David B. Ridley

Price Differentiation and Transparency in the Global Pharmaceutical Marketplace

Pharmaceutical manufacturers have increased the availability of their products and sometimes increased their own financial returns by charging lower prices outside of the US and by discounting to lower-income patients in the US. Examples include discounted HIV-AIDS drugs in developing countries and pharmaceutical manufacturers’ discount cards in the US. Representatives of some international organisations argue that the price reductions are insufficient to make the medications widely available to lower-income patients.The WHO advocates both differential pricing and price transparency. While its efforts are well meaning, this paper identifies six concerns about its methods of comparing the price of a given molecule across manufacturers and across countries. More significantly, the WHO efforts to increase transparency are likely to lead to less price differentiation and less access to innovative pharmaceuticals. An important reason why manufacturers are reluctant to charge lower prices in lower-income countries is that they fear that such low prices will undermine the prices they charge to higher-income consumers. International organisations should not facilitate transparency but should dissuade governments from making price comparisons and basing their prices on those of lower-income countries. Furthermore, they should endeavour to keep low-priced and free drugs in the hands of the low-income consumers for which they were intended.

Herding versus Hotelling: Market Entry with Costly Information

Why do businesses such as fast-food restaurants, coffee shops, and hotels cluster? In the classic analysis of Hotelling, firms cluster to attract consumers who have travel costs. We present an alternative model where firms cluster because one firm is free riding on another firms information about market demand. One consequence of this free riding is that an informed firm might forego a market that it knows to be profitable. Furthermore, an uninformed firm might earn higher profits when research costs are high, because it can credibly commit to ignorance.

Impact of Medicaid Preferred Drug Lists on Therapeutic Adherence

AbstractObjective: To estimate rates of non-adherence for statins following implementation of a preferred drug list (PDL). Study design: A retrospective cohort study. Methods: A difference-in-difference-in-difference approach was used to estimate the impact of a PDL on the use of statins in an Alabama Medicaid population. The PDL restricted access to certain branded medications and imposed a monthly prescription limit. The use of restricted drugs was compared with the use of unrestricted drugs in the months before and after the PDL in North Carolina (where there were no such restrictions) and Alabama. Pharmacy data from 2001 to 2005 were used to examine the effect of the Alabama PDL implemented in 2004. Results: Following the PDL in Alabama, Medicaid beneficiaries treated with statins had an 82% higher relative odds of becoming non-adherent with statin therapy compared with North Carolina and with pre-PDL Alabama [odds ratio (OR) 1.82, 95% CI 1.57, 2.11]. Furthermore, patients taking a restricted statin were more likely to be non-adherent than unrestricted patients (OR 1.42, 95% CI 1.12, 1.80). In addition, among Medicaid beneficiaries taking a restricted statin, people aged 65 years or older were more likely to be non-adherent than their younger counterparts after the PDL (OR 1.33, 95% CI 1.02, 1.73). Fifty-one per cent of patients in the Alabama sample were non-adherent with statin therapy after the PDL, compared with 39% before. Non-adherence was 36% in North Carolina in both periods. Conclusion: The management of heart disease and high cholesterol are important challenges, especially for low-income patients. Policy makers should be aware that access restrictions can have adverse consequences for patient adherence.

Introduction of European priority review vouchers to encourage development of new medicines for neglected diseases

Every year 1 billion people worldwide are affected by traditionally neglected diseases, such as malaria, tuberculosis, leishmaniasis, and lymphatic filariasis, which impose tremendous public health burdens. Governments, foundations, and drug manufacturers have, however, started to support development of new treatments. European Union Member States have been leaders in implementing so-called push mechanisms (payment for drug development) and pull funding (reward for output), such as the advance market commitment, which creates a market for vaccines by guaranteeing prices. We propose an additional step that could be taken to encourage development of medicines for neglected diseases. A priority review voucher scheme, as is already in place in the USA, would reward a manufacturer that developed a new medicine for neglected diseases with a voucher that could be redeemed for priority review of a future medicine, probably a potential blockbuster drug. Unlike the US system a European voucher would also accelerate pricing and reimbursement decisions. This scheme would be likely to provide substantial benefits to voucher holders, society, and public health organisations.

