PHARMACEUTICAL POLICY PASSPORT

Understanding pharmaceutical innovation to improve access to new treatments

INVENTING FOR LIFE MSD POLICY PASSPORT A KNOWLEDGE BASED ECONOMY 3 

WHY A POLICY PASSPORT? This document is intended to provide policy makers with a “roadmap” of the drivers and At MSD, we believe that pharmaceutical critical policies that support pharmaceutical innovation is the result of a sophisticat- innovation. It is this web of government ed ecosystem that mixes investments in policies that provided the conditions for science, adequate healthcare spending, pharmaceutical companies to invest over and industrial policy focused on building €36.5 billion in research and development in a knowledge economy. the EU alone in 2018.11

The European Union and governments in I want to thank my team at the MSD Brussels Europe play a key role in the creation and Policy Centre for producing this Policy sustainability of this ecosystem. Supporting Passport, with special thanks to Boris Azaïs, investment in fundamental science, Director Public Policy and Bjelle Roberts, financing healthcare, and implementing Assistant Specialist Public Policy Vaccines. industrial policies focused on innovation (such as intellectual property rights) are critical to enable pharmaceutical compa- nies like MSD to deploy their research and development (R&D) efforts and develop David Earnshaw, innovative treatments for EU patients. Associate Vice-President MSD Brussels Policy Centre

IN THE EU, WE HAVE THE SCIENCE, THE HEALTH SYSTEMS, AND THE PHARMACEUTICAL COMPANIES Today, MSD is at the forefront of research to advance the prevention and treatment TO CONQUER DISEASE AND of diseases that threaten people and communities around the world. PROVIDE BETTER HEALTH We will continue to lead the charge to cure diseases for which there are no cures or even good treatments, and diseases that are sure to emerge. Our quest won’t end until our inven- TO OUR CITIZENS tions move many more devastating diseases from homes and hospitals into history books.

Dr. Susanne Fiedler, Senior Vice-President Europe & Canada

1 EFPIA, The Pharmaceutical Industry in Figures – Key Data 2019

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TABLE OF CONTENTS EUROPE IS THE ORIGINAL BIRTHPLACE FOREWORD PHARMACEUTICAL EXPENDITURES 32 OF PHARMACEUTICAL INNOVATION • A KNOWLEDGE-BASED ECONOMY CONNECTS • GROWTH OF DRUG SPENDING 33 SCIENCE, HEALTH, AND INDUSTRY 6 • SO HOW MUCH DO WE SPEND ON • EUROPE NEEDS MORE R&D 7 PHARMACEUTICALS IN THE EU? 34 • R&D IMPROVES HEALTH 8 • THE “PUBLIC” PRICE IS NOT WHAT • R&D PROMOTES ECONOMIC GROWTH 9 THE PUBLIC PAYS 35 Progress in science, industrial entrepre- BUT WHAT DRIVES • POLICY MAKERS ARE IN THE DRIVING SEAT 10 • INTERNATIONAL PRICE COMPARISON 36 neurship, and nascent public health thinking PHARMACEUTICAL INNOVATION? • PHARMACEUTICAL PRICE TRANSPARENCY paved the way for modern pharmaceutical innovation to start in Europe at the end of How do we make the link between fun- IN THE SPOTLIGHT 37 THE SOURCE OF INNOVATION 11 the 19th century. damental science and a pill that will help • REWARD VALUE TO THE PATIENT 38 • WHAT DRIVES PHARMACEUTICAL INNOVATION? 12 patients? • MEDICINES DON’T GROW ON TREES 13 Pharmaceutical innovation has been one of • FROM THEORY TO THERAPY 14 SPECIAL CHALLENGES 39 the driving forces behind the tremendous Policy makers can create the legislation • IT TAKES A VILLAGE... 15 • ANTIMICROBIAL RESISTANCE progress in life expectancy and better health that supports the long pathway between 1 • AGAINST GREAT ODDS WE CONTINUE TO INNOVATE 16 A GLOBAL THREAT TO HEALTH 40 we have experienced in the last 60 years. a scientific discovery published in a scien- tific journal and the prescription filled for • WE DON'T REST 17 • PATIENT ACCESS DELAYS 42 After clean water and sanitation, the de- a patient at a pharmacy. • THE CRITICAL ROLE OF INCENTIVES 18 • ORPHAN MEDICINES FOR MILLIONS velopment of novel health technologies by • FOR A RENEWED REGULATORY AGENDA 20 OF EU CITIZENS 43 pharmaceutical companies has been a key • HEALTH TECHNOLOGY ASSESSMENT 44 driver of healthier and longer lives. VALUE OF INNOVATION 21

• VACCINATION IS AN INVESTMENT 22 BEYOND INNOVATION 45 Just to cite a few - antibiotics, vaccines, car- diovascular medicines, diabetes medicines, • BENDING THE CURVE OF CANCER 23 • MSD FOR MOTHERS 46 antiretroviral against HIV/AIDS, hepatitis C • “INNOVATION” IS WHAT HELPS THE PATIENT 24 • NOBODY LEFT OUTSIDE 47 cures, and breakthrough cancer medicines • VALUE FOR MONEY 25 • HEALTH LITERACY 48 are among the new treatments that • INNOVATING IN ANIMAL HEALTH KEEPS • ABOUT MSD 49 have helped us achieve critical progress BOTH ANIMALS AND PEOPLE HEALTHY 26 • SUBJECT MATTER CONTACTS AT MSD 50 in healthcare.

HEALTH COSTS 27 PHARMA IN A NUTSHELL 51 • WHY DO HEALTH COSTS INCREASE? 28 POLICY MAKERS PLAY • DISEASE IS THE REAL COST 29 • HEAVY FOCUS ON DRUG BUDGETS 30 A CRITICAL ROLE IN • PENNY WISE, EURO FOOLISH 31 CONTACT STRENGTHENING Brussels Policy Centre THE EU LEADERSHIP Rond-Point Schuman 6 1040 Brussels IN PHARMACEUTICAL For questions or comments on the Policy Passport, please contact Boris Azaïs at [email protected] INNOVATION

You can find a full list of MSD representatives to contact at the end of this document. 1 Lichtenberg, Frank, “The Impact of New Drug Launches on Longevity: Evidence from Longitudinal, Disease-Level Data from 52 Countries, 1982–2001”. 2005. International Journal of Health Care Finance and Economics. © MSD 2019

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A KNOWLEDGE-BASED ECONOMY EUROPE NEEDS MORE R&D CONNECTS SCIENCE, HEALTH, AND INDUSTRY

The research-based pharmaceutical indus- OUR MAIN MESSAGE, AND VISION, IS THAT try is one of the leading high-tech sectors in INVESTING IN RESEARCH AND INNOVATION Europe. Europe remains a global source of IS INCREASINGLY CRUCIAL FOR SHAPING ACADEMIC new medicines, but is losing pace to global A BETTER EUROPEAN FUTURE IN A RAPIDLY HIGHER LEADERSHIP competitors. As a knowledge-based econo- GLOBALISING WORLD, WHERE SUCCESS INVEST EDUCATION my, Europe has all the ingredients to regain DEPENDS EVER MORE ON THE PRODUCTION IN SCIENCE its global leadership, provided that we con- AND CONVERSION OF KNOWLEDGE INTO tinue to implement the appropriate policy INNOVATION. GLOBAL mix of strong science, investment in health- ADDRESS Pascal Lamy in “Investing in the European future we LEADERS IMPROVE care and a robust incentive framework. want”, Report of the independent High Level Group on UNMET POPULATION maximising the impact of EU Research & Innovation PATENT JOBS & NEEDS HEALTH Programmes, 2017. RIGHTS GROWTH MINISTRY OF RESEARCH ACCESS TO NEW TREATMENTS PHARMACEUTICAL R&D EXPENDITURE IN EUROPE AND USA MILLION OF NATIONAL CURRENCY UNITS

MINISTRY EUROPE USA OF INDUSTRY PHARMACEUTICAL 60 000 INNOVATION MINISTRY OF HEALTH 50 000

40 000

30 000

20 000

NAVIGATING A COMPLEX 10 000 POLICY FRAMEWORK * “DG” stands for European Commission Directorate General 0 1990 2000 2010 2015 2016 2017

BETTER HEALTH FOR EUROPEAN CITIZENS Source: EFPIA, Pharmaceutical THROUGH PHARMACEUTICAL INNOVATION IS industry in figures, 2019. HOW CAN THE EU REGAIN THE RESULT OF THIS UNIQUE POLICY MIX ITS LEADERSHIP?

