Protectionism, pricing and political reality

With all eyes currently on the upcoming US elections, it’s easy to forget that this year has seen more than 75 countries heading to the polls. That includes eight of the world’s 10 most populous nations, with some four billion eligible voters, plus the 27-nation European Parliament.

While healthcare has hardly topped the 2024 political agenda, two common themes have emerged: increasing support for protectionist economic policies and growing concerns about inflation – not least the (increasingly) high prices of branded medicines.

Unfortunately, much less attention has been paid to the practical consequences of the one, or the most practical solution to the other. The reality is that, if we want to expand patient access to essential medicines, protectionist policies will work against this. And railing loudly against ‘Big Pharma’ while failing to actively support the highly-competitive and system-critical market for generic and biosimilar medicines is simply missing the forest for the trees...

Bad news for all

Globalization and the international free trade system have dramatically expanded access to more affordable medicines in recent decades. Patients benefit most when medicines and their components can move from one market to another with minimal restrictions.

Free trade creates economies of scale that promote higher quality, more efficient production and stable supply chains – lack of it does the opposite. Tariffs and other trade barriers drive up costs, with no real social benefit in return. One recent example is short-sighted mandatory safety stock requirements at local level, which typically result in products being stored in warehouses instead of reaching the patients who need them. In short, nationalistic economic protectionism may be an understandable psychological response to the complexities of the modern world, but it is bad news for patients and healthcare systems.

More specifically, while it may be beneficial for some companies to concentrate production around their major markets, the reality is that global companies need global supply chains. They cannot afford to invest in domestic manufacturing for every market they serve.

The recent focus on ‘domestic production’ is anyway a double-edged sword, because over-concentrating manufacturing facilities in one country risks replacing one dependency with another: creating additional vulnerability in the event of natural disasters (think Puerto Rico and hurricanes) or other unexpected events (political unrest, labor stoppages, etc). And that’s a risk we simply can’t afford to take.

Protecting the lifeblood 

Which brings me to my second point. Generics and biosimilars – collectively known as off-patent medicines – are the lifeblood of modern healthcare. They account for 80 percent of all medicines used by patients globally, at less than a third of the total cost.

Indeed, it’s no exaggeration to say that, without high-quality generic and biosimilar medicines, healthcare as we know it would be unaffordable, undeliverable and unsustainable. Yet the critical role of our industry is largely overlooked in the political discourse, which focuses primarily on the more expensive – and largely competition-free – branded medicines that account for the remaining 20 percent.

US FDA Commissioner Robert Califf summarized the situation perfectly when he said that “we essentially have two drug industries in the US”: the ‘innovator industry’, where “the prices are too high”, and the generics industry, where “a lot of the prices are too low”. The result: companies relocate or exit the market, which can often lead to critical drug shortages.

He was talking about the US, but the situation in Europe is only slightly better. According to a recent study, more than a quarter of the generic medicines that were available in Europe 10 years ago have simply disappeared from the market. In this topsy-turvy world, to take just one example, a pack of potentially life-saving antibiotics is sometimes sold for less than a pack of chewing gum.

The solution is quite simple: instead of rigorous regulatory pricing mechanisms that force generic prices consistently down year after year, even during periods of high inflation, producers need the flexibility to respond to changing market conditions. If their input costs go up, they should be able to adjust the price of their medicines to cover the new costs.

Time for a ‘triple whammy’

So, what should governments do in practice to reduce healthcare costs, stabilize supply chains and ensure patient access to critical medicines? The answers will often be market-specific, but I would identify three ‘policy asks’ that apply across the board:

• Tendering: Governments and private sector payers have leveraged the competitive global market for generic medicines to drive prices to often unsustainably low levels, particularly via tender mechanisms. We need tendering decisions that reflect factors beyond price to ensure reliable access to medicines. Supply chain stability, quality history and ESG criteria can all be used to reward companies that make investment decisions based on the long-term well-being of both patients and the environment.

• Intellectual Property policy: Over the years, originator pharmaceutical companies have increasingly learned to bend and abuse IP and regulatory frameworks to their own advantage, to delay generic and biosimilar entry. Such questionable practices are only beneficial to two groups: ‘Big Pharma’ companies and their shareholders. What we all need for a sustainable healthcare system are policies and regulations that reward true innovation and enable access to generic and biosimilar products.

• Streamlined global development: Biosimilar medicines introduce competition to one of the fastest-growing (and most expensive) segments of the global pharmaceutical market. We need to learn from the generics market to ensure balanced pricing and IP regimes, but there is another critical economic lesson here: economies of scale in global development. Government policies need to catch up with scientific advances that show large-scale phase III-type clinical studies are in most cases not necessary to demonstrate the safety and efficacy of a biosimilar versus its reference product. Removing the ‘blanket’ requirement for these studies will be an economic game-changer for companies, greatly expanding the number of biosimilars that come to market while reducing the time it takes for them to reach patients.

Governments, especially new ones, often face difficult trade-offs. I sympathize. But that’s simply not the case with the three proposals above – implementing them would be a win-win-win: for patients, for healthcare systems, and for society as a whole. Sometimes you just need to go for the low-hanging fruit...

A version of this article was recently published by STAT+ First Opinion