Getting a drug approved is only half the battle for drugmakers these days. They've also got to get them paid for. That goes double in Europe where one governing body controls much of the sales for an entire country.
InterMune (NAS: ITMN) has been on a rollercoaster with the authorities in Germany, taking its shares along for the ride.
In December, Germany's Institute for Quality and Efficiency in Health Care said the biotech's idiopathic pulmonary fibrosis treatment, Esbriet, provided no additional benefit. That sent shares tumbling 30%.
Then yesterday Germany's Federal Joint Committee overruled the Institute for Quality and Efficiency in Health Care's recommendation, saying that the drug has additional benefit, but that it isn't quantifiable yet. Shares shot up 15% yesterday, although much of that disappeared by the close.
InterMune has sold Esbriet in Germany since last September, but under German law, the price is negotiated a year after the launch. If InterMune can't reach an agreement on price with the statutory health insurance, arbitration would be set up to determine the price based on a basket of EU countries.
That differs from the U.K.'s National Institute for Health and Clinical Excellence, which can say that a drug has benefit but still isn't worth paying for. Benlysta from GlaxoSmithKline (NYS: GSK) and Human Genome Sciences (NAS: HGSI) was one of the more recent drugs to fall prey to the bang-for-your-buck stance. While NICE has the power to not offer the drug to citizens in the national health-care plan, the initial rejections are often just a threat to get drugmakers to make further concessions. Johnson & Johnson (NYS: JNJ) agreed to a risk-sharing deal with NICE for cancer drug Velcade and Celgene (NAS: CELG) agreed to pick up the tab for patients exceeding 26 months of Revlimid treatment in the U.K.
Pricing in each EU country is very important because the national health-care systems base their pricing off of each other. Imagine if a used car salesman had to disclose the prices of the cars he'd just sold -- that's basically the situation drugmakers are in, so companies have to avoid giving even one country a good deal because others will demand the same.
Staying strong in negotiations is also important because EU import laws allow products to be moved around the union. If there's one country with a substantially lower wholesale price, importers will buy it in one country and sell it in the neighboring ones.
While InterMune is on a steady stretch of the rollercoaster, the ride certainly isn't over. There's still pricing in France, Spain, and Italy coming up shortly, and hard-lined NICE will follow at some point. Hopefully investors have the stomach for it.
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At the time this article was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson and GlaxoSmithKline, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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