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Why Big Pharma might think twice about running away to America

Why Big Pharma might think twice about running away to America

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Is Big Pharma crying wolf?

In the six months since the EU’s plans to reform its rules for medicines were leaked, CEO after CEO has lined up to warn that the legislation will sabotage the European pharma market and force companies to invest elsewhere. Their threat, not always veiled, is that they’ll take their business to America.

But with the United States undergoing its own radical clampdown on drug pricing, things aren’t quite that simple.

New measures, contained within the Biden administration’s Inflation Reduction Act (IRA), are set to cut the prices of medicines in the government’s Medicare services for older and vulnerable patients by at least 50 percent, says industry dramatically cutting into companies’ bottom lines. Medicare accounts for a third of U.S. spending on retail prescription drugs, at some $126 billion.

“This is an incredible squeeze that’s happening right now. This is not a marginal change in a small market. It’s a major change in in the world’s largest market,” Kevin Haninger, head of international policy at the U.S. lobby group Pharmaceutical Research and Manufacturers of America (PhRMA), told POLITICO.

Pharma package reaction

The EU’s proposed overhaul of its rules around medicines will fundamentally change the competitiveness of the European pharma market, industry says.

The current plans will squeeze pharma’s market protections for new drugs unless they are necessary, game-changing treatments and are quickly made available to all EU citizens.

Measures include cutting from eight to six years the time period that data underpinning new drugs will be protected from competitors, affecting about a third of innovative drugs where their data protection period outlasts their intellectual property protections. An extra six months’ market protection will be awarded to drugs that meet a high unmet medical need, with another six months if the company carries out comparative clinical trials, and an extra two years if companies make their products available in all EU countries within two years.

Pharma executives say it’s impossible to meet these conditions as they stand, meaning their monopoly rights will be curtailed. With less time to recoup investment costs before competition arrives, they’re already warning that companies will look stateside for future drug developments.

“If there’s not a robust regulatory system, science is fluid, and it moves away from Europe,” said Lars Fruergaard Jørgensen, CEO of Novo Nordisk and president of European Federation of Pharmaceutical Industries and Associations (EFPIA). “Innovation then moves to the U.S., China,” he told an event by the lobby group in June.

Ipsen CEO David Loew echoed the line when talking about how the “explosion of knowledge” in the life sciences — particularly in Europe — gets translated into treatments.

“Right now, there’s a higher propensity that that translation happens in the U.S., and — if we don’t pay attention — in China,” said Loew, who is second vice president of EFPIA.

“If there’s not a robust regulatory system, science is fluid, and it moves away from Europe,” said Lars Fruergaard Jørgensen, CEO of Novo Nordisk | Liselotte Sabroe/Scanpix Denmark/AFP via Getty Images

Stateside reforms

But the impact of the drug pricing reforms in the U.S. could have an even greater impact on pharma companies.

The U.S. is the world’s largest market for innovative drugs and has long been a global outlier for its soaring drug prices. A study by RAND found that, considering all medicines together, prescription drugs available in the U.S. in 2018 were 256 percent the price of those in the 32 OECD countries.

The aim of the reform is to cut federal government spending on medicines and reduce out-of-pocket prescription costs for patients, according to the independent health policy nonprofit KFF. Starting in 2026, the clampdown will significantly cut prices of the most costly medicines covered by Medicare.

Ten drugs, to be named in September, will be affected in the first year. An extra 15 drugs will be affected in each of the next two years and then 20 more the following year. The reform will first apply to pharmacy prescription drugs, like pills and tablets, with price cuts kicking in after nine years of market protection. Over time, the framework will expand to include organically developed biological treatments once they hit 13 years of market protection, and even rare disease drugs will be included if approved for more than one disease field.

As companies are faced with accepting the government’s price cut, or either paying a hefty tax or removing their products from the Medicaid and Medicare programs, calculations around investment start to look a little different.

“The [Centre for Medicare and Medicaid Services — CMS] has within its power to go to 95 percent price cut and not have to explain it,” said Vas Narasimhan, CEO of Novartis and PhRMA board chair. “We have to assume from our innovation investment standpoint, that they’re gonna go that far, very early on,” he told a PhRMA-hosted event at American Society of Clinical Oncology (ASCO)’s annual meeting in June.

Novartis has already cut its drug pipeline investments by 10 percent and “IRA was a consideration,” Vas said.

Alexander Hardy, CEO of Genentech (part of Roche), said the company has a small-molecule cancer drug candidate that it planned to launch as quickly as possible for treatment of ovarian cancer. But now, it’s considering waiting another three years to launch it in a much larger prostate cancer patient group to recoup development costs before the price cuts kick in.

“We’re facing this terrible dilemma,” Hardy said. This “distortion” in companies’ research and development programs will mean certain molecules will not be developed and certain indications will be dropped, affecting patients, he added.

For global drugmakers, uncertainty on both sides of the Atlantic is a real concern.

“It seems like each side of the Atlantic is warning that the various pricing and regulatory changes will have a chilling effect on R&D,” said James Barlow, a professor of health care technology and innovation management at Imperial College Business School in London. “In the long run, companies will just have to weather the policy storm.”

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