue commands a high political focus because it graphically highlights the price differences north and south of the border. "Regulators will have to act soon," says Paul Saatsoglou, Practice Leader, Global Resource/Portfolio Optimization, IMS Consulting. "The choice is between legalizing imports to some extent or an unequivocal statement that imports are not legal and that action will be taken against those involved."

"Cross-border purchasing could explode if-as seems increasingly possible-a law is passed making the practice legal," he adds. The risks to revenues on high-volume, cross-border brands could be calamitous. For the time being, though, growth appears to be slowing. Internet pharmacy sales were down in the fourth quarter of 2003, compared with the third quarter- most likely as a result of manufacturers' interventions to limit internet pharmacies' access to their products.

"Companies will continue to manage the supply chain to limit the success of large internet pharmacies by using tactics similar to the supply management systems used in Europe, Saatsoglou concludes."

- IMS health