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Expert interview: How are the prices of new pharmaceuticals determined?

Healthcare in Germany is quite good. Pharmaceutical and biotechnology companies carry out research in order to improve it further. The question is, how can a fair price for innovative drugs be determined? BIOPRO Baden-Württemberg GmbH has talked to Dr. Manfred Caeser, a specialist in pricing and reimbursement at LSCN Ltd.

Dr. Caeser, what makes the pricing of medicines so particular? In recent years, many different terms relating to the complex issue of marketing authorisation and reimbursement have been used. What does a newcomer to this area need to know in order to be able to position him- or herself appropriately?

Dr. Manfred Caeser, a specialist in pricing and reimbursement at LSCN Ltd. © privat

Regulations on the pricing and reimbursement of medical products have existed in Germany since 2011. These regulations require pharmaceutical companies to negotiate with the National Association of Statutory Health Insurance Funds (GKV-SV) on a price, or more specifically, a refund rate for new pharmaceuticals launched on the German market. Prior to 2011, the pharmaceutical companies could set the prices for new drugs themselves. 

What advice do you give to companies? How do you determine the refund rate to be used as a starting point for negotiations? What are the procedures companies have to follow, including the formulation of an initial price offering to the National Association of Statutory Health Insurance Funds? 

It has to be seen as a two-stage process. The first stage is the evaluation of the additional benefit of the new pharmaceutical in comparison to an expedient comparative therapy previously identified by the Federal Joint Committee, i.e. the G-BA. The pharmaceutical company is required to submit a dossier to the G-BA. An appraisal is then carried out by the Institute for Quality and Efficiency in Healthcare (IQWiG), followed by a hearing with the company concerned, after which the G-BA will issue a decision. Information about the potential additional benefit and the reliability of the information will then be published in something called an AM-RL (Amendment to the Pharmaceutical Directive). The product might have an increased, a reduced or no additional benefit. In many cases, the G-BA comes to the conclusion that no additional benefit has been proven. In simple terms, any proven additional benefit provides the basis for the refund rate negotiations. If there is no additional benefit, the pharmaceutical company has no basis on which to negotiate a price that they hope would be higher than the price of the comparative therapy. The pharmaceutical companies must take this relationship into account and see it as operative challenge. 

Does a company that is new to drug development need to be aware that the assignment of the medicine to a price reference group determines its final price? The greater the additional benefit the greater the supplement over and above the price of the comparative therapy. If the additional benefit is minimal, does this restrict the company to charging no more than the price of the comparative therapy?

There are rules which determine the identification of an expedient comparative therapy (existing standard therapy). The most important aspect is that the comparative therapy needs to be approved for the same indication as the new pharmaceutical. If several drugs satisfy this requirement, the G-BA always takes the cheapest drug as the comparative therapy, i.e. generic medicines or medicines with reference prices. A pharmaceutical company that is attempting to compete with a generic comparative therapy, runs the risk that the G-BA will set a similar price. It goes without saying that the selection of the expedient comparative therapy is always a major bone of contention between pharmaceutical companies and the G-BA. 

Manufacturers covered by the German Act on the Reform of the Medical Product Market (AMNOG) that are seeking to ensure that they obtain a higher price for their new pharmaceutical are well advised to prepare a dossier that specifically takes account of the criteria required for the evaluation of the additional benefit while the product is still in the strategic development stage. They need to particularly focus on the indication for which the medicine is approved and also on potential expedient comparative therapies.

Over the last few years, a number of companies in Germany have been granted marketing authorisation by the European Medicines Agency (EMA), and have subsequently entered the AMNOG process. During the appraisal process, many of the companies decided to withdraw their product from the German market because they did not expect to get a reasonable price for it. The most prominent example is probably a drug called linagliptin, which was developed by Boehringer Ingelheim for the treatment of type 2 diabetes mellitus. In this case, the G-BA identified a cheap generic substance as the expedient comparative therapy. Boehringer were unable to prove that there was any additional benefit. As the price would have been capped by the price of the comparative therapy, Boehringer decided not to place the product on the German market. While Boehringer is certainly able to survive a setback of this kind, emerging and small companies with only a limited number of products would not be.

Determining the additional benefit of a drug in comparison to a comparative therapy is a decisive factor in the reimbursement of healthcare costs. © I-vista/pixelio.de

Is the design of clinical phase III trials crucial in price negotiations? Or are companies best advised to think about price negotiations at an earlier stage during clinical IIa/b testing?

