PNS170 CHEAP OR TIMELY DRUG? PRACTICAL IMPACT OF EXTERNAL REFERENCE PRICING POLICY IN THE EUROPEAN UNION

Abstract

External reference pricing (ERP) is one of the major determinants of drug prices regulation in EU markets. The aim of our work was to analyze the consequences of ERP rules for both companies and the national authorities by i) optimal market access timing or ii) overall availability of drugs on certain markets. Calculation of the optimal launch sequence of countries with an innovative drug was part of the analysis. We used hierarchical clustering of countries together with the evolutionary optimization heuristic (genetic algorithm). This algorithm optimizes the sequence of countries by maximizing the estimated revenue based on the market characteristics (ERP rules, willingness to pay threshold (WTP), population/market size, and others). The optimal launch sequence was calculated. As expected, we typically see that larger countries with high WTP are favored. On the other hand, countries with i) aggressive ERP rules (e.g. minimal price referenced), iii) low WTP, iv) countries referring to or v) referenced by a large number of countries stand in the back of the sequence. The main reason is that they cause greater price erosion in further countries. The unintended consequence of strong price referencing can, therefore, be lower availability of innovative drugs or shortage of older essential drugs, as companies prefer not to enter such markets and postpone market access. Our analysis provides both a guideline for companies when launching an innovative drug and crucial information for national authorities about the consequences of their ERP policies. The suggestion for national policies on how to keep drug prices low while ensuring their good availability could be setting weaker ERP rules (e.g. average rather than minimum price) and take advantage of confidential price discounts. That reduces the risk of further price erosion in other markets and increases the attractivity of such markets for innovative medicines.