Lower innovative drug costs not being passed on by pharma firms, say Dutch researchers [Advocacy Lab Content]

Lower drug pricing does not follow from an expansion of innovative medicine indications, according to Dutch researchers. They claim pharma companies often fail to pass on their financial gain to patients and health services.

If more patients are prescribed a certain medicine, the price could be reduced because pharmaceutical companies can recoup the research costs incurred more quickly, researchers from Erasmus University Rotterdam and the Erasmus Medical Centre Rotterdam claim.

This finding emerges from their study published in the peer-reviewed PLoS ONE journal last February.

The study considers the possible financial effects of a broader use of two cancer drugs, pembrolizumab (Keytruda) and daratumumab (Darzalex), which have already been approved by the European Medicines Agency (EMA) and the Food and Drug Administration (FDA) in the US.

“Pharmaceutical companies are responsible for their own pricing strategy; it is not up to academics to dictate what exact price reduction to accept,” study first author Renaud Heine told Euractiv.

However, when asked about the potential of this new pricing method, the Dutch Association for Innovative Medicines (VIG), which is a member of EFPIA, cited arguments raised by economics professor Lieven Annemans that the proposed model change does not value true innovation and that value-based pricing remains more appropriate.

Indication broadening and pricing

Heine explained they aimed to study the effect of indication broadening on price when applying cost-based pricing (CBP).

“Our results indicate that cost-based prices drop consistently after indication broadening and are below known list prices,” he said.

Building on the CBP model developed by two researchers, Uyl-de Groot and Löwenberg, in 2018, the research group explored price changes of these medicines if there was a continuous indication expansion.

Both drugs are immuno-oncology drugs. Pembrolizumab was first used for only one type of tumour, but now it is prescribed for approximately 35 different indications for various types of tumours. Daratumumab was initially used for one type of cancer, multiple myeloma. It is now prescribed for eight other indications within multiple myeloma.

While development costs for new drugs can be significantly high for the first indication, they become lower with each expansion of use in new indications.

However, this financial gain for pharmaceutical companies is often not passed on to society despite the lower costs, the researchers say.

Modelled price below Dutch listing price

Using a CBP pricing algorithm that accounts for R&D, production costs, and profits, the Rotterdam team found that prices of both medicines calculated with this method are usually lower than their listing price in the Dutch market.

Using their formula, the minimum prices amounted to €52 for pembrolizumab (Dutch list price €2,861) and €823 for daratumumab (Dutch list price €4,766).

However, for the first indication, the researcher’s algorithm suggested a price of €885 for pembrolizumab and €31,941 for daratumumab.

“Without indication broadening, the CBP for daratumumab would indeed remain constant, therefore probably resembling an orphan drug, in both pricing and eligible patient population,” Heine told Euractiv.

As the number of indications increased, the CBP decreased significantly; however, the CBP per indication increased over time due to the shrinking remaining patent period and subsequent investments made in new indications.

The parameters that had the strongest effect on the modelled CBPs were the number of eligible patients and initial R&D costs.

Nonetheless, the VIG expressed doubts and argued in favour of a value-based approach.

“In the absence of an open and competitive market where prices are set in the balance of supply and demand, governments tried to find a way to ‘value’ innovation to set prices accordingly,” VIG strategic consultant Guido van den Boom told Euractiv.

Finding out this value and society’s willingness to pay for it means governments can set prices in the absence of a well-functioning market, he added. Moreover, the value-based framework ensures that society doesn’t overpay for medicines which “seems to be the concern behind discussions about alternative pricing models,” van den Boom added.

Transparency lacking

Asked about how CBP models can be implemented given the need for accurate financial data from companies, Heine said this remains an issue with transparency in R&D costs “evidently lacking.”

“The implementation of cost-based models remains controversial as there is an argument to be made about competitiveness and efficiency. However, a possibility could entail HTA agencies asking companies to report R&D costs when applying for reimbursement,” said Heine.

Sensitive information would, in this case, be kept confidential, and a profit margin set based on clinical benefits or an unmet medical need.

The journal article’s authors said that, to their knowledge, CBP models are not yet utilised for pricing and reimbursement (P&R) negotiations.

“However, the use of CBP models in costly treatment P&R negotiations could facilitate curtailing excess profits,” they said. They argued that their model’s flexibility allows users to estimate a CBP by year, or indication with minimal extra inputs.

“If cost-based pricing facilitates lower list prices, price-sensitive prescribers might be less reluctant to prescribe these pharmaceuticals, resulting in broader patient access,” they said.

Lower drug costs could help governments use the savings for other parts of the healthcare system, they added.

However, costs relating to packaging and distribution were omitted from the calculations.

Van den Boom said that most pharmaceutical companies list their pricing principles publicly on their website. He added that these are usually based on the value they offer, affordability, and incentives for continued innovation.

A complementary method

The researchers said that if CBP were implemented as a standalone evaluation system for P&R negotiations, this could discourage pharmaceutical companies from operating efficiently since the payers would end up paying for all R&D and operating costs. This could hinder the development of advanced new treatments.

“Moreover, CBP models do not integrate effectiveness and thus cannot inform policymakers which treatment choice would be preferable. Therefore, CBP models might be complementary to value-based economic evaluation but cannot substitute currently used processes,” they said.

Heine explained that the reimbursement of medicines remains the responsibility of member states. However, he added that the EU could propose tools like CBP to help member states’ negotiations and minimise disparities between countries.

[By Christoph Schwaiger, Edited by Vasiliki Angouridi, Brian Maguire | Euractiv’s Advocacy Lab ]

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