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R&D IMPROVES HEALTH R&D PROMOTES ECONOMIC GROWTH

Since 1950, more than 1,400 new drugs hospital wards), increasing work force 2.5 million jobs are supported by the phar- Research-based pharmaceutical companies have been approved.1 This wave of productivity and improving macroeconom- maceutical sector in Europe, contributing also contributed over €91 billion to the EU innovation has played a key role in the ics through greater investment in human €206 billion in Gross Valued Added in 2016.1 trade surplus and invested €36.5 billion in steady increase in life expectancy.2 capital. This amounts to an average Gross Value R&D in Europe alone in 2018.2 Added per employee of €156,000 which is Pharmaceutical innovation provides nu- In a study covering 2000–2009 across 30 significantly higher than other key sectors. THE TRADE SURPLUS IN PHARMACEUTICAL merous benefits to different healthcare OECD countries, innovative medicines are Overall, the activities of the pharmaceutical AND MEDICINAL PRODUCTS GREW FROM stakeholders. In addition to health gains, estimated to have contributed to 73% of companies directly contributed nearly €100 €22 BILLION IN 2002 TO A RECORD HIGH pharmaceutical innovation brings greater the 1.74 year improvement in population billion to EU economies in 2016, with an ad- OF €91 BILLION IN 2018. societal benefits such as releasing other weighted mean life expectancy at birth after ditional €106 billion provided through the EUROSTAT, International trade in medicinal and 3 1 healthcare resources (for example, antiret- accounting for other factors. supply chain and employee spending. pharmaceutical products. Data from May 2019. roviral therapy against HIV/AIDS freed up NOBEL PRIZE-WINNING ECONOMIST GARY BECKER CALLED LONGER LIFE ACHIEVED EU-28 TRADE BALANCE – HIGH TECHNOLOGY SECTORS THROUGH NEW MEDICAL INNOVATION ‘THE € Million – 2018 LAST CENTURY’S GREATEST GIFT’ Kumar, V. & Sundarraj, R., Global Innovation and Economic Value (2018).

CONTRIBUTION OF INNOVATIVE MEDICINES TO INCREASE IN LIFE EXPECTANCY

Pharmaceutical products (SITC 54)

Power generating machinery and equipment (SITC 71)

Office machines and computers (SITC 75)

Telecommunication, sound, TV, video (SITC 76)

Electrical machinery (SITC 77)

Professional, scientific, controlling material (SITC 87)

Source: Eurostat, COMEXT database, May 2019. “SITC” stands for Standard International Trade Classification.

1 Kinch M. et al., “An Overview of FDA-Approved New Molecular Entities (NMEs): 1827-2013”, Drug Discovery Today, 2014.

2 Lichtenberg F., “The Impact of New Drug Launches on Longevity: Evidence from Longitudinal, Disease-Level. Data from 52 Countries, 1982–2001”, International Journal of Health Care Finance and Economics, 5, 47–73, 2005. 1 PwC/EFPIA, “Economic and societal footprint of the pharmaceutical industry in Europe”, June 2019

3 Lichtenberg, F., “Pharmaceutical innovation and longevity growth in 30 developing OECD and high-income countries, 2 EFPIA, “The Pharmaceutical Industry in Figures – Key Data 2019”. R&D spending in 2018 is estimated. 2000–2009”, 2012 It was €35.3 billion in 2017 and €33.9 billion in 2016.

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POLICY MAKERS ARE THE SOURCE IN THE DRIVING SEAT OF INNOVATION THE THREE KEY POLICY PILLARS SCIENCE HEALTHCARE INDUSTRY POLICY POLICY POLICY

DRIVE INVESTMENTS INVESTMENTS FAVOURABLE BUSINESS IN SCIENCE: IN PUBLIC HEALTH: ENVIRONMENT:

∙∙ Basic science ∙∙ Health financing ∙∙ Intellectual Property ∙∙ Higher education ∙∙ Patient centricity ∙∙ Research tax credits ∙∙ Academic centres ∙∙ Evidence based ∙∙ Stable regulatory ∙∙ Public-private medicine framework partnerships ∙∙ Focus on value ∙∙ Reward innovation ∙∙ Rapid access for patients

NEW TREATMENTS POLICY OUTCOMES

...NEW ...R&D DRUGS BETTER HEALTH Invention is 1% inspiration SUSTAINABLE HEALTH SYSTEMS and 99% perspiration. ...CASH ...RAPID HIGHER PRODUCTIVITY FLOW UPTAKE Thomas Edison ...SALES ECONOMIC GROWTH AND JOBS

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IT TOOK ALMOST 25 YEARS BETWEEN THE DISCOV- ERY OF THE HEPATITIS C VIRUS AND THE LAUNCH WHAT DRIVES PHARMACEUTICAL MEDICINES DON’T OF SAFE, TOLERABLE, AND SIMPLE TREATMENTS THAT DELIVER OVER 95% CURE RATES

INNOVATION? GROW ON TREES Adapted from Burstow et al., “Hepatitis C treatment: where are we now?”, International journal of general medicine, 10, Pharmaceutical innovation is at the junction of scientific advances, unmet medical 39–52, 2017 needs and entrepreneurship. These fundamental drivers are shaped by governments through strong “enablers”, such as intellectual property rights, uptake of new RESEARCH treatments by health systems and a pricing and reimbursement system that rewards innovation. This policy mix allows companies to engage in high-risk, high-cost re- search and development activities.

SCIENTIFIC HIGH- COMPOUND CHEMICAL DESIGN DISCOVERY THROUGHPUT IDENTIFICATION AND COMPUTATIONAL SCREENING IMPROVEMENT DISCOVERY

DEVELOPMENT ENTREPRENEURSHIP SCIENTIFIC CLINICAL RESEARCH TRIALS CHALLENGES DATA UNMET ANIMAL HUMAN COLLECTION MEDICAL NEED MULTIPLE TESTING TESTING DRIVERS & ANALYSIS ENABLERS APPROVAL PARTNERSHIPS CONTINUE TO STUDY THE MEDICINE INCENTIVES TODAY, close to 30 diseases are preventable by vaccination, INNOVATION PRO- REGULATION MARKETING PRICING & PHASE IV REAL-WORLD preventing between 2 and 3 APPROVAL REIMBURSEMENT TRIALS STUDIES million deaths globally per year PRICING THAT REWARDS 10 facts on immunization, WHO INNOVATION AND ALL THIS TAKES ON AVERAGE

DiMasi JA, Grabowski HG, Hansen RW. “Innovation in the pharmaceutical industry: new estimates of R&D costs.” J Health Economics. 2016;47:20–33.click MSD to get back to table of content INVENTING FOR LIFE INVENTING FOR LIFE 14 THE SOURCE OF INNOVATION MSD POLICY PASSPORT MSD POLICY PASSPORT THE SOURCE OF INNOVATION 15

FROM THEORY TO THERAPY IT TAKES A VILLAGE...

From a scientific discovery to a drug that Pharmaceutical innovation results from saves lives, public and private research BIOPHARMACEUTICAL INDUSTRY a complex ecosystem with multiple public laboratories play a complementary role in DOES THE MAJORITY OF RESEARCH and private actors. a very long series of increasingly expensive TO TRANSLATE BASIC SCIENCE INTO investments. From the publication of a pa- NEW MEDICINES1 Through pro-innovation policies, the EU and THE OVERALL OBJECTIVE OF ALL per at a scientific congress to the investment national governments support the collective ACTORS IN THE DRUG R&D ECOSYSTEM in clinical trials involving thousands of effort to turn science into new pharma- IS TO ADVANCE MEDICAL SCIENCE AND patients, the path to a pharmaceutical treat- ceuticals. There is a long list of actors and ment will benefit from numerous inputs and Biopharmaceutical stakeholders including health authorities, TRANSLATE IT INTO NEW TREATMENTS contributions. Whilst public institutions and Industry R&D Investments* regulators, universities, industry labs, physi- the private sector both focus on research- cians, pharmacists, patients, hospitals, and ing the causes, biological mechanisms and APPLIED many more. epidemiology of disease, the private sector RESEARCH further emphasises the actual discovery and development of new treatments that can be prescribed to patients. BASIC VENTURE APPLIED SMALL PATIENTS Public and private research laboratories RESEARCH BIOTECH CAPITAL have increasingly collaborated in order to RESEARCH produce and translate knowledge, accelerate the discovery, development and production BASIC RESEARCH HOSPITALS of innovative drugs. Publicly Funded REGULATORY Research PHARMACEUTICAL AGENCY INNOVATION ECOSYSTEM

OUR ANALYSIS INDICATES THAT INDUSTRY’S CONTRIBUTIONS TO THE R&D OF INNOVATIVE DRUGS GO BEYOND DEVELOPMENT AND MARKETING. THEY INCLUDE BASIC AND APPLIED CLINICAL SCIENCE AND DISCOVERY TECHNOLOGIES. WITHOUT PRIVATE INVESTMENT IN THE APPLIED SCIENCES, THERE WOULD BE NO RETURN ON PUBLIC INVESTMENT IN BASIC SCIENCE. RESEARCH ORGS Chakravarthy R, et al., Therapeutic Innovation & Regulatory Science. 2016;50(6): 759–768. ACADEMIA

* For a review of the division of labour between public and private research, please see Derek Lowe, BETTER HEALTH “Where Drugs Come From: A Comprehensive Look”, 28 May 2019. https://blogs.sciencemag.org/pipeline/ archives/2019/05/28/where-drugs-come-from-a-comprehensive-look FOR PATIENTS

1 Chakravarthy R, Cotter K, DiMasi J, et al. “Public and private sector contributions to research & development of the most transformational drugs in the past 25 years: from theory to therapy.” Therapeutic Innovation & Regulatory Science. 2016; 50(6): 759–768.

