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Lectures Pharmaceutical Pricing and Market Access
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This document summarizes all lectures, including the guest lectures, of the course Pharmaceutical Pricing and Market Access for the academic year .
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Lecture 1 (30-03-2022) – The Life Cycle of a DrugThe life cycle of a drug can be split up in five different phases: development, introduction, growth,
maturity, and decline. Sales generally begin as soon as the introduction stage starts. One of the aims of a
company’s life cycle management of drugs is to keep sales at a high level. All five stages of the life cycle
of a drug will be discussed below.
• Development. The development stage is a long and winding road to registration. A group of
scientists first tries to find some candidate molecules or substances (out of thousands) that might
be useful in the development of a new drug. These candidates will then be tested on animals (pre-
clinical tests), and eventually on healthy volunteers (phase I). While doing so, the focus is on
determining the appropriate dose of the drug, the safety of the drug, and its quality. Then, the
drug is tested on a limited group of patients (phase II). Finally, the drug is tested on a large group
of patients (phase III). If these tests turn out to be successful, the drug will be filed for registration
with the New Drug Application (NDA) of the Food and Drug Administration (FDA) in the United
States of America (USA) or with the Market Authorization Application (MMA) of the European
Medicines Agency (EMA). It takes about 10 to 15 years to develop a new drug. After that, another
2 to 3 years are required for administrative procedures.
o The tests (on humans) in the development stage of the life cycle of a drug can be
distinguished into four phases. The first three phases occur pre-approval while the fourth
case occurs post-approval.
▪ Phase I: this is the first state of testing in humans and is aimed at investigating
the safety of the drug. Normally, 20 to 100 healthy volunteers are involved.
▪ Phase II: this phase is aimed at investigating the efficacy of the drug. Normally,
100 to 500 patients are involved.
▪ Phase III: this phase is aimed at confirming the efficacy results found in the
previous phase. Normally, 1000 to 5000 patients are involved. Efficacy results are
compared with the current golden standard.
▪ Phase IV: this phase is all about post-marketing surveillance.
o A patent generally expires after 20 years, but in the EU it is sometimes possible to ask for
a Supplementary Protection Certificate (SPC) that will last for a maximum of 5 years.
Patents stimulate innovation, but they also create temporary monopolies during which
the manufacturer can make a profit to recoup its R&D, manufacturing, and distribution
costs. Besides, it allows the manufacturer to invest in innovative drugs in the future.
Pharmaceutical companies cannot easily go to the bank and ask for a loan since their
business is quite risky. Hence, profits maximization and a high return on investment are
necessary to attract (private) investors into the risky pharmaceutical business.
o It is difficult to estimate how much it costs to develop a drug. Schlander et al. (2021) find
estimates in the range of $161 million to $4.54 billion. They also find a positive association
between time and R&D costs, suggesting that R&D costs increase over time. Besides, the
cost of capital, which relate to the dividends and interest paid on the funds acquired,
comprise a large part of the total R&D costs. Almost half of the R&D costs is spent on the
first three phases of the clinical trials.
o Heterogeneity in the development costs of drugs have several causes:
▪ The therapeutic class of the drug.
, ▪ Whether or not the drug is an orphan drug.
▪ The size of the pharmaceutical company.
▪ Whether the drug is a new chemical entity (NCE), a new biological entity (NBE),
or simply a next-in-class drug.
▪ Whether the drug is self-originated or licensed-in.
• Introduction. All medicinal products need to obtain market authorization before they can be
placed in the market in order to protect public health and to ensure the availability of high-quality,
safe, and effective medicines. In Europe, the EMA is responsible for this. It is essentially a network
that includes all national medicines regulatory authorities from member states in the EU and the
European Economic Area.
o In the EU, there are four routes to market authorization, of which the fourth is the most
common nowadays:
▪ (A) National: before the EMA was founded, pharmaceutical companies asked for
authorization by a single member state. If these authorizations were granted,
they were only valid in that specific member state.
▪ (B) Decentralized: there is a simultaneous authorization by more than one
member state. This is only possible if there is no approval in another member
state yet.
▪ (C) Mutual recognition: there is authorization by several member states based on
the assessment by another member state. In other words, member states
recognize the approval that was given by other member states.
▪ (D) Centralized: pharmaceutical companies submit one single application to the
EMA. If approved, the authorization is valid in all member states. The advantage
of this procedure is that it is a quicker process (compared to asking for separate
approval in each individual member state) and that medicines are authorized for
all EU citizens at the same time. Besides, it ensures that the requirements for
safety monitoring are harmonized across member states and that the product
information becomes available in all European languages at the same time. The
centralized procedure is compulsory for drugs with a new active substantive for
certain diseases (such as HIV/AIDS, cancer, and diabetes), for medicines derived
from biotechnology processes (such as genetic engineering), and for orphan
medicines (which are medicines for rare diseases).
o If medicines offer a major therapeutic advantage over existing treatments, or if they
benefit patients without treatment options, then they can apply for a Priority Medicines
(PRIME) label. To be accepted for PRIME, a medicine has to show its potential to benefit
patients with unmet medical needs based on early clinical data. Only 24% of the
medicines which applied for a PRIME label actually received that label, most of which
relate to oncology medicines. Having a PRIME label makes medicines eligible for an
accelerated assessment.
o Less than 10% of the drugs makes it from phase I of the clinical trials to approval by the
medicines regulatory authority. Note that even though the approval for drugs is
centralized, the pricing and reimbursement decisions are still decentralized. The EMA
looks at a drug’s quality, efficacy, and safety before granting market access. National
authorities then decide and negotiate on prices and reimbursement decisions. Health
, technology assessment (HTA) bodies provide recommendations on medicines that can be
financed or reimbursed by the healthcare system in a particular EU member state. The
assessment criteria used by HTA bodies differ between EU member states, in accordance
with regional and national legislation.
