Medicine Prices –Part2: Learning from the German pricing system
In Germany, additional benefit over existing benchmark for same treatment is considered for pricing of innovative drugs. Can India follow a similar practice? This is the second part of a three-part series
In this part, we will look at the pricing assessment system adopted by Germany in 2011 and take an example of an innovator drug that was launched in Germany and India around the same time but withdrawn from German market in 2014 post a review by German pricing authorities. 
In Germany, pharmaceutical manufacturers were until recently free to set prices for prescription drugs approved for coverage under the statutory health insurance system. However, in the face of rapidly increasing prices for branded drugs, Germany enacted a law, The Arzneimittelmarkt-Neuordnungsgesetz (AMNOG, English translation: Pharmaceuticals Market Re-organisation Act), which would fundamentally change the way of establishing the value of new drugs and using that as a basis for price negotiations. This now meant that pharma companies were required to demonstrate whether a new drug offered additional clinical benefits over existing standard of treatment. In simple terms, it meant that grant of patent for novelty/ innovation was not adequate but additional benefit over existing benchmark for same treatment was considered for pricing of innovative drugs. Four years down the road, it is clear that that AMNOG has succeeded in lowering the government’s healthcare bill and the reimbursement rates of drugs in Germany have fallen below European Union (EU) average.
Under AMNOG, pharma companies can decide the initial list price upon launch of new drug. However, within one year of launch, the companies need to submit a cost benefit dossier to the Gemeinsamer Bundesausschuss (Federal Joint Committee or G-BA), a self-governance body, which makes reimbursement decisions, regarding their drugs’ effectiveness over existing standard of treatment. G-BA then assesses the drug’s benefits over existing standard of treatment, taking into account discussions with Institute for Quality & Efficiency in Healthcare (IQWiG) on patient related benefits. If no additional benefit is found, the drug’s price is set in reference to existing standard of treatment, which could well be a generic in some cases. If the drug is found to offer additional benefit, pharma companies and health insurers negotiate a price.
As an outcome of the assessment process, each drug will be given a rating from 1 to 6, to measure the extent of benefit or even harm from a new drug ranging from ‘Major added benefit’ to ‘Lower benefit’. For drugs found to bring added benefit, there are six levels:
  1. Major added benefit – Sustained and substantial improvement not achieved previously achieved
  2. Considerable added benefit – Marked improvement over comparator
  3. Minor added benefit – Moderate improvement over comparator
  4. Added benefit present but not quantifiable
  5. No added benefit
  6. Lower benefit than comparator
Outcomes till date:
Of the 124 assessments completed since January 2011, 51% received a positive rating – Level 4 or above. 
48 products received a Level 5 – “No Benefit” rating and more than half of them got this rating because of invalid data
13 product withdrawals from German market as companies are hesitant to lower prices as German prices are used as reference prices in other countries
Let us now look at a product, which was launched by an innovator company both in India and Germany, a couple of years back, and underwent this patient benefit assessment in Germany in 2013.
The product that we will be a reviewing is a product for treatment of Diabetes called Vildagliptin from Swiss multinational firm Novartis. The product is sold as a monotherapy under brand name Galvus (Vildagliptin) and as a combination under brand name Eucreas (Vildagliptin +Metformin). Vildagliptin belongs to a class of molecules called DPP-4 inhibitors that lowers blood sugar levels in patients with type 2 diabetes mellitus. 
The European Medicines Agency approved Vildagliptin as a monotherapy and in combination with other anti-diabetic medications in 2008 and has been available in European countries since then. Interestingly, Vildagliptin was never approved by US Food and Drug Administration (FDA) in that country owing to safety concerns.
With the introduction of AMNOG law in Germany, Galvus (Vildgaliptin) and Eucreas (Vildagliptin) also had to undergo the assessment to determine the added benefit over existing standard of care. Below is a summary of results from dossier prepared by IQWiG and G-BA to assess the benefit of Vildagliptin and combinations in different treatment populations.
