Germany focus: strength with control

pharmafile | February 17, 2014 | Feature | Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing |  AMNOG, EFPIA, Germany, IQWIG, NHS, NICE 

Germany is the biggest pharmaceutical market in Europe and one of the biggest in the world, but new systems and laws enacted in recent years have hampered the industry’s growth in the country.

Germany does not have a state-funded system like the NHS in the UK, but rather a private/statutory health insurance system to which German citizens and their employers contribute. The country has around 82 million inhabitants, with around 72 million covered by statutory health insurance – the remaining are privately insured. 

The money from the mandatory insurance scheme goes to the government to pay for medical products and services. But since 2009, the German government has found that pharmaceutical spending by its health insurance system has swollen by 5.3% per insured person, per year, representing a rise of around €1.5 billion. 

The German government decided something had to be done, as the entire population had to pay out more in a time of austerity. So on 1 January 2011, a new drug pricing law came into place called the ‘Act on the Reform of the Market for Medicinal Products’, or ‘AMNOG’.

Its stated purpose, according to the government, is “to curb the spiralling expenditure for medicinal products”, meaning it essentially wants to use the Act to reduce its drugs bill, while getting a better deal for its citizens. 

In a nutshell, AMNOG works by matching a new drug to a comparator, usually one that is already on the market, to test whether it is an improvement – if it is, the government may pay more, if it isn’t, it will set a lower price.

Under AMNOG, the level of added therapeutic benefit granted to newly approved drugs – and the price paid – is scored according to the following scale:

1. Major added benefit over comparator

2. Significant added benefit

3. Slight added benefit

4. Unquantifiable added benefit

5. No added benefit proven

6. Less than comparator. 

Those deemed to bring a real therapeutic benefit fall into the score bracket ranging from one to four and qualify for price negotiations, meaning the government may be willing to pay a higher price over the drug it has been compared against – the closer to one, the higher the price you can achieve.

But medicines which are not comparable – or are simply inferior in terms of patient-related outcomes – gain a score of five or six, and will get a non-negotiable rate for their drugs. In this situation, the government will decide what it is willing to pay – which usually means a lower price than pharma wants, based on a reference pricing system.

The final decision as to what score a drug gets is up to the Federal Joint Committee (or the G-BA), the main decision-making body for all healthcare and medicines in Germany, which has been in force as a statutory body since 2004. 

The G-BA is also guided by the cost assessments decision coming from IQWiG – the Institute for Quality and Efficiency in Healthcare (IQWiG) – which is akin to how NICE works in the UK, and is set up to assess the cost-effectiveness of a drug. 

AstraZeneca’s antiplatelet drug Brilique was the first drug to pass the new AMNOG test, which the G-BA said gave it an ‘important additional benefit’, and offered the drug a scoring of two on the AMNOG scale for non ST-elevation myocardial infarction/unstable angina.

This was compared to Sanofi’s antiplatelet Plavix (clopidogrel) plus aspirin, and was found to have additional benefit, and could therefore have its price negotiated with the G-BA for us in these patients.

Pharma criticises ‘overly-complex’ system

But not all have been so fortunate, and the prospect of getting a low price for a drug has irked many in pharma. In September 2011, German firm Boehringer Ingelheim and US partner Lilly decided to delay the launch of their once-daily diabetes treatment Trajenta in Germany because they were concerned AMNOG would not recognise the true value of its drug. 

In an unusually vocal move, Lilly’s chief executive John Lechleiter criticised Germany’s healthcare reforms shortly after they were introduced in 2011, saying that the AMNOG was ‘overly-complex’ and tried to determine the value of a new drug before there was any real-world experience
with its use.

One of the main complaints has been that the system does not always compare like-for-like, and some new branded medicines are being tested against generics, which many in pharma do not believe is a feasible comparison given the major price difference. 

The G-BA’s choice of comparator can also not be challenged during the assessment, meaning a company has to go through the whole procedure even if it is not happy with the G-BA’s choice. 

The law says that if there are several comparators the cheapest has to be picked – if there are already generics available in a specific indication and determined as the appropriate comparator, companies will face a hard time with regard to price negotiations after the assessment process. 

Damaging Germany’s pharma prospects?

