Price Fixing and the Pharmaceutical Industry

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State intervention in the pharmaceutical industry: social advance or threat to innovation?

By
Ivan Topalovic

Introduction

1/ The Product
A/ European level, the “EMEA”
B/ R.O.W.
a) The Followers
b) The non-Followers

2/ The Price
A/ Worldwide parameters
B/ Examples of price fixing per country

3/ The Place

4/ The Promotion

Conclusion

Appendix I Chronology in therapeutic innovation
Appendix II Major pharmaceutical companies mergers / acquisitions Appendix III Evolution in the R&D in million dollars
Appendix IV Overview of pharmaceutical regulations in Europe

Introduction:

The pharmaceutical industry is a big money moving industry. When we hear about the mergers and acquisitions in this field, we are facing ten digits numbers, where a number such as a billion is more than common. (Appendix II) At the core of this business stands the pharmaceutical product, the medicine. To create this medicine, molecules are needed. We can see from Appendix I that the number of new molecules has decreased drastically in the last ten years. The pharmaceutical industry has to maximize its profits either on the existing products, or with the new developments. I will try to show in this study that despite the very risky characteristic of this market in terms of amounts of money involved and potential failure, the companies are not free to fix their prices and enter the market freely and efficiently. Although they try to increase revenues at every step of the marketing process, i.e. the 4 P’s (product, price, place and promotion), the governments all over the world also interfere in all these steps, making it more expensive, more difficult and increasing the level of uncertainty regarding the market access. In this field, companies would like to push towards the efficient side of the market, when states are concerned about equality towards healthcare. We will study the different levels of state intervention following the 4 P’s, the Product, the Price, the Place and the Promotion

1/ The Product

Common shared regulations.

A molecule takes around 15 years before reaching the sales phase. Finding it in Research and moving it to Development is a highly regulated process, controlled by state authorities.

At the very beginning, the pre-clinical phase, i.e. research conducted on animals. Phase I: “pharmacokinetic” phase, study based on a healthy population Phase II: “proof of concept” phase, study based on a small number of sick patients, to confirm the efficiency and the safety of the molecule. Phase III: study conducted on a big quantity of patients. The number is defined by the pathology and the authorities. The time frame is set to one year. This is the first level of state interventionism, with heavy implications for the companies. The costs and risks are leveraged by this regulation. For 13 molecules entering preclinical studies, 1 will be launched.

[pic]
The remaining molecule for launch will have to absorb the economic impact of the 12 wasted molecules.

A/ European level, the “EMEA”

Standing for European Medicines Agency, it delivers guidelines to the pharmaceutical companies. The industry can ask for hearings to make sure that the development is tuned with the EMEA standards, and further studies can be required. A special study on a target population can be asked, for example effects on older people, children, population with kidney failure…

The EMEA gives some recommendations, but they are non-binding. The molecule still bears the possibility of being rejected. The EMEA establishes the product profile, called SPC (Special Product Characteristics). In order to do this, it fixes or decreases the medical indication, therefore reducing the target numbers of patients. We can clearly see that the manufacturing company does not define the “customers” population, it only proposes a forecast. Because of an exacerbated vision of safety, the...
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