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AGAINST GREAT ODDS WE DON'T REST WE CONTINUE TO INNOVATE

On average, the development of a new Between 1998 and 2017, there were 146 Over decades, pharmaceutical companies This was a record year, and historical medicine takes 13 years and costs €2.33 unsuccessful trials to develop medicines to have been able to relentlessly pursue figures show an average rate of 40 billion.1 treat and potentially prevent Alzheimer’s. In new medicines to address unmet medical new treatments and vaccines since the start that same timeframe, only four new medi- needs. of the millennium. To put this timeframe into perspective, it cines were approved to treat the symptoms took over 20 years between the seminal of Alzheimer’s disease, but we still lack In 2018, pharmaceutical companies have This achievement is quite spectacular, since scientific discoveries2 that certain proteins treatment addressing the progression of the launched globally a record number of 68 R&D costs have continued to increase dur- can block the action of our immune system disease. In other words, for every research new active substances (NAS).1 ing the last 15 years due to the increasing against cancer cells and the first regulatory project that succeeded, about 37 failed.3 complexity of scientific challenges and approval of cancer treatments based on this increased regulatory requirements.2 insight. Another humbling illustration of the Despite these setbacks, there are about challenges faced by pharmaceutical innova- 7,000 medicines in development globally, FAR FROM BEING “BROKEN”, THE PHARMACEUTICAL INNOVATION FRAMEWORK IS tors can be found in the 99% failure rate in including for various types of cancer, neuro- DELIVERING AT A CONSTANT PACE OVER DECADE-LONG CYCLES R&D for Alzheimer’s disease.3 logical disorders, autoimmune diseases, and Alzheimer’s disease.4 759 INNOVATIVE MEDICINES AND VACCINES LAUNCHED SINCE 2000 Number of New Active Substances and vaccines launched per year1 MARKETING AUTHORISATION

RESEARCH CLINICAL TRIALS PRODUCT AVAILAVLE FOR PATIENTS

MOLECULES GOING THROUGH DEVELOPMENT AND TESTING Only about 1 out of 10

Only about 1 out of 10 candidate medicines that enter the first of human trials eventually survives through clinical develop- ment and gets approved.4

1 DiMasi JA, Grabowski HG, Hansen RW. “Innovation in the pharmaceutical industry: new estimates of R&D costs.” J Health Economics. 2016;47:20–33.

2 Adapted from press release for the 2018 Nobel Prize in Physiology or Medicine awarded for the discovery Source: Pharmaproject®, “Pharma R&D Annual Review 2019 Supplement”, March 2019. https://pharmaintelligence.informa. of cancer therapy by inhibition of negative immune regulation. https://www.nobelprize.org/uploads/2018/10/press- com/~/media/informa-shop-window/pharma/2019/files/whitepapers/nas-supplement-whitepaper.pdf medicine2018.pdf

3 PhRMA, “Researching Alzheimer’s Medicines - Setbacks and Stepping Stones.” Fall 2018. Cummings J.L., et al. 1 “New Active Substances” refer to new chemical or biological entities that had received no prior approval. Alzheimer’s disease drug-development pipeline: Few candidates, frequent failures. Alzheimers Res Ther. 2014. This excludes reformulated drugs or non-NAS moieties, or biosimilars. Pharmaproject® April 2019.

4 Pharmaceutical Technology, Counting the cost of failure in drug development, 19 June 2017. 2 DiMasi J., Grabowski H., Hansen R., “Innovation in the pharmaceutical industry: New estimates of R&D costs.” Journal of Health Economics, 47 (2016), 20-33 click MSD to get back to table of content INVENTING FOR LIFE INVENTING FOR LIFE 18 THE SOURCE OF INNOVATION MSD POLICY PASSPORT MSD POLICY PASSPORT THE SOURCE OF INNOVATION 19

THE CRITICAL ROLE OF INCENTIVES Pharmaceutical incentives provide limited protection from unfair competition. This protection allows biopharmaceutical innovators to continue to invest in future treatments and turn science into valuable medicines for patients. Fundamentally, when inventing new treat- At MSD, R&D expenses were $10.2 billion in ments, pharmaceutical companies discover 2017 and $10.1 billion in 2016. This represents and produce knowledge about the proper- an R&D “intensity” of 25% of our revenues.1 ties of chemical and biological products in This level of R&D investment puts MSD in the Incentives provide certainty for companies, Before we can talk about access to medi- humans and demonstrate their treatment top 10 companies globally across all sectors.2 which invest in researching and developing cines, we need to think about the conditions or curative value. This “knowledge” is ex- new medicines. Thanks to this limited exclu- and policies that turn science into new tremely expensive to produce, but relatively We should also never forget that generic sivity, if a medicine makes it to the market, medicines. easy to copy once the patent is published, medicines only exist thanks to the R&D it will be protected from competition for and the clinical evidence has been produced investments made by research-based a limited period of time from companies through research and development efforts. companies. Without patent protection, the that do not invest in R&D. This explains why innovative companies rely business incentive to invest in innovative so much on intellectual property rights. R&D is muted, and the follow-on generic Intellectual property rights represent the industry will also have less to copy. oxygen that enables innovative companies to raise capital and justify the significant in- THE AVERAGE EFFECTIVE PROTECTION vestments required to invent a new medicine PERIOD HAS DECREASED BY ABOUT TWO for patients. Weakening incentives will not YEARS FROM 15 TO 13 YEARS SINCE 1996 reduce prices: it will first reduce investments Copenhagen Economics Study on the economic in developing new treatments and cures. impact of supplementary protection certificates, pharmaceutical incentives and rewards in Europe. May 2018 NO PATENTS, NO MEDICINES, INCLUDING GENERICS...

DIFFERENT TYPES OF INCENTIVES ARE REQUIRED TO DRIVE INNOVATION FOR DIFFERENT PATIENTS

WE FIND THAT FOR 51 % OF THE 558 MEDICINAL PRODUCTS ACROSS ALL 28 COUNTRIES A PATENT IS THE LAST MEASURE OF PROTECTION TO EXPIRE. FOR THE REMAINING 49% EITHER THE SPC OR ONE OF THE OTHER INCENTIVES AND REWARDS ARE THE LAST MEASURE OF PROTECTION TO EXPIRE. 1 MSD Corporate Responsibility Report 2017/2018. Available at https://www.msdresponsibility.com/access-to-health/research-development/ Copenhagen Economics, “Study on the economic impact of supplementary protection certificates, pharmaceutical 2 PwC/strategy&, “The 2018 Global Innovation 1000 study.” incentives and rewards in Europe.” May 2018

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FOR A RENEWED REGULATORY AGENDA VALUE OF INNOVATION

Europe should drive an agile, competitive For that translation to be effective, we need world-class regulatory system that our regulatory system to be anticipating and embraces new scientific and technological working with our level of innovation. Like breakthroughs in order to accelerate other pharmaceutical companies, MSD is access to innovative products and working with regulatory authorities to deliv- solutions. er on our common goal: renewing Europe’s global leadership in regulatory science and We still have a lot to do to improve care practice. options for patients in Europe and globally. Much of the focus has been on improving THE PACE OF INNOVATION HAS access for patients at the point of care. ACCELERATED DRAMATICALLY IN RECENT But delivering access for patients begins YEARS AND REGULATORS NEED TO BE with the regulatory process. READY TO SUPPORT THE DEVELOPMENT OF INCREASINGLY COMPLEX MEDICINES THAT Regulatory processes are the means by MORE AND MORE DELIVER HEALTHCARE which we translate science into a licenced SOLUTIONS BY CONVERGING DIFFERENT treatment that a patient in Europe can use. TECHNOLOGIES. European Medicines Agency, Regulatory Science to 2025 Strategic reflection, December 2018.

THE WAY EUROPE TREATS EVIDENCE IN THE FUTURE WILL EITHER ACT AS A BRAKE OR AS AN ACCELERATOR IN OUR ABILITY TO BRING NEW TREATMENTS TO PATIENTS If I have seen a little further, it is by standing on the shoulders of giants.