*Sulfonylurea - Sulfonylureas help pancreas to release more insulin. Glibenclamide and Glimepiride are no longer under patent and available from generic companies at very competitive prices.
It is amply clear from the above table that Vildagliptin was not able to prove added benefit over the comparators in any of the treatment populations. Based on the above table, the classification of Vildagliptin on the scale assigned would have been 5, which would have meant that price of Vildagliptin would be set in reference to that of comparator. Now let us look at how the G-BA compared the annual costs.
You will see that the innovator drug is costing 3-50 times less over the comparator arms in first two rows (pool in which most of patients would have fallen), although there is no proven added benefit of innovator drug.
Why would any government pay 3-50 times the price of an existing drug for a new drug when the added benefit of the new drug is NOT proven?
The German authorities were thorough in their assessment that price-benefit correlation was non-existent in the case of vildagliptin based on the evidence provided by Novartis. Based on the analysis, it is clear that German authorities would have in no way reimbursed the price levels, which were being sought by Novartis in this case.
Novartis consequently pulled out Galvus (Vildagliptin) & Eucreas (Vildagliptin+Metformin) from the German market on 1 July 2014 as a lower price of Vildagliptin in that country may have had a cascading impact on the fortune of Vildagliptin in other European markets. Since launch, Vildagliptin and its combination had cumulative sales of more than $0.5 billion in Germany since launch. What a colossal waste of government spending!
Galvus and Eucreas continue to sell worldwide (except in US as it was never approved there owing to safety concerns) and had sales of $1.2 billion in 2014. India is no exception to this list of countries and Vildagliptin continues to do brisk business since launch in 2008. 
Based on developments in German market, some questions come to our mind:
US regulator, FDA seeks additional data from manufacturer Novartis on drug safety of vildagliptin in 2007 and sales are not approved ever since in that country as the company did not provide requested data. Safety concerns apart, in 2013 same drug company fails to convince German regulator on added benefit either and withdraws from another key market. Are Indians being taken for a ride in this marketing juggernaut of this Swiss multinational by being lured into buying drug at heavy price to compensate for these losses of Novartis elsewhere, when it has failed to satisfy reputable authorities on safety and price?
Are Indian drug pricing regulators tracking global best practices in general and drug approvals and pricing decisions on specific drugs with high public health implications, to act in consumer interest?
Could Indians also save money by sticking to existing standard of care treatment (comparators in German assessment) as Vildagliptin has no proven benefit over existing standard of care?
Is there a case for government to come to rescue of lakhs of patients in India by enforcing Paragraph 19 of Drug (Pricing Control) Order (DPCO), which empowers the government to control prices of drugs not included in NLEM in public interest?
Is there a lesson for Indian drug pricing regulator to take a cue from German pricing framework for innovator drugs and implement similarly in India? If developed nations such as Germany with healthcare budgets running in billions are prudent in spending their resources, India should well be on that path too as we need to fully maximize our limited healthcare resources. More so when most of the spending on pharmaceuticals in India is out of pocket for patients.
We will try and address these questions in our next part.
Moneylife sent email to Novartis on the pricing issue of Galvus (Vildagliptin) on 8 September 2015, which remained unanswered till writing this report. We will include, Novartis comment or views, as and when we receive it. 
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(Sandeep Khurana is an independent consultant and researcher. Views expressed here are personal. He can be reached at his twitter Id @IQnEQ)
R Balakrishnan
8 years ago
In India, only 45% of diabetes patients are treated. The lowest priced anti-diabetic (Daonil from Sanofi) costs Rs. 0.60 per day. There are not so many people in India who cannot afford 60 paise / day. It shows that access to medicine is not about price, but other non-price factors.
Narendra Doshi
Replied to R Balakrishnan comment 8 years ago
Bala Sir,
Galvus Met 50/500mg one Tablet costs Rs.23/- approx., by the way.
Narendra Doshi
8 years ago
Thanks for the details.Appropriate authorities MUST implement at least the German & USA way at least or still better rules.
Looking forward to your last article & possible Novratis reply.
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