Dr Markus Frick of German industry group the VFA says ‘it is still too early’ to answer whether it will affect the industry’s place in Germany, but added: “There is a serious risk that there will not always be effective and ‘fair’ reward for innovation.”

The European pharma group EFPIA, whilst careful not to denounce AMNOG, told Pharmafile: “The experience so far is that in practice, the choice of comparator might be driven by economic considerations rather than scientific considerations.”

Edith Frénoy, director of Market Access and HTA at EPFIA, added: “Forcing the price of innovative medicines that deliver clinical benefit to match that of much older products will undermine incentives to life-changing medical discovery.

“German patients would benefit from a more thoughtful and interactive choice of comparators, based on medical and patient reality. Price comparisons should be made with patented products, not generics, and there should be more meaningful consultation and discussion.” 

Other complaints include the fact that Phase III studies have become more complex and thus more expensive for firms under AMNOG, given the complexity of the new system and the need to prove additional costing elements within its drug submission for Germany.

This is especially difficult for SME pharma firms selling into the country, who argue this will stunt R&D innovation. As a consequence, manufacturers might increasingly decide to entirely avoid difficult markets, as has already happened in Germany, in favour of those with conditions that are more predictable. 

A new reality

But outside of the teething problems pharma is having with the system, the consensus among the industry is that this type of system is here to stay. 

Where countries like Greece have simply not paid their pharma bills given their difficult financial position, Germany is looking to pay less through policy, and forge a better pricing deal with pharma – just as the UK is starting to do with its new PPRS plans. 

Some in the industry may not like it, but this looks like the future for drug pricing in mature markets as the global economy continues its sluggish return to growth. Since 2007, pharma has escaped relatively unscathed from the global recession, and recent data from the Financial Times found that the industry actually saw a sales growth of 1% in Europe in 2010, the highest point of the recession.

It was believed that pharma was recession-proof – people will always require healthcare and both governments and individuals cannot afford to not have medicines. But in the past year this has changed: people still need their medicines, but governments are now getting tough with pharma, and demanding that expensive medicines prove their value more than ever before. 

And this has hit the industry: global pharma sales are expected to grow about 3% annually from $955 billion in 2011 to nearly $1.2 trillion in 2016, according to IMS Health data. But much of this growth is coming from the 17 ‘pharmerging’ countries, led by BRIC, which accounts for more than two-thirds of the increase.

By contrast, IMS Health predicts that pharma sales in Europe are expected to drop by about 1% annually from $159 billion to $135 billion. 

There are still kinks to be ironed out of AMNOG – but the system itself will not be going anywhere. The numbers in Europe show the affect the economy is having on sales in mature markets – and new systems like AMNOG are the result, as payors want better deals for less money. 

A strong market

But overall, despite the controversies surrounding AMNOG, Germany is performing strongly in the context of a tough European and global environment. Outside of pharma its medical technology industry is doing particularly well. 

In fact, the turnover growth for the German medical technology industry for 2013 was a fairly healthy 2.6%, according to the German Medical Technology Association (BVMed), while the worldwide outlook is even better for the 111 companies involved: a 4.4% growth in revenue from outside Germany’s borders.

The medical technology industry is traditionally one of Germany’s more successful enterprises. It consists mainly of companies from the ‘Mittelstand’, the small-to-medium enterprise sector that is seen as the backbone of Germany’s economy.

In 2012, global demand for German quality saw almost 70% of medical technology products being exported to international markets and exports grew nearly 7% in 2012 to more than €15 billion.

This is partly down to the ‘Made in Germany’ seal, which continues to be seen as a guarantee of quality and innovation. It is also thanks to the culture of the country which strives for quality and hard work, with its strong work ethic across all of its industries known worldwide.

German pharma firms

But the pharma industry is still its biggest producer in terms of healthcare sales, and is made up predominately from four big firms – Boehringer Ingelheim, Bayer HealthCare, Merck KGaA and Grünenthal, each with their own histories and future prospects: 

Boehringer Ingelheim 

2012 turnover: Sales rose 12% to €13.1 billion, with prescription drugs revenue rising 13% to €11.4 billion

Biggest drug: COPD treatment Spiriva, which made €3.6 billion in 2012

Boehringer is a privately-owned, family-run company, meaning it is not under obligation to shareholders. This has allowed it to take more risks in strategy and R&D over the years. 