Isaac Newton

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VACCINATION IS AN INVESTMENT BENDING THE CURVE OF CANCER

Vaccines are considered one of the IT IS UNACCEPTABLE THAT IN 2017 THERE Cancer incidence continues to rise across However, advances in diagnostics, medical greatest successes in medical history. ARE STILL CHILDREN DYING OF DISEASES Europe. In 2012, the burden of cancer was treatment and screening have helped bring They represent the most effective meth- THAT SHOULD LONG HAVE BEEN ERADICAT- second greatest with more than one in mortality rates down in relative terms. From od to prevent infectious diseases, saving ED IN EUROPE. four deaths due to cancer. Cancer care 2014 to 2018, 57 new molecules with 89 indi- 3 millions of people from illness, disability Jean-Claude Juncker, President of the European is changing fast in Europe thanks to the cations were approved. Despite this growth and death each year. Commission, State of the Union Address, 13/09/2017 launch of new treatments across various and an increased spending on cancer med- cancer types. icines, the overall spending on cancer care Vaccination is an investment, with broad has remained stable at around 6% of total benefits that accrue across a lifetime. IN THE ABSENCE OF VACCINATION, The number of people diagnosed with can- health expenditure largely due to a shift ABOUT 90% OF INDIVIDUALS WOULD cer continues to increase in Europe, up by towards outpatient care.1 Life-course vaccination, meaning vaccina- BE INFECTED WITH MEASLES BEFORE 30% between 1995 and 2012 due to a growing 1 tion given through all phases of life, helps THEY REACHED THE AGE OF 10 (6) and aging population. The number of treatment options continues individuals maintain good health through to increase. In 1996, a physician had only life, but also has the potential for enormous 4 medicines to treat lung cancer. In 2016 public health and socioeconomic benefits. there were 19 different medicines available.2 BENDING THE CURVE OF CANCER The cancer treatment landscape has contin- The Impact Of Prevention, Screening, ued to evolve since 2014, and now includes Diagnosis And Treatment1 new medicines targeting 23 different cancer DID YOU KNOW THAT types.3

80% of It takes up to Immunization Measles adolescents 36 months prevents vaccination between and adults to produce reduced who 2 to 3 a vaccine. deaths by contracted million measles had Two-thirds 84% between 5 not been of this time deaths each 2000 and 2016 4 vaccinated2 is dedicated year to quality control3

Source: NORDCAN© Association of the Nordic Cancer Registries (04/11/2018) 1 WHO, Ten threats to global health in 2019 2 Ammon, A., & Monné, X., “Vaccines, Trust and European Public Health”, 2018 1 Jönsson B et al., “Comparator Report on Patient Access to Cancer Medicines in Europe Revisited”, 2016, 3 IPROVE, “Roadmap on vaccines in Europe – Vaccine manufacturing and quality control”, 2016 http://ihe.se/en/publicering/cancer-medicines-in-europe-2/ 4 WHO, 10 facts on immunization, 2018 2 IQVIA Institute, “Global Oncology Trends 2017 – Advances, Complexity, and Costs”, May 2017 5 CDC, Measles Data and Statistics, 2018 6 WHO Europe Fact Sheet, “Measles in the WHO European Region”, July 2016 3 IQVIA Institute, “Global Oncology Trends 2019 – Therapeutics, Clinical Development and Health System Implications”, April 2019

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“INNOVATION” IS WHAT VALUE FOR MONEY HELPS THE PATIENT Like science, technology progresses of improved drug regimens, less side effects, through incremental steps. Patients, better tolerability, or ease of use, among doctors, and payers all benefit from these others. The patients and their doctors who innovations through greater choice and are helped by these novel treatments wel- Innovative medicines and vaccines In fact, medicines have significantly lowered competition across and within therapeutic come such improvements. bring tremendous value for money. death rates for heart disease, stroke, cancer, classes. and other deadly diseases.2 The innovation cycle is driven by competi- Many more people are alive today and Everybody likes to talk about “major break- tion. Companies race in parallel to develop living longer thanks to new medicines and Healthcare payers and pharmaceutical com- throughs” and “revolutions”, and critics are innovative medicines. They strive to come vaccines developed by research-based phar- panies can collaborate in adopting payment quick to downplay “incremental innovation”. first to market with the best clinical evidence maceutical companies. More specifically, models for new products to ensure fast But pharmaceutical innovation is first of the value of their medicine. After years new treatments bring substantial social and access for patients to more effective and about getting better products that help of research, new treatments emerge that economic contributions to society, generate safer medicines, financial predictabilityof patients. provide additional clinical data and evidence savings to health systems, and provide new the drug budget, and adequate reward for that have value for the healthcare system, treatment options to patients.1 novel therapies. Patients, doctors and payers all benefit for prescribers, payers and patients. from better treatments, be that in the form Medicines help people avoid disability and Payers also need to ensure that cost savings death caused by disease and help lower from hospitalisations are fully credited overall healthcare costs. to improved pharmaceutical spending. In a number of EU countries, medicines and hospital budgets remain fully separated. IF I HAVE SEEN A LITTLE FURTHER IT IS BY This mutes the incentive for drug payers STANDING ON THE SHOULDERS OF GIANTS. to use novel therapies, if by doing so the Isaac Newton, Letter to Robert Hooke, 1676 generate savings outside their budget and SIMPLER TAILORED don’t reap the benefits of better spending DOSING TO decisions.3456 ADAPTED PATIENTS BETTER TO DIFFERENT TOLERABILITY PATIENTS PRICE IMPROVED COMPETITION FOR DELIVERY METHOD PAYERS

Sources: Innovative Medicines Canada, “Incremental Innovation”, 14 September 2016. 1 IFPMA, “Value of innovation - Discovering Medicines and Vaccines” Innovative Medicines Canada, “Incremental Innovation”, www.ifpma.org/subtopics/value-of-innovation/ INNOVATION 14 September 2016. http://innovativemedicines.ca/ 2 Sullivan, T., “The Value of Medicine”, Policy & Medicine, May 2018 IS IN THE EYES resource/incremental-innovation/ www.policymed.com/2010/10/the-value-of-medicine.html 3 Drummond M, Jonsson B., “Moving beyond the drug budget silo mentality in Europe.” Value Health. 2003 doi: Globerman, S., Lybecker K., “The Benefits of Incremental OF THE BEHOLDER 10.1046/j.1524-4733.6.s1.8.x/full; and Espin et al., “Projecting Pharmaceutical Expenditure in EUS to 2021.” 2018 Innovation: Focus on the Pharmaceutical Industry”, Fraser Institute, 2014. 4 Ozawa S., et al., “Return On Investment From Childhood Immunization In Low- And Middle-Income Countries”, Health Affairs Vol. 35, No. 2: Vaccines, Feb. 2016. https://doi.org/10.1377/hlthaff.2015.1086 5 EFPIA, “Value of Medicines” https://www.efpia.eu/about-medicines/ use-of-medicines/value-of-medicines/ 6 Amirthalingam G., et al., “Effectiveness of maternal pertussis vaccination in England”, The Lancet, 25 Oct. 2014; 384(9953)

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INNOVATING IN ANIMAL HEALTH KEEPS HEALTH COSTS BOTH ANIMALS AND PEOPLE HEALTHY

Ensuring the health of animals is also vital but they also help to protect consumers from to safeguarding the health of people. harmful food-borne pathogens or zoonotic agents that can come from farm animals. Healthier animals mean a sustainable food supply, protection for humans against This holistic approach to health benefits an- diseases passed from animals, and longer, imals, the environment, and people. Animal healthier lives for pets. That’s why we are health experts, veterinarians and farmers committed to the “Science of Healthier work hand in hand for a better health, Animals”. well-being, and food safety. To promote prevention, 9 million European farmers Disease prevention promotes the health need continued support from European and well-being of both farm and com- authorities.123 4 panion animals and prevents suffering. Animal vaccines and other treatments such ANIMAL VACCINATION IS NEEDED TO KEEP as parasiticides, not only maintain high ANIMALS HEALTHY – AN IMPORTANT PART standards of animal health and well-being, OF THE “ONE HEALTH” APPROACH. PREVENTION IS BETTER THAN CURE! FROM FARM TO FORK Vytenis Andriukaitis, European Commissioner for ANIMAL HEALTH MATTERS Public Health, 20 April 20181 FOR EVERYONE Animal diseases cause major global trade disruptions and Prevents the loss of up to 20% great economic losses3 of global animal production each year2 Animal vaccination programmes and the EU pet The health and wealth of a nation passport mean that the More than 60% of public majority of Member States are fundamentally linked. Healthier health pathogens are from are now rabies free4 animal origin2 populations live longer, more productive Salmonella infections in humans decreased by 50% lives, leading to greater economic 4 since 2004 prosperity.

1 https://twitter.com/V_Andriukaitis/status/987260364579594240 2 World Organisation for Animal Health, “Deepening the understanding of the economics of animal health to optimise the management of disease threats” 23 May 2016 The Lancet, Editorial, 16 March 2019 3 Since the start of the millennium, six international incidents of animal disease caused economic losses of almost €70 billion (https://www.animalhealtheurope.eu/resources/infographics.html#livestockcounts 4 Animal Health Europe Manifesto https://www.animalhealtheurope.eu/focus-area/91-manifesto-2019.html

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WHY DO HEALTH DISEASE IS THE REAL COST COSTS INCREASE?

