This presentation by Martin WENZL from the OECD Health Division was made during the discussion “Excessive Pricing in Pharmaceuticals” held at the 130th meeting of the OECD Competition Committee on 28 November 2018. More papers and presentations on the topic can be found out at oe.cd/exph.

1. PHARMACEUTICAL
PRICING
A Health System Perspective
Martin Wenzl
Health Division
OECD Directorate for Employment, Labour and Social
Affairs (ELS)
Roundtable on Excessive Pricing in Pharmaceuticals
28 November 2018

2. Health System Objectives
Provide (equitable) access to health services
Provide value for money
Ensure quality of health services and products
Improve population health

3. Policy requires a balance between…
To encourage
development of
new and quality
products that
improve health
• To ensure
equitable access
• To achieve value
for money from
current spending
…paying enough for medicines to
incentivise further investment in R&D
…not paying more than
necessary for such an incentive

4. Prices along the life cycle of medicines
Source: Amgros I/S Denmark, reproduced with permission
Horizon
scanning
Introduction of new
product or new delivery
method
Monopoly or
de-facto monopoly
Full or partial analogue
competition
Generic or biosimilar
competition
Supply risk or
de facto monopoly
New products -
monopolyPRICE
Potential supply risk
Generic
and
biosimilars
Supply and
demand
issues
Sector-specific price regulation Greater reliance on competition

5. Share of generics
28
71
36
31
39
45
28
17
40
19
29
48
25
23
16
23
20
17 18
16 17
12
15 16
23
18
8
6
86
84
81
79 78
75
73 72
70
61
55
53 52
50 49 48 47
42 42
39
36
34
32 30
24
22
19
11
0
30
60
90
Value Volume
%
Share of generics in the total pharmaceutical market, 2015 (or nearest year)
1. Reimbursed pharmaceutical market.
2. Community pharmacy market.
Source: OECD Health Statistics 2017.
• Generics represent about half of the market volume and one quarter of pharmaceutical
expenditure in the OECD
• Generic penetration varies widely between countries

6. Expenditure trends
Retail pharmaceutical expenditure, as share of GDP
Total pharmaceutical pharmaceutical expenditure, as share of GDP
• Retail pharmaceutical
expenditure has been stable
between 2006 and 2016
 Only a subset of OECD
countries report
pharmaceutical
expenditure in hospitals
• New expensive
medicines may be used
in the hospital setting
• Hospital prices often
unregulated
Source:
OECD 2018 Pharmaceutical Innovation and Access to Medicines

7. Price regulation
• Regulation relies on various
methods
• In many countries, partly reliant on
the results of health technology
assessment (HTA)
 Difficulties to deny coverage of
medicines for rare or severe
diseases
 Trend towards increasing
uncertainty at the time of
coverage and pricing decisions –
• Small trials for “orphan”
drugs for rare diseases
• Combination therapies for
cancer
• Accelerated marketing
authorisation pathways
Source: Panteli et al. 2016 Pharmaceutical Regulation in 15 European Countries
Two simplified archetypes of coverage and pricing decision-making

8. Some price trends…
Trends in list prices of biologic disease modifying anti-rheumatic drugs, 2011-2015
Note: All prices are “list prices” as reported in the original MIDAS™ Database, 2011 to 2015, IMS AG, for hospital and outpatient markets.
Source: Patented Medicines Prices Review Board Canada 2015
• Indices of list prices stable in countries with regulated originator prices
• No regulation in the United States
 However, price indices do not show impact of prices of newly introduced products

9. List prices of cancer medicines
54,100
139,100
207,000
0
50,000
100,000
150,000
200,000
1995 2005 2013
constantUSD
United States
20,700
133,200
176,000
0
50,000
100,000
150,000
200,000
1996 2005 2016
constantEUR
France
Average list prices of cancer medicines per life-year gained, inflation-adjusted at product launch
• When comparing average prices per unit of product effectiveness (e.g. life-years gained as
a result of therapy)…
 Increases in list prices outpace increases in product effectiveness
Source: Howard D.H. et al 2015 Pricing in the Market for Anticancer Drugs. Journal of
Economic Perspectives 29 (1): 139-62.
Source: CNAMTS 2017. Propositions pour l’Assurance Maladie pour 2018. Paris.

10. Profitability of the industry
-6
-3
0
3
6
9
12
%
Pharma
R&D
Pharma
other
All other sectors IT hardware Healthcare
technology
Aerospace &
defence
Tobacco
Source: OECD 2018 Pharmaceutical Innovation and Access to Medicines
• Development of medicines is risky: the probability of marketing authorisation of a medicine
entering Phase 1 trials is estimated to be 14%
 However, risk-adjusted profitability in the industry overall is high and stable
• Economic profits of 2% to 6% in the R&D-based industry between 2002 and 2016
• R&D-based industry more profitable than many other sectors, including generics
Return on assets less cost of capital in the R&D-based pharmaceutical and other selected industries, 2002 - 2016

11. Functioning of the generics market
• Kanavos 2014 suggested 5
indicators to measure
functioning of the generics
market
• Based on the observation that,
“if generic entry does not occur
within 24 months of loss of
exclusivity, the benefits from
genericisation are likely to be
modest”
1. Generic availability up to 24
months after loss of exclusivity
2. Time delay to generic entry
3. Number of generic
competitors
4. Price trend of originators and
generics after loss of
exclusivity
5. Trend in generic volume
market share
Kanavos P. Measuring performance in off-patent drug markets: A methodological framework and
empirical evidence from twelve EU Member States. Health Policy 118 (2014), pp.229-41
Empirical analysis in 12 EU countries using a sample of sales data of 101
molecules from 1998 to 2010

12. 0%
20%
40%
60%
80%
Intensity of generics competition
Percentage of originator molecules with at least 1 generic entrant 24 months after loss of exclusivity (no of molecules in
sample)
Average number of entrants per originator molecule 24 months after loss of exclusivity
Source: Kanavos 2014
Source: Kanavos 2014
0
5
10
15
20
25
All molecules Top 10% of molecules by sales Bottom 10% of market by sales

13. Prices of generics and originators after
loss of exclusivity
0
20
40
60
80
100
Priceindex
12 months 24 months
0
20
40
60
80
100
120
Priceindex
Originators with generic competition Originators without generic competition
Prices of generics 12 and 24 months after loss of exclusivity, indexed to originator price = 100 at LoE
Prices of originators 12 and 24 months after loss of exclusivity, indexed to originator price = 100 at LoE
Source: Kanavos 2014
Source: Kanavos 2014

14. • Prices of originator medicines are subject to sector-specific
regulation in some countries and market segments
– Regulation often linked to HTA and concepts of product “value”
– However, disagreements on the definition of “value” and increasing
uncertainty at the time of coverage and pricing decisions
• Greater reliance on competition after loss of exclusivity
– Competition present to varying extent, more intense in large markets
– Increasing reports of reliance on single-source products
– Anecdotes of price increases by producers with market power
– However, with limited impact on pharmaceutical expenditure so far
• Prevention vs. cure?
– Regulation should aim to maintain competitive markets in addition to
penalising abuses of dominant positions or excessive pricing
Conclusions

15. Staying in touch with the Health Division
Martin Wenzl martin.wenzl@oecd.org
@OECD_socialFollow us on Twitter
http://www.oecd.org/healthVisit our website
New release in OECD Health Policy Studies series
Pharmaceutical Innovation and Access to Medicines
Available from 29 November 2018
http://www.oecd.org/health/pharmaceutical-innovation-and-access-
to-medicines-9789264307391-en.htm