‘Low prices can hamper drug development’

Cutting pharmaceutical prices will severely reduce the number of new medications making it to market,according to a groundbreaking independent study from ESMT Competition Analysis (ESMT CA). For the first time,the study on ‘Pharmaceutical Innovation and Pricing Regulation’ clearly models and quantifies the direct link between strict regulation and low innovation. New medications likely to be hit hardest under tough pricing regulation include antibiotics,as well as treatments for cardiovascular disease and immune system disorders such as multiple sclerosis and chronic meningitis.

“Our study shows the consequences that pricing and reimbursement regulation can have on pharmaceutical innovation. It also shows that,incorrectly applied,regulation can reduce the value of pharmaceutical projects and curtail the resources available to carry them out,” said Dr. Hans W. Friederiszick of ESMT CA. “Rational investors will naturally look for the most profitable investment choices,which is why regulation has a direct impact on the number and characteristics of the medications developed.”

New antibiotics can see a 100% drop in expected profitability (known as Expected Net Present Value,ENPV) in phase one of clinical trials under a pricing model widely used in the EU. The ENPV is also lower,though less dramatically,through further stages of clinical trials. Other drugs with low margins and/or sales volume are similarly affected.

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The ESMT CA study was commissioned by Novartis and is based on a unique simulation of a representative pharmaceutical firm’s decision-making process,calibrated using publicly available data.

The model draws conclusions from the simulated actions of the pharmaceutical company,taking account of parameters including the costs of developing new products,the probability of failure during clinical trials,and the probability of a final product not being considered highly innovative by regulators.