Healthcare costs have been on a rising The pathway to sustainable healthcare sys- Disease is the real cost to society, not the Fiscal policy should integrate the value trajectory for decades. These increases are tems requires fundamental changes going treatment. Every person who is absent of treating disease as a key component of driven by demographic changes, greater beyond a single focus on pharmaceutical from work or has lower productivity achieving macro-economic objectives.3 demand for healthcare, and new technolo- spending. Moving towards a value-based represents an economic loss to society. In Innovative medicines can put healthcare sys- gies that treat more diseases. These trends approach to healthcare can meet the goal 2008 premature cancer-related deaths in tems on a more sustainable path by reducing together converge to put greater pressure of access to effective and affordable care by Europe resulted in lost productivity costs costs in other parts of the healthcare system on budgets. addressing inefficiencies and quality issues. amounting to €75 billion.1 In Germany such as hospitalisations and clinicians’ time.5 The OECD found that “a significant share of alone, the cost of illness was estimated During the last 50 years, developed countries health spending in OECD countries is at best at €338.2 billion in 2015.2 To illustrate, the OECD has estimated the have seen healthcare expenditures increase ineffective and at worst, wasteful”. Based on total costs related to mental ill-health at at an average rate of 2 percentage points per existing estimates, it found that one-fifth THE COST OF DISEASE COULD BANKRUPT more than 4% of GDP – or over €600 billion annum over GDP growth.1 Based on current of health spending could be channelled HEALTHCARE SYSTEMS WITHOUT NEW – across the 28 EU countries in 2015. €190 trends, the average share of GDP spent by towards better use and that cutting inef- MEDICINES billion represents direct spending on health OECD countries would increase to 14% fective spending and waste could produce Andy Powrie-Smith, EFPIA, Medicines costs in context.4 care, another €170 billion is spending on by 2060.2 significant savings. For the OECD, moving social security programmes, while a further “towards a more value-based health care €40 billion is caused by indirect costs in the Healthcare cost increases have primarily system must be pursued decisively” by policy labour market – driven by lower employ- been caused by our ability to treat more makers faced with ever-growing health care TODAY, CLOSE TO 30 DISEASES ARE ment rates and reduced productivity due to diseases and rising demand for healthcare expenditure. PREVENTABLE BY VACCINATION mental illness.6 services. PREVENTING BETWEEN 2 AND 3 MILLION DEATHS GLOBALLY PER YEAR PROJECTED HEALTH SPENDING AS A SHARE Source: 10 facts on immunization, WHO OF GDP FINDING POLICIES THAT CAN MAKE HEALTH SPENDING MORE SUSTAINABLE WITHOUT COMPROMISING IMPORTANT ACHIEVEMENTS IN ACCESS AND QUALITY REQUIRES EFFECTIVE CO-OPERATION BETWEEN HEALTH AND FINANCE MINISTRIES. 1 Hanly, P., Soerjomataram, I., & Sharp, L. (2015). “Measuring the societal burden of cancer: The cost of loss productivity due to premature cancer-related mortality in Europe.” Int. Journal of Cancer, 136–145. OECD in Fiscal Sustainability of Health Systems 2 Statistisches Bundesamt (Destatis). (2017, September 29). Charts. Retrieved from Cost of illness: https:// www.destatis.de/EN/FactsFigures/SocietyState/Health/CostIllness/CostIllness.html 3 Rheinberger, C., Herrera-Araujo, D., & Hammitt, J. (2016). “The value of disease prevention vs treatment.” Journal of Health Economics, 247-255. 4 Medicines costs in context. Retrieved from Value of medicines: https:// www.efpia.eu/about-medicines/use-of-medicines/value-of-medicines/ 5 Kumar, V., & Sundarraj, R. (2018). The Societal Value of Pharmaceutical Innovation. 1 World Economic Forum, McKinsey, “The Financial Sustainability of Health Systems – A Case for Change”, 2012 Global Innovation and Economic Value (pp. 147-187). New Delhi: Springer.

2 OECD, “Fiscal Sustainability of Health Systems – Bridging Health and Finance Perspectives”, 2015 6 OECD/EU Health at a Glance: Europe 2018

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HEAVY FOCUS ON DRUG BUDGETS PENNY WISE, EURO FOOLISH

Governments have been targeting drug the primary driver of increased healthcare Despite representing about a sixth of When access to innovative medicines is expenditures as their main opportunity to spending.1 healthcare spending, the pharmaceutical slowed down, healthcare systems lose out achieve savings. budget remains disproportionally targeted on potentially greater savings, but more According to the International Monetary at cost-cutting. During the last decade, importantly on better health outcomes.1 Many European governments have accelerat- Fund, the focus of cost-containment efforts health cost increases have actually been ed the implementation of cost-containment on pharmaceuticals in Europe “are unlikely driven primarily by other types of healthcare ALTHOUGH NEW DRUGS CAN APPEAR EX- measures in their healthcare systems as to have a major effect on the growth of spending (hospitalisation, etc.). However, PENSIVE WHEN CONSIDERED IN ISOLATION, a response to the financial and fiscal crisis. spending over the longer term, especially short-term budget savings can come at PHARMACEUTICAL INNOVATION LEADS TO Their primary target for cost-cutting has given the modest share of pharmaceutical a long-term cost. COST SAVINGS ELSEWHERE IN THE SYSTEM been pharmaceutical expenditures. As a re- outlays in total public health outlays (about THROUGH THE REDUCED USE OF HEALTH sult, pharmaceutical spending is no longer 15 percent in the OECD countries)”.2 Appropriate use of innovative medicines can SERVICES LIKE HOSPITALS AND NURSING reduce patient costs being shifted to more HOMES AFTER THE FINANCIAL CRISIS, EU RETAIL PHARMACEUTICAL EXPENDITURE FELL BY expensive areas such as hospitalisation, and Prof. Frank R. Lichtenberg, Columbia University AN ANNUAL AVERAGE RATE OF 0.7% BETWEEN 2008 AND 2012. SPENDING THEN RECOVERED clinicians’ time. Prescription medicines are Graduate School of Business BETWEEN 2012 AND 2016, RISING BY AN AVERAGE OF 0.8% PER YEAR. largely responsible for the on-going shift OECD/EU (2018), Health at a Glance: Europe 2018: State of Health in the EU Cycle, OECD Publishing, Paris. away from hospitalisation and toward more affordable patient care.

GROWTH OF HEALTH SPENDING PER CAPITA FOR SELECTED FUNCTIONS IMPACT ON HOSPITALISATION COST OF USE OF NEW EU average, 2004–16 CARDIOVASCULAR TREATMENTS (1995-2004)

Source: OECD, Health at a Glance: Europe 2018

Spending $24 per capita on new medicines generates savings of $89 per capita in hospital costs.

Frank R. Lichtenberg, 2009. “Have newer cardiovascular drugs reduced hospitalization? Evidence from longitudinal country level data on 20 OECD countries, 1995-2003.” Health Economics, John Woley & Sons, Ltd., vol. 18(5), pages 519–534.

1 OECD/EU Health at a Glance: Europe 2018

2 International Monetary Fund, Fiscal Monitor, “Fiscal Exit: From Strategy to Implementation”, Nov. 2010, page 56. 1 IPHA, “New Medicines for Patients as Fast as in Europe: Need for Sustained Funding Growth”, 2018

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PHARMACEUTICAL GROWTH OF DRUG SPENDING EXPENDITURES During the last decade, pharmaceutical A recent analysis by Espin et al. shows that prices have not been the driver of in- in the EU51 pharmaceutical net expenditure creased healthcare costs. is expected to grow at a sustainable yearly rate of 1.5%, in other words at the same rate Since 2005, pharmaceutical spending has as the forecast GDP growth. been outpaced by the growth of total health expenditures. The economic crisis acceler- OUR RESULTS SUGGEST THAT PHAR- ated this trend and “had a significant effect MACEUTICAL EXPENDITURE IS UNDER on pharmaceutical spending in many OECD CONTROL, BELOW PREDICTED HEALTHCARE countries” (OECD 2018). A number of European EXPENDITURE GROWTH IN EUROPE, AND IN countries, in particular, experienced a down- LINE WITH LONG-TERM ECONOMIC GROWTH ward reversal in pharmaceutical spending RATES. trends pre- and post-crisis. Espin et al., 2018

HISTORICAL AND FORECAST DRUG EXPENDITURE IN FRANCE, GERMANY, ITALY, SPAIN, AND THE UK

Compound annual growth rate (CAGR) describes the geometric progression of Pharmaceuticals play a vital role a constant rate over a time period. in the health system.

OECD, Health at a Glance, EU 2018 Source: Espin et al., “Projecting Pharmaceutical Expenditure in EUS to 2021: Adjusting for the Impact of Discounts and Rebates.” Applied Health Economics and Health Policy, 2018

1 “EU5” refers to France, Germany, Italy, Spain, and the UK.

