Topics Price premiums of new drugs relative to comparator drugs: Analysis using matched samples from Japan, the U.S., and Europe

Printable PDF

The Office of Pharmaceutical Industry Research Visiting Researcher, Professor Junichi Nisihimura, Gakushuin University
The Office of Pharmaceutical Industry Research Director, Professor Sadao Nagaoka, Tokyo Keizai University

The drug pricing system plays a central role in incentives for drug discovery innovation. New drugs with high innovation potential are expected to earn higher revenues due to their large price differentials relative to existing comparators, thereby encouraging R&D efforts that are uncertain and costly to produce innovative drugs. International comparative studies of the price premiums of new drugs relative to comparators provide concrete evidence on the extent to which each country's drug pricing system values the added value of new drugs relative to existing comparators, and are important data from the perspective of analyzing policy systems to promote drug discovery innovation. However, there are few examples of international comparative studies using this ^data2).

An exception is a previous study by Comanor et al. (2018), which used the National Institute for Health and Care Excellence (NICE) to compare the cost-effectiveness of drugs and the United Kingdom, where public procurement agencies play a major role in pricing decisions, with the evaluation of drug effectiveness and price The study compared the price premiums of new drugs relative to existing comparators (the percentage increase in the price of new drugs relative to comparators) in the U.S., where negotiations are left to the private sector, and found that, on average, the price premiums are about equal between the U.S. and the U.K., and that the regulated prices based on cost-effectiveness by the government in the U.K. are not significantly different from those determined by market forces in the U.S. The paper concludes that the UK government's cost-effectiveness-driven regulatory pricing is not significantly different from the market-driven pricing in the US ^.3)

This paper extends the work of Comanor et al. (2018) in three respects. First, by using the U.S. as the reference country and comparing Japan, Germany, the U.K., and France with roughly the same data set, we measure the extent to which the price premiums of new drugs in the U.S. market reflect the price premiums of new drugs in the Japanese and European countries. As shown in Appendix 1, this will allow us to determine the extent to which the medical benefits of new drugs relative to existing drugs are reflected in the rate of price increase of new drugs in each country's market, compared to the U.S. market. It should be noted, however, that the amount of increase in drug prices depends on factors that determine the price level itself (e.g., willingness to pay) in addition to such price increase rates.

Second, although Comanor et al. (2018) assume that the valuation of new drugs (drug prices) in each country exclusively reflects cost-effectiveness, in Japan and Europe, the price difference of new drugs from overseas may also be an important factor, directly or indirectly, and its impact is incorporated in the ^analysis4). As shown in Appendix 1, if the price difference (in logarithms) between the reference country (the U.S.) and the country in question for the comparator drug is added as an explanatory variable, the estimated value of the coefficient will indicate the importance of this factor in each country. This paper will thus also analyze the impact of the difference in the price level of the new drug from the U.S. in determining the price premium of the new drug.

Third, we perform a comparative analysis using the average panel data, which captures the dynamics not only at the time of market launch, but also thereafter. Price dynamics vary widely across countries, and an analysis of initial prices alone may result in an inadequate analysis of incentives for innovation.

Data Construction

In this paper, we constructed an analytical dataset using a variety of data ^sources5). The construction procedure is as follows. First, Pricing Insights, which we licensed from IQVIA, contains monthly price information for marketed drugs from July 2010 to March 2019 for five countries: Japan, the U.S., Germany, the U.K., France, and Germany (with the exception of Japan, for which price information was missing for 2010). Pricing Insights" contains price information at each stage of distribution, but in this report, we use the pharmacy purchase price (PPP), which is assumed to be closest to the actual price in each ^country6). From this basic database, we created a database by matching the price information of each country for each drug unit that shares the same generic ingredient name, international trade name, dosage form, and strength, and then simply averaged the price data on a quarterly basis for each country. We obtained information on GDP deflators and purchasing power parity as of 2015 for each country from the OECD, realized the data at 2015 prices, and converted the data to dollar-based prices using purchasing power parity. Next, a list of the top 300 drugs in terms of sales from IQVIA World Review Analyst 2018 and the corresponding comparative drugs identified from the NHI drug price calculation information from the Japanese Central Medical Association were created and connected to a database constructed from Pricing Insights.

