With the costs of providing healthcare spiralling, governments and payers across the seven major markets are implementing cost-cutting initiatives in an effort to combat these escalating healthcare costs, which in turn is putting even greater pressure on pharma companies. Recently the National institute of clinical excellence (NICE) in the UK rejected four new kidney cancer therapies on the basis of cost effectiveness. This decision effectively denies patients access to these novel drugs, a decision that has angered healthcare professional and patients alike.

In addition to pharmaceutical companies being under pressure due to the credit crunch, ever fewer novel products are coming to market, contributing to the declining return on investment. With the cost-effectiveness of a product at the top of the agenda for payers, pharmaceutical companies need to focus upon developing truly novel drugs if they wish to achieve a premium price and strong reimbursement position.

Global healthcare costs are rising due to increasing ageing populations and poor lifestyle choices – particularly in western markets – combined with a lack of or insufficient existing cost-saving initiatives. Consequently, governments and payers across the seven major markets are implementing numerous healthcare cost-containment policies. With pharma experiencing declining returns on investment, the ability to make a profit will become increasingly difficult if innovative drugs are not launched in the near future.

The innovation capacity of the pharmaceutical industry is determined, to a great extent, by the external environment. Consequently, pharmaceutical innovation is likely to suffer in Europe and Japan, partly due to increasing government barriers in gaining access to reimbursement lists. Government’s push for greater use of generic drugs will also increase the pressure on pharma and ultimately on its ability to be innovative.

The way forward for pharma will be the implementation of assessments of cost-effectiveness that demonstrate value for money in their products. In addition, strong differentiation from competitor products will be essential in order to achieve reimbursement status and a return on investment.

Related research: Pricing & Reimbursement - Seven Major Markets Update