Is CaNaMed impact spilling beyond Romanian borders?

As with any trade, pharmaceutical business heavily relies on pricing strategies. Unlike any other trade, however, pharmaceutical pricing is heavily regulated and under constant downward pressure from public authorities. Strict rules govern the price-setting process, which in theory should provide competitors with even access to market and fair competition.

This, however, seems not to be always the case and consequences could sometimes spill within EU single market. Unfortunately, a rather generally accepted understanding of the market tends to interpret them within the national borders, yet, are they really affecting only in Romanian pharmaceutical market?

Due to price referencing in EU, in current times any policy or price level change in one of the EU countries will impact sooner or later another one. The initiative, several years ago, of the EU commission representatives on assessing the introduction of an unique EU pharmaceutical pricing did not have any success and has been fiercely battled by industry representatives.  In the lack of a better alternative, a large number of EU public healthcare authorities are using pharmaceutical pricing referencing based on a basket of countries that is highly variable from one country to another. Trying to map this reference matrix is sometimes a seldom endeavor which leads beyond a myriad of intricacies to a single and a basic conclusion: Once a product price changes in one of the EU countries sooner or later this will influence the price in one, two, there or many other EU state members.

If we believe that, than beyond the content and mechanics of the regulatory document of pharmaceutical pricing in Romania the implications of the way that the provisions of such document are transferred in real life are as important as the basket of countries used, regressive formula’s , generic products pricing etc. The asymmetric implementation of legal provision can create pricing distortions in the form of discernible uneven treatment received by certain products. Such cases are modifying the rules of engagement of the competitive landscape and impacting one of the most important assets of a product marketing mix: the price. Why manufacturers and public authority representatives does not act upon such inconsistencies remains a question, yet unanswered.

Overview of Romanian pharmaceutical pricing regulation

During the past 10 years regulations on pricing for pharmaceutical products dramatically changed adapting to mechanisms used in several EU countries. Many solutions were considered and the ultimate goal pursued by the legislators and public health authorities seems to focus on the reduction of pressure exerted by the costs associated with medication, for both the public healthcare payer and the patients, rather than enthusiastically encouraging innovative compounds.

The Order 75/2009 and subsequent amendments brought a series of major changes of substance in the authorization process of prices for medicines for human use (previously governed mainly by the Order 612/2002). Out of these, relevant to this case study:

1. Drug classification in several categories, according to the regulatory and  IP status. Thus, the current regulations provide a new classification for RX:
a. Original drugs, orphan and pediatric use (the latter two being distinct for the first time mentioned in the regulations on pricing). For these, price is determined by comparison with manufacturer prices in the countries reference. In addition, the Order brings procedural clarification for situations in which the countries reference is not selling the same concentration, form and shape of packaging. Unfortunately, for orphan and pediatric use drugs, besides mentioning them in the text of the pricing regulation no other specific mechanism is described.
b. Generics, which have two constraints to comply with. Thus, in addition to the referencing with the similar prices in the countries listed by the Order (if any), generics are not allowed to have a manufacturer price higher than 65% of the original one.

2. Establishment of producer prices in RON (and no other currencies). If before the advent of the Order 75/2009  the drug price was approved in the currency chosen by the legal representative of the manufacturing company, since April 1, 2009, it is endorsed in national currency (RON) a widespread practice in the EU countries.

3. In order to determine reference manufacturer prices expressed in foreign currency, the exchange rate used has been set to rate employed in the construction of public budget, as published by the National Commission for Prognosis.

4. Mandatory annual review of the manufacturer price.

5. Introduction of a unique pricing regulation irrespective of the manufacturing site of the product, Romanian manufactured products being treated as the non Romanian manufactured pharmaceuticals.

The last amendment of the Order 75 / 2009 included the biosimilars.

