Changing German Market Depresses the Pharma Industry

August 1, 2012
Nathan Jessop

Nathan Jessop is a columnist for Pharmaceutical Technology Europe.

Pharmaceutical Technology Europe

Pharmaceutical Technology Europe, Pharmaceutical Technology Europe-08-01-2012, Volume 24, Issue 8

Germany has shifted from a market where the pharmaceutical industry could enjoy considerable pricing freedom to a sensitive market influenced by cost-containment policies.

Germany's pharmaceutical market is currently valued at around €38 billion, making it the largest pharmaceutical market in Europe (1). Historically, the country has been attractive for launching new medicines because companies were largely free to set their own prices. In addition, Germany possesses comprehensive pharmaceutical coverage and a high level of public funding. In general, most pharmaceuticals are eligible for reimbursement through Statutory Health Insurance, which covers about 90% of the German population.

Nathan Jessop

In 2008, German pharmaceutical prices were described by the Organisation of Economic Cooperation and Development as the highest among its 30 member countries (OECD now has 34 member countries), for both patented and generic drugs (2). Not surprisingly, in 2008, the number of products possessing a marketing authorisation in Germany far exceeded that of any other European market. Physician freedom in prescribing has helped drive pharmaceutical sales as well and even when measures were introduced to set volume targets for physicians, they had limited impact. In particular, it was difficult to hold physicians to account because the collection of data to convincingly prove overspending was problematic and because physicians would claim exceptional circumstances for their choice of prescribing (2). Similarly, in 2002, measures were introduced to allow pharmacists to substitute a cheaper drug whenever possible, but physicians still retained the right to oppose the decision.

Despite market successes in Germany, the pharmaceutical industry expressed concerns that there were unnecessary delays in the approval of medicines. In 2003, a task force representing both industry and the government was convened to look at enhancing innovation in the German pharmaceutical market by examining steps to accelerate the national marketing authorisation procedure. Following recommendations in 2007, structural changes were made to the Federal Institute for Pharmaceuticals and Medical products (Bundesinstitut für Arzneimittel and Medizinprodukte, BfArM) to make it more independent and efficient in its decision-making. Some of the outcomes were, however, unfavourable for the industry, such as proposals for increased private funding of BfArM's activities, mainly coming from application fees related to the applicants' turnover (2). Pharmaceutical companies complained about the measures, but the changes appear to be representative of the steady shift in government decisions that do not necessarily align with industry viewpoints.

Change in the pricing environment

The key sign that times were about to get tougher for pharmaceutical companies in Germany came with the introduction of a new healthcare bill known as AMNOG (Arzneimittelmarkt-Neuordnungsgesetz) in 2010. AMNOG formally signalled the end to the free pricing era in Germany, much to the displeasure of the pharmaceutical industry, which has complained that the reforms will lead to €2 billion in lost revenue per year (3).

In contrast to the previous freepricing environment, companies are now required to demonstrate the benefits of their drugs early in the development process. Following an independent appraisal, these benefits are factored into the permitted price. AMNOG reforms required these data for all new reimbursable drugs and combination therapies launched after 1 January 2011. Although pharmaceutical companies have constantly opposed the measures, they are now firmly established.

Under the new system, companies must compile a cost–benefit dossier comprising a variety of information about their product that must be submitted within three months of product launch. The Federal Joint Committee (G–BA), a group featuring representatives from the medical profession, insurance companies and hospitals, examines the evidence for the product to decide whether any added value will be recognised (3). The G–BA may decide that another body known as IQWiG (Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen) should conduct the cost–benefit analysis. The resulting outcomes for a product can be major added benefit, significant added benefit, unquantifiable additional benefit, or no added benefit. Although the evolving German system may seem to bear some resemblance to the work of the National Institute for Health and Clinical Excellence (NICE) in England and Wales, IQWiG has refuted such comparisons. Unlike NICE, IQWiG does not use the quality-adjusted life year (QALY) measure in its assessments.