It’s difficult to say, there is no one-size-fits-all solution. The situation differs from product to product and from indication to indication. In general, I would say it is best to think about potential AMNOG consequences as early as possible during the drug discovery process, but whether it is necessary to think about AMNOG as early as phase II trials, depends on the degree of uncertainty. However, it is important to define certain end points in phase II in order to reduce the risk of failure in phase III trials. I would therefore advise pharmaceutical companies to take into account patient-relevant end points and examine quality of life issues at an early stage in order to be able to take these specific end points into account in phase III trials. As far as uncertainties with regard to study design and the acceptance of certain aspects for the appraisal process are concerned, I would recommend talking to the G-BA before entering phase III trials.

However, trial design is only one of several aspects that need to be taken into account in terms of pricing and reimbursement. With regard to reimbursement, I would say the following: if a pharmaceutical company plans to launch a medicine on overcrowded market segments such as the type 2 diabetes mellitus market, the company must find out where this is likely to be possible. The company knows that whatever it produces will always be compared to an existing generic medicine. Such comparisons can be circumvented by addressing relevant subpopulations. Although such patient groups are usually small, the pharmaceutical company might be able to prove that the new therapy applied, e.g. cell therapy, has a considerable additional benefit for this particular group of patients.  

You are referring to stratified medicine, aren’t you? If I understand it correctly, stratified medicine takes into account individual characteristics of groups of patients, which can be identified with biological markers, for making therapy decisions.

Absolutely, companies that target this market know that they are not developing a drug for the 3.5 million diabetics in Germany, but rather for a group of 100,000 to 200,000 people. However, these people can be reliably identified from diagnostic or other criteria. Medicines that are specifically designed for such subpopulations are no longer likely to be competing with generic medicines and the companies have a real chance of proving their additional benefit. This is obviously an interesting aspect for the companies involved. But unfortunately, it cannot be reconciled with the standard “one-size-fits-all” approach and the likelihood of being granted a high reimbursement rate.

© bbroianigo/pixelio.de

Have pharmaceutical companies become interested in the alternative of directly tapping the private market?

It is difficult to obtain reimbursements for lifestyle products. Therefore, for products like these, the issue has to be approached from the opposite direction, i.e. directly addressing self-pay patients from the word go. If a product is more about promoting a healthy lifestyle, a company has to consider issues such as, when will the product be used and what is the customer willing to pay for it?

Take travel medicine for example: health insurance companies will probably not be willing to reimburse the cost of vaccines that are only relevant for people who intend to travel into risk areas, and employers will probably only pay for them if an employee is on an official business trip. 

In the case of such vaccines, the company that produces them has to decide whether its primary goal is to get health insurance companies to pay for the vaccine and under which conditions. On the other hand, the company might say, well, people who travel to such places have the financial means to do so, and so they also have the means to pay for the vaccine. Then the company has to decide how much money a customer would be willing to pay for the product.

What must a small company offer if it wants to license out its products?

That is an interesting question. It goes back to what we were discussing at the beginning of the interview. A small company is advised to have AMNOG or payer-relevant data to present to potential clients, i.e. companies that intend to in-license a product, during due diligence negotiations. Companies that enter licensing negotiations need to have a good idea why they believe it may be possible to charge a certain price in a specific country or market. Knowledge is important and an in-depth understanding of pricing and reimbursement issues is always good to have when discussing in- and out-licensing issues. 

If the negotiations in Germany are successful and German health insurance companies agree to reimburse a company’s new medicine, will the pharmaceutical company find it easier to negotiate in other European countries?

The EU market is not harmonious. This is how it works in Europe: EMA marketing authorisation for a medical product is valid for the whole of the EU. Pricing and reimbursement are covered by country-specific rules to which pharmaceutical companies are required to adhere. And these rules can vary considerably between EU countries. Data submitted are evaluated differently, and different data and dossier formats and analysis tools are required. Moreover, different countries have different financing tools and methods, which affects the decision taken. A pharmaceutical company wishing to place a medicine on the market in a given EU country, has to prepare a dossier and use a negotiation strategy specific to that particular country. However, that country will be aware of what is going on elsewhere. Since the G-BA has been publishing the results of its benefit evaluation along with the pharmaceutical companies’ comprehensive dossiers on its website, the world has been much more interested in the results obtained in Germany.

Thank you very much for speaking to us.

The interview was conducted by Dr. Barbara Jonischkeit from BIOPRO Baden-Württemberg GmbH.

Editorial note:
Most Germans rely on the Gesetzliche Krankenversicherung (GKV; statutory health insurance, SHI) for their healthcare.

The National Association of Statutory Health Insurance Funds (German: GKV-Spitzenverband – GKV-SV) is the central association of the health insurance funds at federal level in Germany. Amongst other things, it sets reference prices for medicines and therapeutic appliances, as well as maximum amounts for medicines. The G-BA (Gemeinsamer Bundesausschuss: Federal Joint Committee on Healthcare) is the principal decision-making organ of the joint self-governing body of doctors, dentists, hospitals, patients and health insurance funds in Germany. It specifies which services in medical care are reimbursed by the GKV-SV.

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