• Growth. Almost two-thirds of the sales of newly launched medicines comes from the USA. About
17.5% comes from Europe. Sales have been increasing in Asia rapidly over the past couple of
years. There are several factors that limit the rate of sales growth:
o For some disease areas, it might be risky to switch patients from one drug to another.
o There are many established drug classes (with so-called ‘me-too drugs’) that are doing
well already.
o Promotional activities are limited. In the EU, it is not allowed to promote drugs. In the
USA, on the other hand, consumer advertising for drugs is allowed.
o Health authorities are cautious about letting new drugs be introduced initially to a broad
population because of safety issues. There is a preference to initially focus on the most
severe groups only.
o There are more and more personalized medicines, which are targeted at patient groups
with certain characteristics (such as genetic abnormalities). The focus is on small groups.
o There are many cost containment policies that might affect supply, demand, and price.
• Maturity. There is often lack of a true maturity stage. For instance, there is generally no plateau
because sales continue to grow right up to the moment when there is a sudden decline in sales,
following from a patent expiry. After a patent has expired, multiple lower-priced generics may
enter the market while the brand drug could still be in the growth stage. In some segments of the
market (such as the one focused on orphan drugs), there is less competition such that sales might
remain at a high level.
• Decline. Sales are lost quickly when cheap generics enter the market after a patent expiry. The
rate of conversion from the brand drug to generic drugs depends on factors such as the payer
policy, the disease area (as this relates to how risky switching is), brand loyalty, and the difficulty
to figure out the raw materials or active substances used.
o What can different payers do to promote the modify other stakeholders’ behaviors in the
market and effectively use them as agents to promote the use of generics? They can
prescribe budgets for general practitioners or set generic prescription targets. They can
use tendering for pharmacists. Finally, patient behavior can be modified through internal
reference pricing and the enforcement of patient co-payments.
Lecture 2 (30-03-2022) – Life Cycle Management of Drugs
Imagine a curve representing the life cycle of a drug with time on the x-axis and sales on the y-axis. In
essence, the goal of the life cycle management of drugs is to move the curve upwards (such that sales are
higher) and to make it wider (such that sales increase earlier and remain high for a longer time). More
specifically, the goal is to make sure that the R&D process is speeded up such that there is an earlier
introduction of the drug, that a higher growth rate is achieved, that peak sales are higher, that the drug
stays for a longer time period in the maturity stage, that the exclusivity loss occurs at a later time period,
and that the residual sales are higher.
, We distinguish different areas of life cycle management:
• Definition of indication. For molecules that target multiple diseases, the lead indication is chosen
based on the indications in the proof-of-concept trial. One should gather all burden of disease
data (such as incidence, prevalence, complications, quality of life impairment, and the existence
of an unmet need). The question is whether to focus on a limited indication of patients with a high
unmet need or on a wider indication. Note that an orphan indication generally means market
exclusivity.
• Designing the clinical trial program. You need to know what trials are needed to get approval by
the relevant authority. You need to know which active comparators there are and how the new
drug should be positioned against these comparators. Endpoints should be chosen that are
realistic to measure after a certain time period. For instance, if you focus on overall survival, you
should make sure that the length of the trial is long enough. If you develop a drug in an area where
alternatives are already available, it is sometimes sufficient to demonstrate non-inferiority (not
suggesting that your drug is more cost-effective, but that it is at least not less cost-effective).
• Label claim. A label claim summarizes all the essential information on the safe and effective use
of the product (such as ingredients, dosing, route of administration, storage, target population,
and side effects). Regulatory authorities regulate the format and content of labels. For instance,
statements with regard to the efficacy of a drug can only be included in the label if certain
outcomes are recognized by the EMA as being relevant outcomes.
• Building a value proposition. A value proposition is an aggregation of value messages, which in
totality will increase the likelihood that payers and physicians will support the reimbursement,
listing, and usage of the drug. The value proposition can be built by focusing on things like the
unmet need of the target population, the drug’s safety benefit, the treatment simplification, and
the drug’s cost-effectiveness.
• Building customer relationships. For the value proposition to land, the manufacturer needs to
build a good relationship with its customers. The most important customers of a pharmaceutical
company are regulators, HTA bodies, patients organizations, and payers. It is important to know
who are in those organizations and what their needs are. One way to build customer relationships
is to offer your customers trainings on how to use a treatment or drug.
• Getting regulatory approval. The EMA focuses on the quality, safety, and efficacy of a new drug
when deciding about its approval. Companies can ask the EMA for guidance and direction on the
best methods and study designs to generate robust information on how well a medicine works
and how safe it is. Since there is no pre-assessment of the benefits and risks of a medicine, asking
for guidance does not guarantee that a medicine will receive market authorization.
o The relative effectiveness assessments of national HTA gents build on the outcome of the
regulatory assessment. EUnetHTA is a voluntary network of national HTA agencies that
develops tools to facilitate HTA analyses. The network aims at promoting good practice
through knowledge-sharing. There is currently a joint plan for collaboration between EMA
and EUnetHTA on early dialogues and scientific advice.
• Strategic pricing. A drug price serves multiple roles. First of all, prices are set at a certain height to
recoup R&D costs, manufacturing costs, and distribution costs. Second, prices can be seen as an
indication of quality and utility. Third, prices are a tool to capture part of the value to finance the
ongoing enterprise, such that the pharmaceutical company can still innovate in the future.
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