Industry concerns

One of the irritations for the pharmaceutical industry is that it believes it has already demonstrated the value of its product by receiving regulatory approval in Germany, and yet is now being asked to compile an independent set of information to convince another official body to obtain a price. Companies see the measures as additional bureaucracy and a means by which the government can steadily pressure the industry into reducing its prices to curb spending. Now when companies prepare for product launch in the German market, they must also plan ahead and invest in the compilation of a cost–benefit dossier, as well as construct value arguments to satisfy the designated experts at the G–BA and IQWiG. They must proactively source a range of information, which they may be called upon to justify, from clinical therapeutic data and product costs through to information on potentially comparable products. For smaller companies, this process is particularly burdensome and there is little experience that they can draw upon. A further complication is that there continues to be legal debate in Germany about whether the new cost-benefit methods are consistent with federal social law (4).

According to the current system, if it is decided that a product does not demonstrate medical value, then the reimbursement amounts are set by the G–BA at prices for a selected "comparably effective drug." If the G–BA decides that a product demonstrates medical value then companies must enter into negotiations with the Federal Association of Statutory Health Insurance Funds to set the price. Although full details of the pricing negotiations are not made public, it can be presumed that a higher level of benefit being granted by the G–BA should give companies greater negotiation power in such discussions. This is likely to have been the case for AstraZeneca's antiplatelet treatment Brilique (ticagrelor), which was deemed cost-effective for people with acute coronary syndromes.

If agreement is not possible in pricing negotiations then the decision goes to arbitration, during which period the price is capped at a level dictated by the price in other European markets. This aspect is worrying because many other European countries use Germany as a reference when considering what is appropriate for their markets. In the past, with free pricing, companies benefitted from inclusion of the high German price. However, if a product is capped during arbitration, other countries could use the lower price as a reference rather than waiting for a final German pricing decision.

In June 2012, the European Federation of Pharmaceutical Industry Associations (EFPIA) called for a revision of the new German system after consultations with its member companies (5). EFPIA stated that Germany had previously been a leader in Europe in providing quick access to new treatments and that the new system was threatening this benefit (5). It cited its members' opinion that early experience with AMNOG had been disappointing and that the underlying law around this legislation was flawed and ambiguous (5). EFPIA also called AMNOG inflexible and stated that there was unwillingness on the part of the authorities to consider creative solutions for the problems it was creating. A particular criticism centred on the choice of comparators needed to convince assessors in the cost benefit dossiers. EFPIA noted that this often differed from the comparator selected after consultation with the EMA when planning ahead for regulatory approval. They argued that by choosing comparators that had little relation to those selected for a drug's development programme, the German authorities were in effect trying to drive prices of innovative products down towards those of generics. EFPIA has called for more consultation and discussion on how decisions are reached.


The change in the German pricing environment brings the country in line with developments elsewhere in the world, where prices are being linked to cost–benefit analyses. Companies have become concerned that these systems bear no relation to requirements in seeking regulatory approval for a product, but have a huge bearing on the success of a product when launched. They consider these measures to be bureaucratic and confusing. At an early stage in a drug's lifecycle, the availability of information on a product's benefit in different populations is limited, but companies are being asked to generate this information almost in parallel with regulatory approval. Furthermore, if Germany reaches an unfavourable pricing decision then this may have a bearing on the prices in countries that use the German market as a reference point. Critics, however, will point to the benefits that companies can derive from the system. If they can impress the assessors in Germany, as may be the case with AstraZeneca and Brilique, they will have a powerful argument in convincing other countries that their drug is of value and merits a higher price.


1. Business Monitor International, "Germany Pharmaceuticals and Healthcare Report Q3 2012" (Business Monitor International, 2012).

2. V. Paris et al., "Pharmaceutical Pricing and Reimbursement Policies in Germany" (Organisation for Economic Co-operation and Development website, 2008)., accessed 25th June 2012.

3. vfa, "AMNOG: Key Issues and Consequences" (vfa website, 2010)., accessed 25th June 2012.

4. The International Society for Pharmacoeconomics and Outcomes Research (ISPOR), "Germany – Pharmaceutical" (ISPOR website, 2009)., accessed 25th June 2012.

5. EFPIA, "EU Pharmaceutical Industry Leaders Call for Revision of German Model for assessment of New Medicines" (EFPIA website, 2012)., accessed 25th June 2012.