December 17, 2001
By Stephen Pollard. Mr. Pollard is a senior fellow at the Centre for the New Europe, a Brussels-based think tank.
Has the pharmaceutical industry gone suicidal? After a year in which the battles over HIV-AIDS treatments in South Africa seemed like one ongoing PR disaster, the industry has now decided to throw down the gauntlet over European drug prices.
In what amounts to a high-stakes gamble on the future shape of the drug business in Europe, big pharmaceutical companies are making it clear they've had enough of Europe's price-fixing ways. At the beginning of December, Hank McKinnell, chief executive of Pfizer, went on the attack over the pricing arrangements insisted on by many EU governments, arguing that their logical consequence will be a Europe denied access to new treatments.
Mr McKinnell's remarks were directed at France, which has an especially poor record for making new medical technologies available to patients. Even after they are approved by regulators, their availability becomes bogged down in negotiations on price. "These talks can take two to three years longer in France than in any other country," he said. And, he went on, the discounts pharmaceutical companies are forced to give in France affect the prices they can charge elsewhere. Japan, for example, bases its prices on a weighted average of prices in other markets. By keeping a new drug off the market in France, companies can thus earn more for it elsewhere.
It's not just Pfizer either. Tom McKillop, chief executive of AstraZeneca, was also recently quoted as saying, "Europe has got to get its act together. I think all the major pharmaceutical companies are making decisions not to launch products [there]."
The crux of the matter is this. European
governments demand severe discounts on pricing. With a base price of 100
in the U.S., the average French price for a drug, for example, is 42. With
research and development funded by profit, the pharma companies argue that
the Europeans are in effect after a free lunch -- access to innovation
without having to pay for it.
A report published earlier this month by the Tufts University Center for the Study of Drug Development found that the average cost of developing a new prescription medicine is $802 million. The cost is so high because, in addition to the usual research and development costs in other industries and the heavy capital investment required, only one in five medicines that enter clinical trials ends up being an approved drug. Development takes an average between 12-15 years. The Tufts figure is similar to the estimate in a report released this summer by the Boston Consulting Group, which calculated $880 million.
The industry umbrella group, PhRMA, has released figures showing that the total sums being invested in R&D are staggeringly high, and increasing: $30.5 billion in 2001, 18.7% higher than the amount in 2000, and over 300% more than the investment made in 1990.
The two issues of European cost-cutting and increasing research budgets are, of course, deeply entwined. As Steve Slovick, senior vice president with the Cambridge Pharma Consultancy in New York, put it in The Wall Street Journal Europe on Dec. 12, "The U.S. ends up funding all the research and development," European countries aren't "paying their fair share."
The industry's line is clear: such sums have to come from somewhere, and one place they are not coming from is Europe, which by forcing down prices is refusing to play its part. As one senior industry figure put it to me: "It's as if every month we get another set of measures put forward, all with the same aim: cutting our profits, which means cutting our research, which means cutting back the level of innovation, which means cutting the number of patients who can be helped." In recent months further cost-cutting measures have been announced in Germany, Italy, Spain and Sweden.
In September, for instance, the German government began the process of cutting back on so-called me-too drugs: the shorthand for new medicines that deal with a problem for which an existing medicine is already available. But limiting these treatments cuts a swath through the basis of almost all scientific innovation -- innovation by increment. Revolutionary new treatments are rare; most new medicines do a little more to help, and it is only over time and with a full body of clinical evidence from the different drugs available that real transformations in medicine happen. Moves to block "me too" drugs are thus profoundly short-sighted, and threaten the very basis of innovation.
It's not just the mainly U.S.-based pharma companies that are pointing out the growing problem. A year ago, the European Commission itself published a report by Professor Fabio Pammoli on "Global Competitiveness in Pharmaceuticals: a European perspective." The study was commissioned to look out how far and why the European pharmaceutical industry was losing ground to the U.S. Even the most superficial glimpse at the industry can see that previously EU-headquartered companies have moved to the U.S. As one key player said: "The environment is becoming steadily more inhospitable." Put simply, the 80 pages of the Pammoli report concluded that the EU pharma industry was uncompetitive and that governments needed as a priority to rekindle investment in R&D. Yet far from doing that, their price-control policies are undermining research.
Novartis AG Chairman Daniel Vasella told The Wall Street Journal Europe on Dec. 12 that still more investment will go to the U.S. unless something is done to stem the tide. "Money goes where money flows. If you have a more attractive market in the U.S. [than in Europe], you will go there."
Prospects for the short and medium term may not be especially good, but in the long term something has to give. If pharma companies do not find the EU "hospitable" -- for which read profitable -- then there is nothing to force them to stay or, perhaps still more importantly, to offer their latest treatments to European patients. The EU will be the loser. But in the long term it is difficult to see prosperous patients settling for second-class status. Once they realize what they are being forced to settle for -- and without -- they will surely push for changes which will give them access to new medicines. The rise of vocal patient groups is merely the beginning of this. Governments may be the cause of the problem, but the solution is almost certainly out of their hands.
From The Wall Street Journal Europe
Copyright © 2001 Dow Jones &
Copyright © 2001 Dow Jones & Company, Inc.