Transcript International Price Comparisons 1999

Drug Importation in the US: Lose-Lose for
US and Foreign Consumers
Patricia M. Danzon PhD
The Wharton School
University of Pennsylvania
http://hc.wharton.upenn.edu/danzon/index.htm
Effects of Legalizing Drug Importation are Highly
Uncertain
 Legalizing importation => massive wholesaler/pharmacy
involvement => system wide adjustment
 Current savings to individual consumers overstate system-wide
savings
 Aggregate savings to US consumers less than revenue loss to
manufacturers
 Key issues
– Mismatch of products
– Supply restrictions on launched products
– Foreign price increases or non-launch on new products
– Intermediaries capture much of the savings
1. Mismatch of Compounds and Presentations Reduces
Potential for Importation
Sample = Top 249 molecules, by US Unit Volume
70%
61%
62%
61%
60%
50%
42%
40%
35%
37%
33%
35%
33%
31%
33%
30%
21%
20%
17%
14%
16%
15%
10%
10%
Sample percent of sales
Matched with US, by presentation
Source: Danzon and Furukawa, Health Affairs, Oct. 2003
S
U
K
U
M
EX
IC
O
N
LY
JA
PA
A
M
ER
G
IT
A
NY
CE
N
HI
LE
C
FR
A
C
AN
A
DA
0%
2. Manufacturer Supply Restrictions of Launched
Products
 Manufacturers may restrict supply to exporting countries
– Supply restrictions are common in EU, and legal
• Provided manufacturer acts unilaterally (Bayer Adalat case)
 How much of limited supply will wholesalers/pharmacies export?
– Some shortages reported in Canada
 Even if 20% of EU + Canada volume is shipped to US, would
only supply 20-30% of US volume
– And only for matching drugs
US Dominates Global Sales:
Due to High US Volumes, Not Just Prices
2003
% Growth Constant $
World Audited Market
US$ Bill
% Share
2003
CAGR
98-02
Latin America
$17.4
3.7%
+5.5
-2.8
Asia/Africa/Australia
$33.8
7.2%
+9.3
+11.0
Japan
$52.4
11.2%
+3.4
+4.0
Europe (All)
$134.5
28.8%
+9.4
+8.8
North America
$229.5
49.1%
+11.1
+15.2
Worldwide
$467.9
100.0%
+9.3
+10.4
10 Key Markets
$389.2
83.2%
+9.1
+11.3
EU (15)
$116.3
24.9%
+8.0
+8.4
Source: IMS Health Incorporated
Per Capita Unit Volume By Molecule Age:
Months Since Global Launch. Relative to U.S. (US = 100)
120%
115%
97%
100%
91%
91%
78%
80%
72%
58%
65%
62%
60%
53%
44%
42%
40%
PA
24 months or less
12%
4% 3%
25 to 60 months
Source: Danzon and Furukawa, Health Affairs Oct. 2003.
Note: UK consumption upward biased by a few respiratory products.
Total
K
LY
A
IT
G
E
R
M
A
N
N
C
Y
E
E
H
IL
C
FR
A
C
A
N
A
D
A
0%
N
5%
1%
X
IC
O
6%
2%
M
E
22%
20%
32%
25%
JA
26%
U
44%
3. Manufacturers May Try to Raise Foreign Prices
---But Resistance Is Likely
 Foreign price control systems aim to stabilize drug spending and
health spending as a percent of GDP
– Controls on prices, reimbursement, drug budgets etc.
– Health policy is fiscal policy in national/social health systems
 Foreign prices are already roughly in line with income in
industrialized countries (Danzon and Furukawa, HA 2003)
Price Indexes for Top 249 Compounds, by
US Volume, 1999 Data. US = 100.
140%
127%
120%
94%
100%
86% 87%
78%
80%
80%
70%
67%
60%
40%
20%
Note: United States equals 100%.
Molecule
UK
O
IC
EX
M
JA
PA
N
LY
IT
A
G
ER
M
A
NY
CE
AN
FR
IL
E
CH
CA
NA
DA
0%
Price Indexes Relative to Per Capita
Income Differentials (1999)
600%
528%
529%
500%
400%
300%
200%
104%
100% 67%
0%
CANADA
78%
CHILE
141% 127%
118%
110%
93%
87%
80%
86%
70%
FRANCE
GERMANY
Price index (molecule-indication)
Note: United States equals 100%.
ITALY
JAPAN
MEXICO
125%
94%
UK
Price index normalized by income
(b) Delay and Non-launch of New Drugs ex-US if
Low Prices
 Countries that are unwilling/unable to pay higher prices may see
fewer/delayed product launches
 If importation threat is large, manufacturers would rationally be
less willing to launch ex-US at low prices
– US market vs. loss of foreign sales
– Feasible pricing range varies by product, importer costs etc.
Countries with Lower Prices have Fewer Launches,
Longer Launch Lags (Danzon, Wang and Wang 2003)
 We estimate the effects of price on launch delay, controlling for
market size , per capita income, etc.
 Sample: launch of 85 NCEs launched in 1994-1999
 14 EU countries, plus Australia, Canada, Czech, Japan, Mexico,
New Zealand, Norway, Poland, S. Africa, Switzerland, and USA
 IMS data on prices and volumes
Findings
 Countries with lower prices have longer launch lags and fewer
launches
 EU countries that are major PI exporters have longer delays,
controlling for expected price and volume
Kaplan-Meier estimates of cumulative launch probability for selected
countries
90%
80%
Cumulative Launch Probability
70%
60%
USA
GERMANY
UK
SPAIN
50%
FRANCE
ITALY
PORTUGAL
JAPAN
40%
30%
20%
10%
0%
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Month since Global Launch
Countries with a significantly longer delays/fewer launches,
relative to UK, controlling for price and volume
0.80
0.70
0.50
0.40
0.30
0.20
0.10
nd
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N
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0.00
Ja
Hazard Ratio (vs UK)
0.60
c. US Price Pressure from Medicare May
Narrow Differentials
 Medicare Modernization Act (MMA) to deliver drug benefit
through private PBMs
– Each PBM must have at least 2 drugs in each class
 Medicare to define classes
– Broad definition of classes => older drugs compete with newer
drugs within a classes
 Discounts could be large in crowded therapeutic classes
 PBMs may demand same discounts for their private plans
4. Middlemen will Capture Some of Any Savings
from Importation
 If only a fraction of US demand can be sourced abroad, who will
capture the savings?
– Pharmacy chains and GPOs that buy direct
– PBMs may “clawback” some savings from pharmacies
 Cash-paying customers are unlikely to benefit
 EU experience confirms that middlemen capture much of the
savings from parallel trade
The Global Social Welfare Perspective:
Differential Pricing Increases Social Welfare,
Compared to Uniform Pricing
1. Differential Pricing => Wider Use of Existing Drugs (Static
Efficiency)
 Low-income markets can only afford drugs at low prices
2. Differential pricing is an efficient way to pay for R&D (Dynamic
Efficiency) \
 Higher income countries should contribute more to R&D than
low income countries (Ramsey Pricing)
3. Equity
 Pricing related to income is equitable, by most criteria
 Importation undermines differential pricing => bad public
policy
Conclusions
 Drug importation in the US will yield small savings for US
consumers
 But loss of access for foreign consumers
 Lower industry revenues => less R&D
 Affordability of drugs in US should be addressed by insurance
with smart benefit design, not importation that undermines
differential pricing