One of the more notable things to have come from this is the emphasis on communication via social media: it was one of the first pharma firms on Twitter and the first to launch the industry into the era of ‘gamification’ with its Facebook game Syrum. 

The firm has traditionally focussed on heart and respiratory medicines with its new anticoagulant Pradaxa looking to bring in blockbuster sales. It is also now hoping to focus more on cancer drugs as a sustainable revenue driver for the longer-term. 

It launched its first oncology medicine, Giotrif for non-small cell lung cancer, last year. It loses the patent on its second biggest selling treatment – the heart drug Micardis – in 2014. 

Bayer HealthCare

2012 turnover: Total sales worth €39.8 billion with pharmaceuticals growing by 4.2% to €10.8 billion 

Biggest drug: Haemophilia agent Kogenate made €1.1 billion in 2012

Bayer is diverse, with its consumer health business accounting for almost 42% of all sales. The firm also takes in sales from crop chemicals and plastics. 

Bayer has an interesting history: it celebrated turning 150 in 2013 and is most famous for the creation of Aspirin in 1897. But that success almost never came to be as the drug was competing at the time with another treatment for pain called Heroin, which was actually marketed before Aspirin. 

In fact, researchers in the late 19th century believed that Aspirin was bad for the heart and waived through Heroin as a treatment for pain instead. But despite a difficult birth, Aspirin has become a contender for a truly miraculous drug as new research has indicated it may be effective against some cancers as well as stroke.

Merck KGaA

2012 turnover: Overall sales grew by 8.4% to €10.7 billion

Biggest drug: MS drug Rebif grew 7.5% to €1.9 billion in 2012

Currently undergoing a major re-organisation of its operations, the firm has announced that the HQ of Merck Serono, its pharma unit, will move from Geneva to Darmstadt, with the loss of 500 jobs and the transfer of another 750 to other locations.

Founded in 1668 in Darmstadt, Merck is the world’s oldest pharmaceutical and chemical company. The success of the export business to the US led in 1887 to the establishment of an office in New York, which gave rise to the subsidiary Merck & Co four years later. 

But the events of World War I – when the US was fighting Germany – saw the American branch of Merck & Co expropriated in 1917. The two companies have been separate ever since then. 

Grünenthal 

2012 turnover: Total sales of €973 million, growing by 13% in 2012 

Biggest drug: Pain drug Zaldiar which made €166 million in 2012 (but faces generic competition)

Grünenthal, like Boehringer, is an independent, family-owned pharma firm, but the company has a dark history which centres on the side effects of Thalidomide, a drug for morning sickness in pregnant women approved in the 1950s.

The treatment caused serious birth defects in a number of children, as well as fatalities, and was withdrawn in 1961. This tragedy spurred major change in the way drugs were regulated, especially in Europe, and led to a new era in pharmacovigilance.

In a twist, oncology firm Celgene re-developed the drug under its chemical name thalidomide for multiple myeloma. The drug received a recommendation from NICE for this licence last year.

Germany breakdown:

Population: 81.9 million (2012) 

Government: Federal parliamentary republic

Leader: Chancellor Angela Merkel of the conservative Christian Democratic Union within a coalition

Gross Domestic Product: $3.4 trillion (2012)

Currency: Euro

Healthcare spend: €30 billion on pharmaceuticals (2010); the share of pharmaceutical expenditures in overall healthcare spend is 15 per cent

Industry: Largest pharmaceutical market in the European Union; third largest pharmaceutical market in the world after US and Japan

Lobby group: The German Association of Research-based Pharmaceutical Companies (VFA), representing 44 German-based firms

Companies: 903 pharmaceutical companies
operate in Germany, employing more than 100,000 people (2010)

Research spend: €5.2 billion on pharmaceutical R&D (2012)

Most prominent indications in terms
of revenue:

•  Human insulin and analogues

•  Antipsychotic drugs

•  Anti-TNF preparations

•  Analgesics, anaesthetics

•  Ulcer therapeutic agents

•  Diabetes tests

•  Anti-epileptics

•  Antidepressants, mood stabilisers

•  Interferon

•  Angiotensin II antagonists (combined).