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ELECTRONICALLY REPRINTED FROM APRIL 14, 2006
HealthReference Pricing For DrugsBy Chuck Farkas and Preston Henske If an existing drug reduces cholesterol by ceutical industry as well, reaching $30 bil- investment trade-offs. lion to $35 billion in lost profits over the One likely consequence will be a shift in next three to four years, according to analy- research toward diseases not currently treat- sis by Bain & Company. In effect, reference ed by multiple drug therapies. The reason is Massachusetts state legislator or, increas- prices on drugs still under patent protection.
That certain drugs are interchangeable in That power will change the pharmaceutical And in the testing phase, reference pric- terms of their health benefits is the idea behind "reference pricing," in which offi- Pfizer (nyse: PFE - news - people )
therapeutic comparisons during clinical tri- cials judge the therapeutic effectiveness of als—to cite significant improvements in Lipitor, a statin that can help reduce choles- burse based on the least expensive option.
terol levels. Lipitor quickly gained a market The concept started taking hold in Europe and has driven down pharmaceutical prices between 2003 and 2005, as statin drug sales rose dramatically, Lipitor's share of the companies will need new strategies to cope Reference pricing is also likely to shape with the shift toward reference pricing. So life for U.S. consumers and profits for phar- far, pharma companies are looking at three diminished patent price protections.
mandates universal health care coverage by vastatin, the generic equivalent of Merck's
screen their research pipelines differently.
requiring all of its residents to have med- A once tried-and-true path for drug indus- ical insurance. Although the Massachusetts another cholesterol-lowering medication.
plan has yet to define what an "affordable" health care plan is, the principles of refer- fourth to market was given the green light ence pricing all point to what the future rates. As a result, its customers were faced Lipitor if they didn't switch to its less cost- sonably expect to earn some kind of return money for governments and patients. Those who want the more expensive brands can pay the difference between the cost of those ine the value of such "me too" innovation.
drugs and the lower reimbursement, but that Drugs that are not first or second to market earnings could turn into an avalanche, forc- efficacy for a targeted set of patients—or Hence, they are shifting even more atten- a drug called Prasugrel to reduce the risk of entiation. This will drive up overall devel- blood clots, recently decided to spend as remain unmet. Some of the big underserved much as $400 million to run trials against money-losing marginal "successes." Bristol-Meyers Squibb's similar drug,
Although Massachusetts still has a lot of disease, multiple sclerosis, diabetes and ground to cover to make its mandate a prac- oncology. But others aren't as well known, tical reality and a national model, bringing before Plavix comes off patent and generic worthy societal goal. So is creating better drugs kick in. But Lilly is placing a large in the development process are considering bet that its drug will distance itself far additional investments to show clear differ- enough from Plavix in clinical trials to sur- vive the onslaught of generics. That kind of "new and improved" doesn't get too far. The Chuck Farkas is a Bain & Company pressure is on to demonstrate rigorous and partner based in Boston and head of Bain's North American health care practice. For instance, Eli Lilly and Co. (nyse:
Preston Henske is a Bain partner based in LLY - news - people ), which is developing offer little likelihood of therapeutic differ- Posted from www.forbes.com with permission from Forbes.com Inc. Copyright 2006, Forbes.com Inc. All rights reserved.
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