Critical issues in application of pricing regulations

1. The “elusive” 65% rule

According to the Order 75 / 2009 generics are allowed prices that do not exceed the lesser of the lowest manufacturer price in the reference countries or 65% of the price approved for innovative in Romania. The latter part we named the “65% rule”. This provision was in force, in a similar formulation, ever since the Order was first issued and applied. And yet, although almost 2 years have passed since their release, these stipulations are not consistently observed by some Marketing Authorization Holders nor is their compliance audited by public health authorities.
Probably one of the most outstanding examples is the case of amoxicillinum + acidum clavulanicum tablets (normal release).  Ever since 2009, Augmentin® (which is the original product) had one of the lowest prices in the Catalogue, for all concentrations. In fact, in August 2009, Augmentin® was the cheapest product in this category, meaning that all generics were higher priced. In January 2011, Augmentin® still remains one of the cheapest products, with generics having prices in excess of 30% larger (for the 1000 mg concentration, there is just one generic priced lower than the original, yet, above the 65% upper limit, while for 625 mg all generics have prices higher than the original) – please see Exhibit 1.
As of January 1st, 2011, the National Pricing Catalogue for Prescription Medicines contained numerous other INN in similar situation, including  ketoprofenum (please see Exhibit 2) and enalaprilum (please see Exhibit 3)
Naturally, for the manufacturer of the original product this situation creates an un-intended competitive distortion. Yet, the non-compliance with pricing regulations has deeper consequences, as further discussed under “Distortions created by the ‘asymmetric’ implementation of legal provisions” heading of the Case Study. 

2. The local meaning of the concept of ‘biosimilar’ as applied in the pricing regulation

According to EMA definition, a similar biological or 'biosimilar' medicine is a biological medicine that is similar to another biological medicine that has already been authorised for use. Biological medicines are medicines that are made by a living organism, such as a bacterium or yeast. They can consist of relatively small molecules such as human insulin or erythropoietin, or complex molecules such as monoclonal antibodies.
Biosimilars can only be authorised for use once the period of data exclusivity on the original 'reference' biological medicine has expired. In general, this means that the biological reference medicine must have been authorised for at least 10 years before a similar biological medicine can be made available by another company.

There are several critically important aspects about biological products and their biosimilars:
1. The similar active ingredients may be obtained by use of different living organisms, or in other words, different manufacturing processes. Consequently, although containing the similar active ingredients, referencing the biosimilars to the innovative biological products is not as straightforward as it may appear.
2. Since they are derived from / obtained by use of living organisms, biological products cannot be patent protected. Instead, the company having developed a such a product is given a ‘data protection’ period. Thus, economic performance of biological product is very sensitive to the appearance of biosimilars and the pricing rules applicable to the latter.

Having said all these, we go back to the National Price Catalogue. As of January 1st, the CaNaMed includes 3 original biological brands (the so called ‘reference products’) and 5 biosimilars brands. Our assessment was made considering the classification made by EMA.

Surprisingly (or not), when using local definitions and compound qualification by the public authority within the content of the CaNaMed we find a totally different situation regarding the biosimilars:
a. three EMA declared biosimilar brands bear the classification of ‘generic’ for the purpose of pricing (although the very next column in the CaNaMed, containing the classification of the National Medicine Agency, indicates them as biosimilars), namely Zarzio®, Nivestim® and Tevagrastim® - please see Exhibit 4.
b. one EMA declared biosimilar brand classified ‘original’ for the purpose of pricing, namely Omnitrope®

Why is this classification so important? Falling in one or the other of the two categories determines the set of rules to be complied with and consequently the profit margins. Being labeled as biosimilar rather than generic means a increment of 23% in the manufacturer price (and consequently in the revenues generated by the product). Should a drug be classified as generic, it would only be allowed a 65% of the original’s price as maximum level for the approved manufacturer price, while if biosimilar, the maximum allowed is 80% - please see Exhibit 5.

It is quite seldom to notice that the decisions of EMA concerning the biosimilar status of several products are not taken into consideration by the local pricing authority, specifically in the context in which EMA is the only EU authority which authorizes biosimilars and as such, the only that can be reflected within the product status.

Distortions created by the ‘asymmetric’ implementation of legal provisions

Consistent application of pricing rules is meant to create equal chances for market players to compete and / or interact in the legitimate pursue of individual objectives. Yet, situations as those above detailed have important consequences, which extend beyond the turnover of the producer, or the borders of Romania.

1. Reimbursement prices are affected.

As long as Order 75 co-existed with an ATC 5-based reimbursement system, the impact of such distortions was rather limited. Yet, when the clustering system (or ATC 4 based) was implemented, the implications of asymmetry in enforcement of legal provisions expanded unpredictably.