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SO HOW MUCH DO WE SPEND THE “PUBLIC” PRICE ON PHARMACEUTICALS IN THE EU? IS NOT WHAT THE PUBLIC PAYS

According to the OECD, in 2016, European PHARMACEUTICALS PLAY A VITAL ROLE When talking about pharmaceutical prices, In the EU, most healthcare systems bene- citizens spent EUR 417 per capita on IN THE HEALTH SYSTEM. AFTER INPATIENT people generally refer to the public price of fit from strong negotiation power as sole retail pharmaceuticals.1 AND OUTPATIENT CARE, PHARMACEUTICALS a medicine. This is understandable as it is purchasers or decision makers on the (EXCLUDING THOSE USED IN HOSPITALS) often the only known “official price”. In fact, reimbursement level of pharmaceuticals. However, this number is only part of the REPRESENT ONLY THE THIRD LARGEST ITEM the actual price of a new medicine is set story. On the one hand, due to national OF HEALTH CARE SPENDING, ACCOUNTING through a long negotiation process by which Public payers have been using this reporting differences, it doesn’t cover all the FOR A SIXTH OF HEALTH EXPENDITURE IN the actual, final, and "net price" paid by the power and have developed a number spending on pharmaceuticals used in hospi- THE EU IN 2016. purchaser is set. of cost-containment measures that are tals, “which can typically add another 20% to OECD/EU, Health at a Glance 2018 intended to keep their pharmaceutical a country’s pharmaceutical bill.” (OECD/EU, This "net price" is set through price budgets in check. Some of these measures Health at a Glance, 2018). control regulations, international price target indiscriminately across all types comparisons, cost-effectiveness reviews, of pharmaceutical spending and poten- On the other hand, only “around four out of confidential rebates and sometimes budget tially impact innovative companies and every five euros spent on retail pharmaceu- caps that require companies to reimburse their ability to re-invest their revenues ticals goes on prescription medicines, with payers above a certain volume. As a result into R&D. the rest on over-the-counter medicines.” of this lengthy process and negotiations, the (OECD 2018).2 "public price" that one may read about in At MSD, we engage actively with payers the papers, including in academic journals, to find the appropriate and flexible PUTTING PHARMACEUTICAL EXPENDITURES IN PERSPECTIVE is hardly ever the real price paid by health solutions that take into account budget EUROSTAT, OECD/EU Health at a Glance, 2018, Adjusted for Purchasing Power Parity systems. considerations, access for patients, and appropriate reward for new treatments.

HEALTH EXPENDITURES IN EU MEMBER STATES SIMPLIFIED PRICE NEGOTIATION TO ILLUSTRATE PRICE SETTING IN SOME EUROPEAN COUNTRIES

Company Payer negotiates price Several rounds proposes a list down in a first round of negotiations lead price of 50. of negotiation leading to further discounts, to a new price. and confidential rebates

SHARE OF PHARMACEUTICAL EU Retail EXPENDITURES2 Pharmaceutical spending per capita

1 Pharmaceutical expenditure per capita is adjusted to take account of differences in purchasing power. 2 WHO EUROPE, Total pharmaceutical expenditure as percentage of total health expenditure, Accessed 29 June 2019. Listed price Listed price Net price https://gateway.euro.who.int/en/indicators/hfa_578-6770-total-pharmaceutical-expenditure-as-of-total-health proposed achieved expenditure/visualizations/#id=19673&tab=table

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INTERNATIONAL PRICE COMPARISON PHARMACEUTICAL PRICE

Can we sustain affordability of drugs not have the same level of GDP, spending TRANSPARENCY IN THE SPOTLIGHT across Europe if countries with very levels on healthcare, or health priorities. different GDP per capita, different Price convergence prevents from adjusting levels of healthcare spending, different the price to a particular country’s health epidemiology, and different public health priorities or ability to pay (given its potential While confidential rebates lower the prices Economists argue that confidential net priorities, want the same price? impact on other countries’ prices). paid by health systems, stakeholders are prices help achieve maximum access and calling for more transparency in price optimal allocation of resources.3 This is Comparing pharmaceutical prices between As a result, external reference pricing may setting. common across industries, including other different countries is called “external refer- cause slower access to innovative drugs in areas of healthcare. If lower income Member ence pricing”. It is widely used across Europe. low income countries, and greater uncer- At the core of the argument for greater trans- States disclose the prices they pay after con- It is the process by which national payers tainty for companies wishing to increase parency of net prices is the concern that one fidential rebates, this will deter companies include the price paid by other countries in access to their products across the EU. country may pay more than its neighbour. from providing them deeper discounts and their own pricing calculation for medicines. But what if the neighbour is not so affluent impact affordability.3 It may include a few neighbouring countries In order to improve affordability, MSD sug- and its ability to pay is much lower? Should or all EU countries using the lowest price or gests that prices of medicines be based on the more affluent country benefit from the Price transparency may also restrict com- lowest average from a selection of countries. a variety of criteria, including: the value of same price?12 petition and lead to more uniform pricing the product, patient benefits, the disease across Europe, which will not necessarily The most detrimental effect of external burden, government health priorities and Price transparency may thus undermine benefit patients in lower income countries.4 reference pricing is that it may result in physician requirements. socalled differential pricing, i.e. the ability of price convergence across countries that do companies to adjust their prices at a level more in line with the particular needs and ability to pay of a lower income country.1 EFFICIENT PRICING REQUIRES THAT DIFFERENT CUSTOMERS ARE CHARGED PRICING TO MARKET IS INCREASINGLY A SIMILAR PRICE-LEVEL LEADS TO DIFFERENT AMOUNTS, ACCORDING NOT POSSIBLE IN AN ERA OF FREE TRADE A DIFFERENT LEVEL OF AFFORDABILITY TO THEIR DIFFERENT NEEDS AND AND EXTERNAL PRICE REFERENCING. THIS DEPENDING ON THE ECONOMIC SITUATION VALUATIONS1 MAY WELL RESULT IN PROBLEMS IN THE OF EACH COUNTRY. ATTENTION HEALTH AVAILABILITY AND AFFORDABILITY OF SOME COULD BE GIVEN TO MEASURES THAT SPENDING EPIDEMIOLOGY MEDICINES IN SOME COUNTRIES ALLOW COMPANIES TO OFFER MEDICINES OECD Report “Pharmaceutical Pricing Policies in AT AFFORDABLE PRICES IN EACH EU HEALTH POLITICS a Global Market”, 2008 COUNTRY PRIORITIES High Level Pharmaceutical Forum 2005-2008 Final Report 2008

IMPACT OF PRICE TRANSPARENCY AND PARALLEL TRADE: A NARROWER PRICE CORRIDOR FOR PRICING IN EUROPE2

COUNTRY A 1 Dermot Glynn, “The case for transparency in pricing”, Europe Economics, 2016 PRICE COMPARISONS ACROSS COUNTRIES 2 Zoltan Kalo, “Differential Pricing across Europe - Addressing CEE Countries Needs”, ISPOR, 10 Nov. 2014 PREVENT DIFFERENTIAL PRICING THAT IS COUNTRY B 3 Danzon PM, Towse A., “Differential pricing for pharmaceuticals: reconciling access, R&D and patents”, ADJUSTED TO THE SPECIFIC NEEDS AND ABILITY Int J Health Care Finance Econ. 3 Sept.2003, 183-205. 4 The European Commission identified this risk in its Final Report of the Pharmaceutical Sector Inquiry when discussing TO PAY FOR LOW-INCOME COUNTRIES price transparency in the context of tendering procedures. See paragraph 1485 of the Final report adopted in July 2009.

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REWARD VALUE TO THE PATIENT SPECIAL CHALLENGES

Pricing and reimbursement systems should We strive to achieve mutually beneficial be based on patients’ health outcomes, agreements with payers to ensure that our promote rapid access, reward innovation, medicines and vaccines are accessible and and be predictable and transparent. affordable, while ensuring that we can con- tinue to invest in the next generation of MSD After marketing approval, pricing & reim- inventions. bursement is a crucial step in ensuring that patients have access to innovative IN EUROPE, [PRICING DECISIONS] REMAIN medicines. UNPREDICTABLE. […] THIS RESULTS IN AN UNPREDICTABLE LOTTERY FOR At MSD we are constantly engaged with pay- COMPANIES WHO HAVE BROUGHT ers to ensure we reach our common goals of A PRODUCT THROUGH A SERIES OF improved health outcomes and sustainable REGULATORY HURDLES AND STILL DO NOT budgets. KNOW WHAT THE FINAL REIMBURSEMENT PRICE WILL BE. WHO Report “Priority Medicines for Europe and the World”, 2004

ALLOW RAPID ACCESS There is learning in failure. And while those setbacks can be

REWARD disheartening, they are worth it OUTCOME INNOVATION because when we do succeed it can save lives.

