Can the EC Boost Europe's Competitiveness?

The European Commission is trying to turn Europe into a more competitive player in the global pharmaceutical market, through speeding up and streamlining the pre-market drug approvals process, including implementation of a new US-style "fast-track" alternative. But without simultaneous reforms in pricing and reimbursement by member states, loosening of marketing restrictions isn't likely to have much impact.

The European Commission is trying to turn Europe into a more competitive player in the global pharmaceutical market, through speeding up and streamlining the drug approvals process. Coming after a spate of product delays and withdrawals by the FDA, the proposals aim to cut in half drug assessment times from the current 15-18 months, and include a new US-style "fast track" procedure taking just 150 days. "We just want to be competitive, at least as competitive as the Americans," says Per Haugaard, a spokesman for Erkki Liikanen, European Commissioner for Competitiveness and Enterprise.

The intention is good. But proposals aimed at pre-marketing registration don't tackle the real cause of Europe's relative lag in competitiveness—pricing and reimbursement. Governments of each European Union (EU) member state set the price of medicines, which, as a result of differing social security systems (and different ways of fixing those prices—see Exhibit 1) vary widely from one country to the next. At the extreme, this can result in delays of up to three years in patient access to medicines, according to Europe's pharmaceuticals industry group, the European Federation of Pharmaceutical Industries and Associations (EFPIA).

"No [reimbursement] system in any country is transparent," says EFPIA. And each is unique. In some countries, such as Belgium, Portugal, Italy, Spain, Austria and Greece, drug companies have to wait until the price has been fixed before they can launch the product, a process that can take anywhere between three months and two years. Then come the reimbursement discussions, which can add another year to the process. In Sweden, Germany, and the UK the process is faster: in the UK manufacturers can launch medicines at whatever price they like, and this is adjusted a posteriorithrough the Pharmaceutical Price Regulation Scheme (PPRS) scheme. The Swedish system saves time through initiating pricing and reimbursement discussions before a drug has received marketing approval.

So although EFPIA welcomes the thrust of the proposals, it warns that they're nothing to get too excited about. "Our [Europe's] problems are macroeconomic ones," the agency said. "The pharmaceutical industry is the only industry in Europe which does not function on a supply and demand basis".

Differential price-fixing across Europe has in turn given rise to parallel imports, whereby drugs are exported from low-priced countries such as Spain and re-sold at a profit to the mediator. Yet the EU encourages free movement of goods, so such imports, which already account for up to 10% of total pharmaceutical sales in the UK, Netherlands and Denmark, are likely to increase. And different intellectual property laws across member states are a further disincentive for companies to set up R&D operations in Europe. Small wonder, then, that Europe's share of the world pharmaceutical market is decreasing, to the benefit of the US, which generates 60% of the industry's profits.

But pricing and national IP laws are squarely in the hands of member states. Where the Commission does have the power to interfere, it is doing so "in the right direction", according to Thomas B. Cueni, general secretary at Interpharma, the trade association of Swiss pharmaceutical research companies (representing Novartis SA, Roche Holdingsand Serono SA ). "Any proposal to make drug approval more efficient deserves support," says Cueni, who is also chairman of EFPIA's Social and Economic Affairs Committee. He welcomes, in particular, the suggestion of a US-style fast track procedure. Switzerland's Medicines Agency set up a similar process two years ago, and as a result drugs such as Roche's trastuzumab (Herceptin) for breast cancer, GlaxoSmithKline PLC 's diabetes drug rosiglitazone (Avandia), and Novartis' imatinib mesylate (Gleevec) for leukemia have had concurrent US and Swiss launches.

Patients in the EU, however, have been kept waiting up to a year before receiving innovative drugs (such as anti-retrovirals for AIDS) approved through the fast-track FDA process. And once a drug is available, different medical practices in European countries lead to wide variations in its use, even those that are considered to be the standard treatment. "Whereas taxanes [which used to be the standard treatment for breast cancer] achieved a 99% penetration in the US, in the UK less than half of patients were receiving the treatment," comments Cueni.

In its attempts to harmonize drug approval times, the EC also recommends that the London-based European Medicines Evaluation Agency (EMEA) review all new chemical entities. At present, only biotechnology-derived products are required to go through the EMEA; other compounds can be submitted to national agencies and be approved throughout Europe on the mutual recognition procedure. And whereas member states are currently not obliged to "mutually recognize" a drug approved in another country, the proposals would effectively give the EMEA the last word.

Although such centralization gives the impression of unity, it isn't necessarily in the interests of smaller pharmaceutical companies focused on national markets. For players like Italy's Menarini Industrie Farmaceutiche Riunite SRL or Recordati Industria Chimica & Farmaceutica SPA , going through London will likely prolong the process, as well as make it more expensive.

Yet even global groups like AstraZeneca PLC aren't convinced that a centralized agency would actually speed things up. "We are nervous about the bureaucratic procedures," said a spokesman at the company. It's easy to see why. "There will be specific rules for small and medium-sized enterprises (SMEs) regarding costs relating to the translation of documents," assures a Commission spokesman.

The EU's forthcoming expansion from 15 to 21 member states is another driver for centralizing approval procedures (and for other reforms included in the proposals, such as harmonizing the EU data protection period at 10 years and establishing an EU-wide definition of "generic"). But here again, EFPIA warns that unless member states make moves to harmonize pricing, reimbursement, and IP laws, problems such as parallel imports and access times make enlargement into "a real nightmare, rather than a real opportunity" for pharmaceutical companies.

In a cautious move to expand consumer access to information on prescription drugs in Europe, the Commission's proposals will allow companies to give out information on products for diabetes, AIDS, and asthma. Such "informing" (as distinct from "advertising") would have to be at the patient's request, however, and all material submitted to the EMEA first. Direct-to-consumer advertising of prescription drugs is currently illegal in Europe, although the Internet and other consequences of globalization limit the enforcement of this law.

This is one of the reasons Interpharma's Cueni argues the approach is too timid. "We see no justification for restrictions on access to information," he says. "It's happening anyway. Why limit it to three disease categories?" In response to fears on behalf of European consumer groups that this opens the way for US-style "in your face" drug advertising, Cueni contends that the distinction between banner advertisements for particular products and going to look for information is clear. Indeed, most international pharmaceutical companies—even the European affiliates of US companies—realize that the market in Europe is different than in the US, however much they'd like to set up global advertising campaigns, points out EFPIA. As a result, the agency feels that this gradual, stepwise approach to deregulation is the only way forward.

None of these changes are likely to happen fast. The loosening on marketing restrictions will be monitored over a five-year trial period, and it will be at least two years before any of the proposals make it into law anyway. When and if they do, the impact on Europe's competitiveness is likely to be minimal without concurrent efforts at member state level.