Market watch: Forecasting market share in the US pharmaceutical market

Drug development is costly so drug makers need accurate estimates of sales potential. However, sales forecasts are often unreliable. Our study is unique in combining a large sample of drug classes with data on entry order and promotional spending to estimate peak market share while controlling for product quality. We estimate peak market share of 50 drugs (covering 29 different therapeutic classes) from the past two decades based on the promotional spending, entry order, speed-to-market and subsequent market entry of additional competitors. We control for product quality differences by considering only drugs that regulators classified as clinically comparable to other drugs in the class. We find that a product’s peak market share will be about 32% if: i) it is second to the market, ii) it is 2-years delayed relative to the first entrant (of comparable quality to the first entrant), iii) it receives as much promotional spending as the first entrant, and iv) it is followed by a third entrant 1 year later. The results can help managers more accurately forecast sales, and illustrate the value of earlier product launch.

FDA review vouchers.

n engl j med 360;8 nejm.org february 19, 2009 837 To the Editor: In his Perspective article, Kesselheim (Nov. 6 issue)1 expresses concern about priority-review vouchers for drugs for the treatment of neglected tropical diseases. We proposed the voucher program in 2006,2 it became law in 2007, and the law allows vouchers to be awarded by the Food and Drug Administration (FDA) in 2009.2 Under the law, developers of treatments for neglected diseases such as malaria and tuberculosis are rewarded with priority-review vouchers to be applied to other drugs, such as profitable cardiovascular therapies. Kesselheim says that this prize system is “potentially dangerous” and “inefficient,” and he suggests that it is ineffective and too narrow in scope. First, priority review is safe.3 Priority review should not be confused with “accelerated approval” or “fast track.” Priority review does not omit safety or efficacy studies or require approval within a given time frame. It sets a target of 6 rather than 10 months for FDA review. Second, the voucher program is efficient because it can alleviate tremendous suffering at little government cost. Our analysis shows that it will provide substantial net benefits to patients and drug developers,2 while the additional cost of priority review will be covered by an extra user fee paid to the FDA. Third, the voucher program will be effective. Kesselheim argues that “manufacturers will be unlikely to start such a program merely because of the prospect of earning a voucher some years in the future, since the voucher’s value depends on the success of potential ‘blockbuster’ drugs.” Uncertainty is in the nature of the pharmaceutical business. The voucher could be worth more than

No Shot: US Vaccine Prices and Shortages

100 million, which should at least motivate firms to take products off their shelves and put them into late-stage clinical trials. Fourth, the voucher program is of reasonable scope. Kesselheim argues that the scope is too narrow because the voucher prize is not given to manufacturers of follow-on formulations. Conversely, some argue that the scope is too broad, in that vouchers are awarded to manufacturers of treatments that are already available in countries outside the United States. We respect suggestions for improving the law’s provisions, but we think the current compromise is reasonable. The current priority-review voucher program can provide new incentives for drug development at relatively low government cost, speed the review of another product that the market values, and even speed approval of the generic version of that product. Other mechanisms are also worthwhile, and we hope that the priority-review voucher program will complement them. Selling a voucher can provide funds for private development partnerships. We also support funds for push mechanisms (e.g., funding of clinical trials) and pull mechanisms (e.g., advance market commitments).4

PAYMENTS, PROMOTION, AND THE PURPLE PILL: PAYMENTS, PROMOTION, AND THE PURPLE PILL

In 2004 an Institute of Medicine report warned of vaccine shortages, raising concerns about disease outbreaks. More than a decade later, we looked for progress in reducing vaccine shortages. We analyzed data on vaccine sales and shortages reported by practitioners and patients to the Food and Drug Administration and the American Society of Health-System Pharmacists in the period 2004-13. We found that the number of annual vaccine shortages peaked in 2007, when there were shortages of seven vaccines; there were only two shortages in 2013. There were no shortages of vaccines with a mean price per dose greater than

Real World Data: Policy Issues Regarding their Access and Use.

75 during the study period. Furthermore, we found that a 10 percent increase in price was associated with a nearly 1 percent decrease in the probability of a shortage. Government payers should carefully consider the benefits of averting shortages when evaluating prices for vaccines, including older vaccines whose prices have been subject to congressional price caps.

Innovation Incentives Under Transferable Fast-Track Regulatory Review

Understanding competition in the US drug market requires knowing how sensitive demand is to prices. The relevant prices for insured consumers are copayments. There are many studies of copayment elasticity in the health literature, but they are of limited applicability for studies of competition. Because of a paucity of data, such studies typically control for neither competitor copayment nor advertising. Whereas previous studies examined copayment sensitivity when copayments for branded drugs move in unison, this study examines copayment sensitivity when copayments diverge. This study uses unique panel data of insurance copayments and utilization for 77 insurance groups, as well as data on advertising. The results indicate that demand can be much more sensitive to copayment than previously recognized. Manufacturers selling drugs with higher copayments than branded competitors can lose substantial market share. Manufacturers can offset the loss of demand by increasing advertising to physicians, but it is costly.