Kenneth Frazier Chairman & CEO, MSD BE PREDICTABLE AND TRANSPARENT

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ANTIMICROBIAL RESISTANCE A GLOBAL AS OF DECEMBER 2017 MSD HAS:

THREAT TO HEALTH Compounds in late-stage develop- Ongoing Phase 2/Phase 3 clinical ment for the potential treatment or trials evaluating compounds prevention of infectious diseases addressing infectious diseases

New collaborations and incentives are The EU and Member State governments can needed to revitalise research and develop- address these barriers and revitalise R&D in ment of new antibiotics this area through implementation of a suite THE EFFECTIVE STIMULATION OF ANTIBIOTIC INNOVATION REQUIRES A BALANCED of push and pull incentives to support an- COMBINATION OF BOTH “PUSH” INCENTIVES (THOSE THAT SUPPORT R&D DIRECTLY) AND Antibiotics have revolutionised infectious timicrobial innovation and appropriate use. “PULL” INCENTIVES (THOSE THAT REWARD NEW PRODUCTS). disease treatment, saving millions of Innovative Medicines Initiative DRIVE-AB report on “Revitalizing the antibiotic pipeline – Stimulating innovation lives worldwide. However, rising levels of For more than 80 years, MSD has played while driving sustainable use and global access” resistance to antibiotics are reducing the ef- a significant role in the discovery and de- fectiveness of these treatments and putting velopment of novel medicines and vaccines these health gains at risk. to treat and prevent infectious diseases. Today, MSD is one of only a few large phar- Every year at least 25,000 people in the EU maceutical companies that sustains its R&D alone die from infections caused by re- investments on developing vaccines and sistant bacteria. Unless action is taken, we medicines to prevent and treat bacterial could revert to a world where simple infec- infections. tions are no longer treatable. Rising levels of resistance to antimicrobials have become Beyond R&D, we are making significant in- a serious threat to global health security vestments into tools and services to support and economic growth. appropriate use of antimicrobials. These include SMART – one of the world’s largest Antimicrobial resistance (AMR) results from AMR surveillance initiatives, antimicrobial the ability of micro-organisms to resist anti- stewardship partnerships with hospitals microbial treatments - including antibiotics. around the world, and programmes work- AMR has a direct impact on human and ing with farmers to scale up the use of animal health and carries a heavy economic vaccination that helps optimise the use of burden due to longer hospital stays, higher antimicrobials in animals.23 medical costs and increased mortality. New antibiotics are urgently needed to address AS OF MAY 2017, 51 ANTIBIOTICS the growing threat of resistance; however, AND 11 BIOLOGICALS WERE 1 there are relatively few in development. IN THE CLINICAL PIPELINE. Antibiotic research and development present unique scientific, regulatory, and ONLY 5 ARE EXPECTED TO REACH 3 economic challenges. THE MARKET

1 IFPMA members’ antibacterial compounds pipeline inventory 2015 (https://www.ifpma.org/resource-centre/ ifpma-infographic-ifpma-members-antibacterial-compounds-pipeline-inventory-2015/) Source: MSD Antimicrobial Resistance Global Action Plan 2 “SMART” stands for the Study for Monitoring Antimicrobial Resistance Trends. For more information, please go to https://www.msdresponsibility.com/access-to-health/ http://www.globalsmartsite.com/ infectious-diseases/antimicrobialsantibiotics/ 3 DRIVE-AB Report, “Revitalizing the antibiotic pipeline”, 2018 (http://drive-ab.eu/wp-content/uploads/2018/01/ DRIVE-ABExecutive-Summary-Jan2018.pdf) click MSD to get back to table of content INVENTING FOR LIFE INVENTING FOR LIFE 42 SPECIAL CHALLENGES MSD POLICY PASSPORT MSD POLICY PASSPORT SPECIAL CHALLENGES 43

PATIENT ACCESS DELAYS ORPHAN MEDICINES FOR MILLIONS

Despite a marketing approval granted by vary by a factor greater than x 7 across Europe, OF EU CITIZENS the European Commission, patients are with patients in Northern/Western Europe not equal when it comes to getting access accessing new products 100-200 days after to innovative medicines in the EU. The market authorisation and patients mainly in time between the EU market approval Southern/Eastern Europe between 600-1000 Orphan medicines address rare diseases Despite the tremendous success so far, there and the pricing/reimbursement decision days. that affect no more than 1 in 2,000 people is still high unmet medical need in rare varies from from 119 to 925 days. (or 5 in 10,000). In Europe, approximately diseases: only 5% of rare diseases have 30 million people live with a rare disease.1 an approved treatment and much work re- In December 2018, depending on the pa- mains to be done.3 tients’ country of residence, doctors could Since the introduction of the EU Orphan prescribe between 14% and 85% of a sample Medicine Regulation in 2000 and the 10-year The growth in public and private investment of 121 new medicines approved in the EU be- exclusivity it grants to innnovators,2 we have in rare disease R&D resulting from the tween 1 January 2015 and 31 December 2017. DELAYED PRICING AND REIMBURSEMENT seen tremendous growth in rare disease introduction of the EU Orphan Medicine Patient access to new medicines is highly var- DECISIONS DEFER THE AVAILABILITY OF innovation leading to over 160 new treat- Regulation has had a considerable impact ied across Europe. The average delay between MEDICINES. SUCH DELAYS AFFECT PATIENTS ments. EU orphan incentives are working on innovation and patient outcomes.4 market authorisation and patient access can AND RESEARCH-BASED COMPANIES. and are necessary to sustain R&D in rare Maintaining the right regulatory, scientific EU Commission Press Release March 2012 diseases. and economic environment for orphan med- icine development is critical in giving hope 5 to patient.5 AVERAGE TIME BETWEEN MARKETING AUTHORISATION AND PATIENT ACCESS SINCE YEAR 2000 IQVIA 2018 study: 2015 to 2017 THE EU REGULATION ON ORPHAN MEDICINAL PRODUCTS CONTINUES TO BE 2,121 A SUCCESS IN FULFILLING ITS PRIMARY ORPHAN PURPOSE - TO ATTRACT INVESTMENT TO Average delay (days) THE DEVELOPMENT OF THERAPIES FOR LIFE- DESIGNATIONS THREATENING OR DEBILITATING DISEASES FOR MILLIONS OF PEOPLE WHO TODAY HAVE EITHER NO TREATMENT AT ALL OR NO SATISFACTORY TREATMENT. 164 EURORDIS Rare Disease Europe, “Breaking the Access ORPHAN Deadlock to Leave No One Behind”, January 2018. MEDICINES AUTHORISED

1 EMA, Orphan designation: Overview, 2019

2 Regulation (EC) No 141/2000 of the European Parliament and For most countries patient access equates to granting of the reimbursement list, except for hospital products in of the Council of 16 December 1999 on orphan medicinal products. Finland, Norway and Sweden, where some products are not covered by the general reimbursement scheme and so zero-delay is artificially declining the median and average. In France, delays may be shorter for some innovative 3 Global Genes, Rare Facts, https://globalgenes.org/rare-facts treatments thanks to the Autorisation Temporaire d’Utilisation. 4 Kesselheim A, Avorn J., “The most transformative drugs of the past 25 years: a survey of physicians”, Nature Reviews Drug Discovery 12; 425-431, 2013 Source: EFPIA Patient W.A.I.T. Indicator Survey 2018. April 2019. https://www.efpia.eu/media/412747/efpia-patient-wait-indicator-study-2018-results-030419.pdf 5 European Medicines Agency, “Annual report on the use of the special contribution for orphan medicinal products”, January 2019.

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HEALTH TECHNOLOGY ASSESSMENT BEYOND INNOVATION

Health Technology Assessment (HTA) It is crucial that both private and public is a multidisciplinary process that summa- bodies that produce or review the evidence rises information about the medical, social, follow agreed upon, scientifically validated economic and ethical issues related to the and transparent methodologies. HTAs can use of a health technology in a systematic, be an important process through which the transparent, unbiased, and robust manner. value of a medicine or vaccine can be inves- tigated in the context of a set population’s HTAs are conducted at the national level, but needs. the EU is working toward harmonisation of HTA requirements for efficacy assessments Harmonisation of HTA requirements for ef- and the early generation of real-world data ficacy assessments is critical for patients to to inform EU regulatory decisions and HTA, avoid duplicative work, such as unnecessary pricing, and reimbursement decisions for trials, potential delays, and access restric- products. We support HTA assessments tions that are not based on the intrinsic conducted using sound scientific methods. properties of a medicine, but administrative requirements.

