1. Health Care & Pharma challenges in Europe; a view from the Netherlands Einte Elsinga Ph D, MSD the Netherlands, Manager External Affairs Bucharest, Romania, September 24th einte.elsinga@merck.com

2. Agenda ► Health Care in Europe ► Health care in the Netherlands ► Challenges in pharmaceutical care 2

3. Is it worth all that money ??? Euro’s vs Life expectancy and patient satisfaction 3

4. The rising costs of care in Europe: a challenge everywhere !! 4

5. Large differences in mix public/private expenditure in health care Source: Eurostat 5

6. USA is by far the World champion in HC costs! year USA UK 6

7. Healthy Life Years At Birth Differ By More Than 20 Years Source: Eurostat (accessed: 14/09/2012) 19.5 years LE at birth in NL 80,9 y LE at birth in ROM73,5 y 7

8. Money alone does not extend lives…. http://ucatlas.ucsc.edu/spend.php 8

9. Consumer satisfaction on health care Euro Health Consumer Index 2012 Report 9

10. 10 Problem #1: Economic Situation – Debt Burden Forces Governments To Act Sources: Bernstein Research (08/03/2012) Maastricht criterion: 60%

11. 11 Healthcare Expenditure Per Capita Grew Stronger Than Pharmaceutical Expenditure Source: OECD Health Data 2011

12. 12 Problem #2: Decreasing Fertility and Longer Life Expectancy Between 2015 and 2035, the population aged 60 and above will be increasing by 2 million people every year …... while fertility decreases Sources: Council of Europe (7/6/2010), Council Concusions on Active Ageing

13. 13 … And A Shrinking Workforce Sources: European Commission (DG ECFIN) and the Economic Policy Committee (AWG) (2009), The 2009 Ageing Report: economic and budgetary projections for the EU-27 Member States (2008-2060), p. 54; World Economic Forum (WEF) (2012), The Workplace Wellness Alliance. Investing in a sustainable workforce; in collaboration with the Boston Consulting Group, p. 5 European working age population is expected to be shrinking between 2020 and 2060 by 13.6%, i.e. 33 million people

14. 14 Problem #3: Multiple Chronic Conditions Already In Working Age Sources: International Social Security Association (issa) (2011), http://www.issa.int/News-Events/News2/Working-well-Proactive-measures-for-health-and- employability (accessed: 26/02/2012); Bloom, D.E., Cafiero, E.T., Jané-Llopis, E., Abrahams-Gessel, S., Bloom, L.R., Fathima, S., Feigl, A.B., Gaziano, T., Mowafi, M., Pandya, A., Prettner, K., Rosenberg, L., Seligman, B., Stein, A.Z., & Weinstein, C. (2011), The Global Economic Burden of Noncommunicable Diseases. Geneva: World Economic Forum, p. 5 Chronic diseases are responsible for 63% of annual deaths, including nearly 50% of premature deaths affecting people under the age of 70 in their productive years

15. The Netherlands 16,7 mln inhabitants Strong economy (15th of the world, 6th of Europe)) Large export industry (transit) Political: new cabinet in formation, Social democrats + Liberals? € since 2002 Economic recession 15

16. Health Insurance system: public regulation, private organization Social insurance scheme Curative care (hospitals, GP, pharmacy, mental care Obligatory Premium: Income related and flat rate (50/50) Open enrollment Risk equalization model Additional insurance Dental care (>18 y), Optional No obligation to accept Exceptional Medical Expenses Act Care for the elderly & disabled curecare Since 2006 one basic insurance scheme for the whole population 16

17. The Dutch health care system Government Health care insurance companies Insured parties/ patients Suppliers Care market: supply Care market: insurance Care market: procurement A regulated market: competing HC insurers (private) and providers (private) within regulated setting. Accessibility Affordability quality 17

18. Key issues of almost every HC system HC system access affordability quality Level of coverage: social insurance/NHS Waiting times Cost level Payments: % or flat Lack of transparancy inefficiencies 18

19. How do funds flow within the Dutch curative health care? Bron: www.argumentenfabriek.nlwww.argumentenfabriek.nl 19

20. Issues today ► Do health care insurers succeed in playing a countervailing force to hc providers? ► Payment systems for hc providers contain production incentives. Need for outcome measurement and payment structure ► Free rider behavior of the patient ► Inefficiencies in organization of health care 20