Finally, we extracted the 69 components of drugs that have been launched in Japan, for which NHI prices have been determined on a comparative basis, and that are also available in the United States and one of the three European countries (Germany, the United Kingdom, or France) (comparative drug data corresponding to each of the 69 new drugs calculated using the Comparable Drug Efficacy Method). In addition, the drugs in these analyses had to have a common drug in each country in terms of generic ingredient name, international trade name, dosage form, and strength. Of these, approximately 30 drugs had initial prices during the observation period.

Furthermore, in order to calculate the price ratio of a new drug to an existing comparator drug on a per-treatment basis, this paper used information on the daily drug price of each drug from the NHI drug price calculation data of the Central Medical Council to measure the price premium (logarithm of the price ratio, the percentage increase in price of a new drug relative to a comparator drug) of a new drug relative to a comparator drug in each ^country7).

Basic Model of Analysis

Comanor et al. (2018) perform a simple cross-sectional regression analysis by calculating the price ratios (UK ratio and US ratio) of a new drug to an existing comparator at the time of launch (of a new drug) in standard therapeutic units in the UK and US, respectively, and taking their log values. Similarly in this paper, the price premium for a new drug, calculated as the daily drug price converted in terms of daily prescription volume, is defined as follows

Price premium of new drug = ln (daily drug price of new drug) - ln (daily drug price of comparator drug)

In this paper, as in the regression analysis of Comanor et al. (2018), the following model equation (1) was first ^estimated8).

Price premiums for new drugs in Japanese and European countries _i = constant term + β/β* (price premium for new drugs in the U.S.) _i ) + ε _i (1)

where i is the drug component and β/β* is the estimated parameter. The coefficient value of interest here is the value of β/β*, which, as shown in Appendix 1, indicates the extent to which the higher health benefits of new drugs are reflected in the rate of increase in their prices in Japanese and European countries compared to the United States. If this value is equal to 1, it means that the degree of reflection is the same as in the U.S. If it is greater than 1, it means that the drug is reflected more than in the U.S. If it is less than 1, it means that the drug is reflected less than in the U.S. Equation (1) is estimated using cross-sectional data as in Comanor et al. (2018), and in this paper, the prices of new drugs at the time of launch in each country are used, with the sample split into four countries (Japan and Europe) for comparative analysis.

In determining the price of a new drug, not only the relative cost-effectiveness of the new drug relative to comparators, but also the price difference of the new drug with foreign countries, such as foreign average price adjustment and reference price system, are considered to have an impact. Therefore, in this paper, we estimate the following model equation (2), which adds this factor to equation (1).

Price Premiums for New Drugs in Japanese and European Countries _i = constant term + A (price premium for new drugs in the U.S.) _i + (1-θ)ln (daily drug price of the comparative drug in the U.S. / daily drug price of the comparative drug in each country of Japan and Europe) _{i - 4 + ε i} (2)

As shown in Appendix 1, if the price difference (logarithm) between the U.S. and Japanese/European countries for the comparator drug is added as an explanatory variable, the estimated value of the coefficient (1-θ) will indicate the importance of the price difference with the U.S. in each country (the probability of using foreign average price adjustment in the case of Japan). The significance of the effect of foreign average price adjustment, etc. in determining the price premium for new drugs can also be analyzed. In addition, A in equation (2) is the coefficient value of the price premium for new drugs in the U.S., which is equal to θβ/β* + (1-θ). Therefore, by obtaining the coefficient value of (1-θ), the value of β/β* in the model equation (2) can be calculated and obtained. （In equation (2), the daily drug prices of comparator drugs in the Japanese and European countries are included in the second terms of the left and right sides, and to avoid potential simultaneity issues, the logarithm of the daily drug price ratio of the comparator drugs one year ago is used in the right ^side9).

While the data analyzed in Comanor et al. (2018) were cross-sectional data only at the time of launch, this paper analyzes the dynamics of the price premium using quarterly panel data from July 2010 to March 2019 for 69 drug components. This analysis is considered important because this dynamic is different in each country. For example, in the U.S., in some cases, penetration pricing strategies are used as a strategic pricing strategy for new drugs, whereby the value of a new drug is gradually recognized and its price increases as it becomes more widely available in the market. There is no such mechanism in Japan, and even in Europe it is limited, to reflect this growing appreciation of the value of new drugs.

The model equation we estimate with panel data is as follows.