WHEN HTAS ARE TRANSPARENT, UNBIASED, AND FIRMLY ROOTED IN RESEARCH AND THE SCIENTIFIC METHOD, THEY ARE A POWERFUL TOOL TO ENCOURAGE AND REWARD INNOVATION WITH THE GREATEST VALUE TO PATIENTS AND SOCIETY As we strive to achieve the Sustainable Consistency Predictability of the assessment of evidence synthesis, Development Goals, it is clear that requirements timelines and interpretations we need more innovative collaboration among government, civil society, BENEFITS and the business community to deliver OF COOPERATION stronger results for people around ON HTA Increased the world. scientific Speed of quality decision-making Dr. Mary-Ann Etiebet, Lead and of assessment process at national Executive Director at MSD for Mothers level

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MSD FOR MOTHERS NOBODY LEFT OUTSIDE

Globally, every two minutes, a woman dies Our efforts target three areas: Even in high income countries, a large num- In 2017, MSD kick-started an initiative with from complications related to pregnancy ber of people are underserved by our health a group of NGOs representing these com- and childbirth. Most of these deaths are ∙∙ Enable health providers systems. This is particularly true for some of munities under the banner ‘Nobody Left preventable when women have access to by providing the skills, tools the most vulnerable and socially excluded Outside’. These organisations work together modern contraception and quality maternal and technologies they need groups such as LGTBI, sex workers, migrants, to identify shared challenges, discuss les- healthcare before, during, and after homeless, people who inject drugs, and sons learned through years of engagement, childbirth. ∙∙ Develop and deliver life-saving prisoners. and seek integrated solutions to improve products for women and their access to healthcare for the communities of In 2011, MSD launched “MSD for Mothers”, health providers. Underserved groups are often described as people they represent. a 10-year, $500 million initiative to reduce ‘hard to reach’, whereas, from their perspec- maternal mortality worldwide. Today, MSD is ∙∙ Empower women to make tive, it is frequently the health services that THE AIM OF ‘NOBODY LEFT OUTSIDE’ IS working with more than 100 partners in 48 informed choices about are hard to reach. Highly stigmatised, they TO ACT AS A UNIFIED VOICE AT THE countries to improve maternal health. contraception and get the quality face a complex interplay of organisational EUROPEAN LEVEL TO IDENTIFY COMMON care they need for a healthy and legal barriers in accessing healthcare. BARRIERS AND TO OFFER pregnancy and safe childbirth. RECOMMENDATIONS FOR POLICIES AND GUIDANCE THAT WILL BEST MEET THE IN THE SUCCESSFUL COOPERATION NEEDS OF THESE COMMUNITIES. WITH MSD FOR MOTHERS, MATERNAL Freek Spinnewijn, Director FEANSTA, Working MORTALITY IS PUT IN FOCUS. ACCESS TO Together to End Homelessness in Europe MATERNAL HEALTHCARE IS A FUNDAMENTAL CONCRETE HUMAN RIGHT. IT IS A JOINT ACTIONS RESPONSIBILITY OF DECISION MAKERS IN POLITICS AS WELL AS THE PRIVATE SECTOR TO WORK TOWARDS ENDING MATERNAL MORTALITY. Joint open letter Publications Silvana Koch-Mehrin, Founder and President of Women to EU Health Service Design Political Leaders Global Forum and events Commissioner Check-list

6.6 MILLION WOMEN REACHED AND COUNTING

16 EUROPEAN COUNTRIES WITH MSD FOR MOTHERS INITIATIVES For more information about Nobody NOBODY LEFT OUTSIDE WAS Left Outside actions and founding SELECTED AS A THEMATIC organisations, please visit NETWORK BY THE EU HEALTH https://nobodyleftoutside.eu/ To learn more about MSD for Mothers, visit https://www.msdformothers.com/ POLICY PLATFORM FOR 2019

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HEALTH LITERACY ABOUT MSD

Health literacy empowers patients and Nearly half of all Europeans have inadequate MSD is an innovative, global healthcare lead- Our values guide everything we do, and they citizens to play a more active role with and problematic health literacy skills (The er with over 125–year history of commitment serve as the foundation of trust. We recog- regard to their health. European Health Literacy Survey.) Limited to improving health and well-being for peo- nise that a variety of perspectives is crucial health literacy in Europe is thus not just a ple and animals around the world. Our core to encourage innovation. We therefore strive Health literacy is the ability to read, under- problem of a minority of the population. It is a mission is to research and develop innova- for equal representation across our com- stand and act on health information. Over public health challenge. tive medicines, vaccines, and animal health pany, while promoting the best talent – as the years, MSD has been involved in a num- products. We are pushing the boundaries of reflected by our 50/50 gender balance. ber of initiatives to promote better health HEALTH LITERACY IS A STRONGER PREDICTOR science with the hope and expectation that through health literacy initiatives. OF AN INDIVIDUAL’S HEALTH STATUS THAN the medicines and vaccines we invent will FOCUS AREAS AGE, INCOME, EMPLOYMENT STATUS, EDUCA- lead to better health for society for genera- TION LEVEL, RACE OR ETHNIC GROUP. tions to come. MSD is focused on addressing many of Dr. Barry D. Weiss in “Help Patients Understand the world’s unmet medical needs. We are – Health Literacy Educational Toolkit”, American Medical We also demonstrate our commitment to pioneering new approaches to prevent and Association, 2007 increasing access to healthcare through fight cancer, challenging Alzheimer’s dis- HEALTH LITERACY far-reaching access programmes that bring ease, helping ease the impact of diabetes, SOURCES & DRIVERS our products the people and animals who preventing and treating infectious diseases, need them.1 and helping more women have safe and healthy child-births. MSD also plays an in- NEWS HEALTH LITERACY MSD operates in more than 140 countries dispensable role in developing vaccines for SOCIAL MEDIA HEALTH OUTCOMES to deliver innovative health solutions. emerging global health crises, such as Ebola. DETERMINANTS Worldwide, MSD employs more than 69,000 PHARMA EFFICIENT USE OF people, of which 18,600 are based in Europe. MSD. Inventing for Life. For more informa- PATIENTS INDUSTRY LOWER OVERALL CARE SERVICES Our facilities are located in 26 of the 28 EU tion, visit www.msd.com. GROUPS COST OPTIMISED Member States. HEALTHCARE THERAPY PROFESSIONALS REDUCED MSD IN NUMBERS IN EUROPE EDUCATORS REPEAT REDUCED RISK PROCEDURES BEHAVIOURS FAMILY & CARE MORE THAN 18,600 EMPLOYEES IN EUROPE GIVERS IMPROVED MAKE THE QUALITY OF ABOUT 27% OF OUR TOTAL WORK FORCE HEALTHY LIFE CHOICE WITH A 50/50 GENDER BALANCE STAYING PRESENT IN 26 EU MEMBER STATES HEALTHY WITH 23 MANUFACTURING SITES

1 See MSD Corporate Responsibility Report 2017/2018, available at https://www.msdresponsibility.com/access-to-health/research-development/

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SUBJECT MATTER CONTACTS AT MSD “PHARMA” IN A NUTSHELL In case you have a question on one of the topics covered in this Policy Passport or any other issue related to pharmaceutical policy, please contact one of our colleagues below.

ANIMAL HEALTH MEDIA CONTACT Julie Vermooten Veronika Bendere [email protected] [email protected] ANTIMICROBIAL RESISTANCE MSD FOR MOTHERS Sophie Noya Nilsy Desaint [email protected] [email protected] CANCER ONCOLOGY NOBODY LEFT OUTSIDE The main objective of research-based Alexander Roediger Boris Azaïs [email protected] [email protected] pharmaceutical companies is to turn DIGITAL HEALTH ORPHAN MEDICINES scientific insights into products and Nilsy Desaint Danuta Wawrzak [email protected] [email protected] services that health professionals DATA PROTECTION PAEDIATRIC FORMULATION Chris Foreman Angelika Joos can use to treat patients. This takes [email protected] [email protected] decades of hard work and significant HEALTH LITERACY PRICING POLICY Alexander Roediger Boris Azaïs investments without any certainty [email protected] [email protected] of success. HEALTH TECHNOLOGY ASSESSMENTS REGULATORY POLICY Stephanie Lane Virginia Acha [email protected] [email protected] At MSD, we aspire to improve access INCENTIVES REVIEW RESEARCH AND DEVELOPMENT Boris Azaïs Jina Swartz to health by discovering, developing [email protected] [email protected] and providing innovative products and INNOVATIVE MEDICINES INITIATIVE VACCINES Letitia Reyniers Sibilia Quilici services that save and improve lives. [email protected] [email protected] INTELLECTUAL PROPERTY RIGHTS James Horgan [email protected]

INVENTING FOR LIFE PHARMACEUTICAL INNOVATION IS ONE OF THE GREATEST ACHIEVEMENTS OF OUR SOCIETIES

FOR PATIENTS FOR SOCIETY

PATIENTS LIVE LONGER, BETTER HEALTH IS A PILLAR OF HEALTHIER, MORE OUR ADVANCED SOCIETIES AND PRODUCTIVE LIVES IS CRITICAL FOR OUR ECONOMIC GROWTH

PHARMACEUTICAL INNOVATION

FOR HEALTHCARE FOR ECONOMIES

NEW TREATMENTS SUPPORT BIOPHARMACEUTICAL COMPANIES RESPONSIVE AND SUSTAINABLE CREATE HIGH VALUE JOBS AND HEALTHCARE SYSTEMS KEEP THE EU AS A GLOBAL CHAMPION

INVENTING FOR LIFE