Although the application of cluster reimbursement makes it difficult to determine the actual variation in the reference prices subsequent to modification of manufacturer prices, the effect may, however, be pinpointed. Indeed, cluster reimbursement system presupposes that reference price for reimbursement is set for a ATC 4 group of products based on the equivalence of dosages. Thus, cost of standard daily treatment is assessed and the reference price is set based on quintiles calculation. Due to this mechanism, establishing a certain reference price critically depends on the specific quantum of relevant prices. Where the limits set by law are exceeded, reference price set is higher and associated consequences cascade down, not only to producers, but also to public budget and patients through the reimbursement mechanism.

In order to give you an idea about the size of the reimbursement-relevant consequences, we may use the same case of Augmentin®. Indeed, when cluster reimbursement was launched, prices of generics were materially higher than the allowed limit of 65%, in all cases but one exceeding the price of the original, for the 1000 mg and 625 mg. In the same cluster, alongside the INN of amoxicillinum+acidum clavulanicum, the NHIH included  sultamicillinum and one other product. We re-performed the calculation of reference prices, using the methodology indicated by the National Health Insurance House, but using “adjusted” prices for the generics (65% of the original).

Results showed that should the pricing regulations be properly applied, the reference price for the cluster containing Augmentin® would be at least 50% smaller than the one announced by the NHIH. The implications are that public funds might have recorded a 50% saving in the amounts paid by NHIH for reimbursement of products containing amoxicillinum+acidum clavulanicum.

Assuming that 75% of volumes of products containing amoxicillinum+acidum clavulanicum (tablets of 1000 mg and 625 mg)  traded in the second half of 2010 were reimbursed on the A list, the amount saved by the NHIH might have been in excess of 10 mil RON (2.5 mil EUR) for the formulations mentioned – please see Exhibit 6

Should the case of Augmentin® and its generics be the only exception, overall impact may not really be material. Unfortunately, there are numerous other cases.

2. Fair competition?

Earlier we mentioned the case of biosimilars. While on all European markets were they are approved for marketing, they are considered, in Romania, the different classification means different price levels allowable and different competition conditions on the market.
Binocrit®, biosimilar of Eprex® is classified in CaNaMed as biosimilar and allowed a maximum limit of 80% of the original price. Even so, one of its formulations exceeds the (already) extended 80% to 83% of the manufacturer price approved for the reference formulation, EPREX(R) 1000 UI (1000 UI – 0.5 ml).

Meantime, Nivastim® and Tevagratim®, biosimilars of Neupogen®, are classified as generics. Prices approved for these products are exactly 80% of the reference product (Neupogen®) while the third biosimilar – Zarzio® has a price approved of less than 62% for both marketed formulations, complying with the rules regarding ‘generics’ under which heading it had been included, too.

There are two important questions to be addressed. Firstly, why are biosimilars inconsistently classified by the pricing authority as either generics or biosimilars? Secondly, if declared ‘generics’ why for some products officially approved prices exceed the 65% of the innovative limit (please see Exhibit 4)?

Of course, the latter question is valid for all the other similar situations in CaNaMed, which, although not necessarily similar in size of deviation, are still numerous and with significant aggregated effect.

Situation above points towards uneven treatment towards products alike.

Future developments

On April 1st, according to legislation in force and to the intelligence already provided in the mass-media by public authorities, the prices in CaNaMed are to be updated. 

The methodology, as outlined by the Order 75/2009 (in the currently applicable form) implies using a correction factor to all approved manufacturer prices at the beginning of the year, effective April 1st.  The correction factor for the April 2011 update is 99.06% which means that the prices are to decrease by approximately 1%. However, manufacturer prices are approved for a year and once this period expires, the legal representative of the producing company has to re-submit price file, undertaking the same procedure as if the first-time application. Considering that a large number of products have been already gone through these steps last year, it means that, the decrease may slightly surpass the one generated by the correction factor. The insignificant difference between results produced by the two approaches is due to the minor variation in the EUR exchange rate used (4.25 in 2010 versus 4.21 in 2011).

Yet, the updated prices to be published by the Ministry of Health may contain more significant adjustments.

First of all, assuming that innovative prices remain at the same EUR level in 2010, the generics manufacturers may use this update in order to mend deviations for regulations similar to those above discussed.

Secondly, the assumption that innovative prices remain unchanged compared to 2010 may be wrong. Indeed, as often discussed in various Insights published on HARE, Greece, Germany, Portugal, Spain Hungary and other countries in European Union have undertaken price reduction actions in the past few months, the effects of which are likely to be seen on the April 1st version of CaNaMed, certainly if the provisions of the pricing order are to be respected and the authority updated all pricing catalogues from the referencing basket of countries.