Price Premiums for New Drugs in Japan and Europe _it = constant term + β/β* (price premium for new drugs in the U.S.) _it+εit (3-1)

Price premium for new drugs in Japan and EU countries _{it = constant term + A (price premium for new drugs in the U.S.) it +εit} = constant term + A (price premium for new drugs in the U.S.) _it + (1-θ)ln (daily drug price of the comparative drug in the U.S. / daily drug price of the comparative drug in each country of Japan and Europe) _it-4+εit (3-2)

Equation (3-1) corresponds to Equation (1), and Equation (3-2) corresponds to Equation (2). Equation (3-1) shows the results of estimating the same model using the average of panel data, not the initial values, and can be considered a robust check. Both are estimated from panel data, but fixed effects estimation is not performed in this paper. The price premium for a new drug is calculated from the ratio of the price of the new drug to that of a comparator, and the unique effects common to the new drug and comparator (e.g., indications, pharmacological effects, demand for the target disease, competitive situation, etc.) have already been removed.

Estimation Results and Analysis

Estimation was performed by the least squares method according to the previous model equations (1) through (3). The following table summarizes the estimation results for the coefficient values of main ^interest10). The details are shown in Appendix 2, but all of the estimated coefficient values were strongly statistically significant.

First, the estimated results of equation (1) show that the coefficient of β/β* on the price premium for new drugs in the U.S. is lower than 1 in all four ^countries11). This result indicates that the rate of increase in the price of a new drug does not reflect the health benefits of the new drug relative to the comparator drug (i.e., the rate of improvement relative to the comparator drug) in Japan and Europe as well as in the United States. Furthermore, the coefficient values of β/β* are larger in Germany, the U.K., France, and Japan, in that order, for both equations (1) through (3), indicating that Japan does not reflect the health benefits of new drugs in its rate of increase in drug prices compared to the U.S. and Europe. For every 30% new drug price premium in the U.S., there is a 9% price premium in Japan, 23% in Germany, and 20% in the UK.

Next, the coefficient of determination, R-squared, is also noted. As equation (1) shows, the variation in the price assessment in the U.S. is common, and the larger the coefficient value of β/β* is in the country concerned, and the smaller the variation in the price assessment of the added effect of a new drug in the country concerned. The fact that the R-squared is smaller in Japan and France than in Germany and the U.K. has two potential causes: the smaller coefficient value of β/β* and the greater variation in price evaluation. In other words, β/β* is larger in France than in Japan, but R-squared is smaller in France than in Japan, and this is because the variation in price valuation is larger in France than in Japan.

The above results can be seen from Figures 1 and 2. Figure 1 takes the U.S. price premium on the horizontal axis and the Japanese price premium on the vertical axis, and draws a scatter plot with values as of January-March 2019. Similarly, Figure 2 shows the U.S. price premium on the horizontal axis and the German price premium on the vertical axis. As expected from the estimated coefficient values of β/β*, the slope of the trend line (dotted line) is steeper in Germany than in Japan, closer to the 45-degree line. One reason for the smaller slope of the trend line in Japan is that, as Figure 1 shows, a significant number of drugs are distributed on or near the horizontal line through the origin. On the other hand, the variation from the trend line is about the same for Japan and Germany.

Next, the results of equation (2) provide an estimate of the coefficient (1-θ) of the (logarithmic) price difference between the U.S. and the Japanese and European countries for the comparative drugs. This coefficient value indicates the importance of the price difference from the U.S. in determining the price premium in each country (the probability that a foreign average price adjustment is used in Japan), and allows us to see the impact of the system and other factors in determining the price premium for new drugs. For example, in the case of Japan, the coefficient value is 0.13 in the estimation of equation (2), suggesting that 13% of the 31 components used in the estimation of equation (2) were subject to foreign average price adjustment. In fact, when we examine how much of the 31 components actually received the foreign average price adjustment, the value is 19%, which is close. Equation (3) similarly yields a coefficient value of (1-θ) in the panel data, but in this case the theoretical value for Japan is 33%, and when we examine the components that actually received the foreign average price adjustment, the result is very close at 32%. These estimation results for Japan prove that equation (3-2) can be used to estimate the impact of differences from U.S. prices.

This coefficient is positive and significant for both Japan and European countries. Very interestingly, (1-θ) is also significant in the U.K., at 0.19, which is higher than in Japan. Although there is no formal reference price system in the U.K., this suggests that the level of the U.S. price is indirectly reflected in its drug price premium. It also suggests an important distortion in the work of Comanor et al. (2018), who conducted their estimation assuming that the valuation of new drugs (drug prices) exclusively reflects cost-effectiveness. We then calculated the coefficient β/β* of the price premium for new drugs in the U.S. by obtaining θ from the coefficient value of (1-θ). As mentioned earlier, the results show that the coefficient values are lower than 1 in all four countries, with Germany, the U.K., France, and Japan having the highest coefficient values in that order. The values are close to, but smaller than, the values obtained from the estimation equation in equation (1) in each country. （Equation (1) tends to overestimate β/β*.

