It is perhaps appropriate that the EGA (European Generics Association) met this year in Athens, cradle of philosophy, as the organisation appears to be undergoing something of an existential crisis. With an increasing number of its members turning their backs on generics as the mainstay of their business, it is becoming ever more difficult for the EGA to forge a coherent policy platform, or even to know what its purpose is supposed to be. Not that conflict is new. Ever since the CEE countries acceded to the EU in 2004, there has been internal strife between those companies keen to promote the INN model (mainly Teva but also Actavis and Sandoz) and those that preferred the idea of branded generics, but now that even Teva has moved away from an emphasis on commodity generics, the EGA is left in a tricky position. To date, it has pushed the affordability agenda and has focused its attention on improving market access to generics by promoting INN prescribing and pharmacy substitution. What it seems to have overlooked, though, is that encouraging non-branding and interchangeability inevitably leads to companies having only one means to promote their own product over that of their rivals – price.
It is a fact that markets driven by substitution at the pharmacy level are almost always characterised by hefty discounts to pharmacists, whether allowed by law or not, and correspondingly low net prices. Inevitably, governments become aware of this and try to divert the cash going to pharmacists back into state coffers, either by applying increased mandatory discounts to the innovator price when generics first launch or by some kind of claw-back mechanism. This, in turn, encourages pharmacies to put further pressure on suppliers and so prices continue to ratchet downwards. Exactly where they end up depends very much on the relative strength of manufacturers, wholesalers and retailers, as well as the intensity of government efforts to prevent illegal discounting. Thus, in the UK, where retailers and wholesalers are extremely powerful and the government actually encourages discounting to pharmacies, prices are rock bottom. By contrast, in Italy, where retail chains are not allowed and the ban on illegal discounts is actively enforced, prices are high. Of course, there is another, more drastic, way for governments to prevent discounting to pharmacists and that is the use of tenders. These are not something that the EGA has ever advocated – indeed, it has fought hard to resist them – but they are a natural response to a dysfunctional system in which low ex-factory prices fail to feed through to savings by the state. The EGA’s main reaction to tenders to date has been to call for governments to support ‘sustainable’* pricing, but in our view this is a non-starter, since the stupidly low prices that we see for many products in Europe today are not the result of government fiat but of companies voluntarily undercutting each other, so governments can fairly argue that it is the industry itself that needs to deal with the problem.
We believe that the EGA needs to change its approach. It is doing good work with the European Commission and the EMA in areas such as the new counterfeit directive and the approvals pathway for biosimilars, but its efforts on market access and reimbursement have had unintended consequences that have not benefited the industry. It is also increasingly at odds with a membership that is looking more to brands for its future growth. We would therefore suggest that the EGA switches its lobbying efforts to promote some slightly different messages: One is to highlight the level of investment being made by the industry in R&D, which is very substantial. Big pharma companies constantly emphasise their R&D investments in order to justify high prices, but the generics industry has somehow managed to create the impression that its products cost nothing to get to the market, which is far from the truth (particularly with biosimilars, where the industry collectively is investing billions). The EGA needs to make it clear that if governments want generic companies to bring them same sort of savings from biologics that they have achieved with small molecule drugs, then current prices need to be high enough to cover the cost of developing biosimilars.
In order to achieve these higher prices, the EGA should urge governments to abandon the reimbursement of cheap drugs. The reality is that consumers everywhere spend huge amounts of money on OTC products and food supplements, not to mention consumer goods of other types, so why does the state cover the cost of pharmaceuticals that cost only a couple of euros a box? By taking any product priced below, say, €5, out of reimbursement and allowing companies to price freely below that threshold, governments could simultaneously save money and allow manufacturers to achieve better returns. Alternatively, the EGA could press for a minimum price for drugs, an idea that already has some internal support, but is likely to be a harder sell. At the same time, we believe that the EGA ought to lobby for much tighter bioequivalence standards. The ‘sameness’ of generics is a tenet of the industry, but in reality generics aren’t all the same, since current guidelines effectively allow them to have an active ingredient content of plus or minus 20% to the innovator product. Hence, there could be a huge difference between the products coming from two different generic manufacturers which, in some medical conditions, could have a meaningful therapeutic impact. One answer to this is to return to a branded system, so that doctors can ensure that patients receive consistent therapy, but a more realistic one in markets where INN prescribing is fully established is to set tougher approval criteria, with a much narrower variation band around the originator. Apart from improving standards generally, this would also take players out of the market, which would help to reduce competition and hence some of the current pressure on pricing.
And finally, of course, the EGA could try to persuade its members to put their own houses in order and stop selling products that don’t make an acceptable return. Sadly, this is its biggest challenge of all.
*Unfortunately, despite its frequent use of the term, the EGA has never really defined what it means by sustainable pricing, let alone quantified it. Pharmacloud takes sustainable pricing to mean prices that cover not only all operating costs (and a profit margin) but also the investment needed for future products, including biosimilars. This differs from ‘subsistence’ pricing (a term coined by the BGMA), which merely covers COGS.