Finally, in the results of Equation (3) using panel data, β/β* shown in the table is the coefficient value in Equation (3-1). Since this is panel data, the number of target drug components used in the estimation has increased, and the time of market launch is different, the values are different from β/β* in Equation (1), but the trend is the same. As in the past, the coefficient values were significantly lower than 1 in all four countries, with Germany, the U.K., France, and Japan having the highest values in that order. However, in all countries, the coefficient of the price premium for new drugs in the U.S. tends to be smaller, suggesting that the new drug premium tends to decrease over the lifecycle of new drugs in Japan and Europe compared to the U.S. In Japan, most of the drug components analyzed in this study (67 out of 69 components) are covered by the New Drug Creation Value Added (NDA), and it is expected that new drug prices tend to be maintained after launch, but the price premium is lower than in the US.

The coefficient value in (1-θ) is obtained from Equation (3-2). As mentioned earlier, the coefficient value reflects the effect of foreign average price adjustment well in Japan, and the actual and estimated values are highly consistent. For European countries, the initial price estimates based on equation (2) and the panel data estimates based on equation (3-2) are relatively close and significant, suggesting that not only the U.S. price premium but also the price level in the U.S. itself has an impact in European countries. This paper examines the effect of the existing comparisons of new drugs.

Conclusion

In this paper, we analyze the extent to which the drug pricing systems of European and Japanese countries value the added value of new drugs relative to existing comparators relative to the U.S. We construct data on the price premiums of new drugs relative to comparators, extending the work of Comonar et al. (2018) in three main ways. The main findings and implications are as follows.

First, the U.S. price premium for new drugs significantly predicts the price premium for new drugs in Japan, Germany, the U.K., and France, but to a significantly smaller extent than 1 for each country. The magnitude of the coefficient of the trend line with the logarithm of the U.S. price premium on the horizontal axis and the logarithm of the price premium in the country concerned on the vertical axis is large in the order of Germany, the U.K., France, and Japan, suggesting that the health benefits of a new drug are reflected in its price increase to a smaller degree in Japan than in the U.S. and Europe. At the same time, the extent to which the variation in the new drug premium can be explained by the variation in the U.S. new drug premium is smaller in Japan and France than in Germany and the U.K. The main reason for this is that the slope of the trend line is small in Japan, while in France, in addition, the degree of variation in the domestic price premium is also significant.

Second, the level of comparative drug prices in the U.S. relative to drug prices in Japan and European countries has a significant effect on the price premium in each country, even when controlling for the U.S. price premium. The estimated coefficient is very close to the frequency of use of the foreign average price adjustment in the case of Japan, suggesting that such an estimation can be used to assess the impact of foreign prices on drug price formation in each country. The coefficient is positive and significant in each of the Japanese and European countries. Interestingly, it is also significant in the U.K., which has no formal reference price system, suggesting that U.S. prices are indirectly reflected in the U.K. as well. Thus, it also suggests that there are important distortions in the Comanor et al. (2018) study, which based its estimates on the fact that the valuation of new drugs (drug prices) exclusively reflects cost-effectiveness.

Finally, estimating with panel data rather than initial prices yields results similar to those above. However, the coefficient on the U.S. new drug price premium tends to be smaller in the Japanese and European countries, suggesting that the new drug premium tends to decline over the life cycle of a new drug in Japan and Europe compared to the U.S.

These results suggest that the regulated prices in Japan, Germany, the U.K., and France are significantly similar to the market-based pricing in the U.S., but at the same time produce quite different results. Another important finding is that a significant effect was detected in each country not only in the value added for existing comparator drugs, but also in the price difference with the U.S., which is one factor that brings Japan, Europe, and the U.S. closer together in terms of price premiums for new drugs.

There are many issues for future research. First, we used U.S. drug prices as our benchmark. This is because market-based pricing is expected to be efficient, reflecting competition and reflecting the innovative nature of the product. However, effective competition may not always be functioning, and it is necessary to examine whether the price premium for new drugs in the U.S. sufficiently reflects the innovativeness of the drug. Second, the results of the analysis of price at launch by Comanor et al. (2018) using 30 drug components in the U.S. and the U.K., with a slope of almost 1, differ significantly from our results, and it is important to analyze the reasons for this (in their study, the price ratio may exceed 100, and these may determine the estimated results (In their study, the price ratios may exceed 100, and these may have determined the estimated results).

Appendix 1 Price Estimation Model

The health effects of the new drug i and its existing comparator were measured using the same criteria, respectively q _i and _{q0, i,} respectively. These can be thought of as the degree of improvement in QALYs (Quality Adjusted Life Years) compared to the absence of the drug. The price of the comparative drug is proportional to the country's willingness to pay for health improvement, w, and to the disease-specific circumstances of the disease in question (e.g., demand for treatment), α _i and the effectiveness of the drug in question, and is determined as follows

p0 _{, i =}wα _i (q0 _{, i}^)β (1.1)

where β ≥ 0 and if β = 1, α _i = 1, then the price of the comparator drug is set equally and proportionally to its health benefit, and if β = 0, the price does not reflect the health benefit. Suppose that the new drug uses the same formula (equation) as the comparator drug and at the same time is determined by reflecting its higher effectiveness,

p _i = wα _i (q _i^)β (1.2)

（Taking the logarithm of the difference between the new drug and the comparator on both sides of equations (1.1) and (1.2), the price premium of the new drug (the rate of price increase relative to the comparator) is, in this case

premium _i = lnp _i -lnp0 _{, i = β} (lnq _i -lnq0 _{, i} ) (2)

(2). If the drug price is determined in the same way in the reference country (the U.S.), then

premium _i *= lnp _i *-lnp0 _{, i*=β*} (lnq _i -lnq0 _{, i} ) (3)

and in this case, the relationship between the domestic price premium and the price premium in the reference country is

lnp _i -lnp0 _{, i=β/β*} (lnp _i *-lnp0 _{, i*} ) (4)

It follows that

（By estimating equation (4) (corresponding to model equation (1) in the main text), we can determine that a country has a higher health benefit from the new drug compared to the reference country (q _i is larger than that of the reference country) is reflected in the rate of increase in the price of the new drug. However, the difference between the price of a new drug and the price of a comparative drug is, as shown below, a factor that determines the level of the drug price itself, wα _i and it should be noted that this is not reflected in equation (4), which is determined by the product of the magnitude of

The difference between p _i -p0 _,i _{= wα i} {(q _i^)β- (q0 _{, i}^{)β} = p0}_{, i {} (q _i /q0 _{, i}^)β-1} (5)

Even if for some reason new drugs and comparators also have lower drug prices in general (α _i is small for any disease), it is quite possible that β is large.

If the drug price of a new drug is determined by reference to foreign drug prices, as in Japan's foreign average price adjustment, rather than by comparison with comparative drugs,

p _i = γp _i *, 0 < γ ≤ 1 (6)

Then, p is a constant. where γ is assumed to be a constant value (in the case of the Japanese foreign average price adjustment, p _i * is very high, there is an endogeneity that is low because the country in question is excluded in the price adjustment, which tends to reduce the impact of the foreign average price adjustment in the estimation equation below). Rewriting this so that the price premium for new drugs is on the left-hand side,

lnp _i -lnp0 _{, i =} (lnp _i *-lnp0 _{, i*} )+(lnp0 _{, i*-lnp0, i} )+lnγ (7)

It follows that In other words, it can be understood that in the case of foreign average price adjustment, the drug price is determined so that the price premium in the reference country is fully reflected and the price difference of the comparator drug compared to the reference country is also eliminated. In Europe, foreign average price adjustment is a consideration, and the price premium for a new drug is determined by a hybrid of equations (4) and (7), with the respective weights θ and 1-θ

lnp _i -lnp0 _{, i =} (θβ/β* + (1-θ))(lnp _i *-lnp0 _{, i*} )+(1-θ)(lnp0 _{, i*-lnp0, i} )+(1-θ)lnγ (8)

（Equation (8) is a generalized estimation equation, where the coefficient value (1-θ) of the estimated difference in drug prices of comparative drugs compared to the reference country indicates the extent to which drug prices in the reference country are referenced. The coefficient value can also be used to analyze the extent to which the price premium of a new drug is reflected in the country concerned, dividing it into the impact of the domestic system (θβ/β*) and the impact of foreign average price adjustment (price difference from overseas) (1-θ).

Back to News List

TOP