21. Pharmaceutical care

22. Bron: Nefarma, Pharma facts, 2012 22

23. source: Nefarma, Pharma facts, 2012 23

24. MC Kinsey: “the good days for pharmaceutical industry are gone forever” challenges 1. Growth in generics vs branded 2. Price pressures (Govt, HC insurers, tenders) 3. More complicated procedures for Market Access 4. Biosimilars upcoming answers ► More focus on added value, pharmaco-economic approach ► New business models: from product orientation to client/market orientation ► Providing services, expertise Source: MC Kinsey Quarterly, december 2011 24

25. 1. Share of generics is rapidly increasing 25

26. Volume: 60% generic in the Dutch market, Costs: >70% branded, innovative products Volume 2010 Costs 2010 The Netherlands 26

27. Loss of exclusivity causes major decrease in revenues Bron: rapport IBM, Fade or Flourish? 2012 27

28. Bron: Nefarma, Pharma facts, 2012 Long period before entry to the market leading to lower effective patent period 28

29. 29 From an Investment Perspective „Sunk costs“: In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Source: Wikipedia (2010), „Sunk costs“, www.wikipedia.org; OECD (2008), Pharmaceutical Pricing in a Global Marketwww.wikipedia.org $1.3bn, ~12 years

30. Source: ENVI (2011), Differences in Costs of and Access to Medicines in Europe 2. Government interventions can be classified in three major groups: –Supply-side interventions: methods to determine the prices of pharmaceuticals (in particular those in patent) –Supply-side interventions through pharmaceutical reimbursement policies –Demand-side actions, including policies affecting physicians, pharmacies and patients 30

31. Estonia Greece France UK Slovenia Hungary Netherlands Italy Germany Latvia Lithuania Portugal Denmark Sweden Poland Romania Malta Croatia Bulgaria Switzerland Czech Republic Ireland Finland Austria Belgium Serbia Cyprus Slovakia Spain External Reference Pricing Weaker form of ERP No External Reference Pricing Luxembourg Austria: EU 25 Norway Bulgaria: Lowest of 8 countries Croatia: Avg of wholesale price of 3 countries minus 10% 24 of 27 EU Member States Apply External Reference Pricing – Rules Differ Finland: Median of 17 countries Hungary: Lowest of 13 countries, incl. ES, SK, PL* Spain: lowest of 9 countries 31

32. 32 Source: OECD (2008), Pharmaceutical Pricing Policies in a Global Market, p. 177 External Reference Pricing Leads To Price Convergence at Higher Level “To the extent that manufacturers have increasingly employed such strategies, convergence in ex-manufacturer prices in Europe would be expected. Indeed, there is some evidence of price convergence within Europe for newly launched products (Figure 5.3).”

33. 33 Tendering In The Hospital Sector: Nearly In All Member States Source: Vogler (2011), Pharmaceutical pricing and reimbursement in Europe, PPRI WHO Conference 2011, Vienna

34. Pressure on prices of pharmaceuticals… source: rapport IBM, Fade or Flourish? 2012 34

35. New customers are increasingly influencing the pharmaceutical buying process, while traditional core customers are losing relevance Customer Groups Relatively Low Importance Relatively High Importance Source: Accenture Research 2010; Global summary of results; *relative importance per country can differ Importance of the stakeholder 2009 Importance of the stakeholders 2014 Change to stakeholder importance Patient Associations Individual Patients Payers and Wholesalers Specialist Prescribers (Hospital and Retail) Pharmacies Traditional Pharma Customers General Practitioners Pharmacy Chains Health Technology Assessment Institutions Purchasing Organizations/Tenders New Pharma Customers. 35

36. Growing role of HC insurers in health care (the Netherlands) : –Procurement (contracting health care providers) –Cost containment pressure –Quality of care, measurement outcomes, added value, cost effectiveness of care –Pricing of care, pharmaceuticals –Reimbursement levels –Access and free choice of provider, of drugs –Guidelines, prescriptions rules towards medical doctors –Etc. etc... Entry to the market Entry to the social Insurance scheme Entry to delivery registrationentitlementAccess for the patient Registration authorityCoverage authorityInsurance company 36

37. Bron: Nefarma, Pharma facts, 2012 Effective cost reduction measures in NL by Government and HC insurers Preference policy HC insurers for generic products: Price reductions up to 80%! 37

38. Upcoming: new models for managed entry schemes Source: article Adrian Towse, in Pharmacoeconomics 2010; 28 (2): 93-102 38

39. Pharma: from Product- to Market- orientation  From selling a product to contributing in health care solutions  Partnership with other HC providers and with patient organizations, HC insurers  Stimulating appropriate use instead of maximum use of the medicine  Providing evidence in real life (phase 4), patient registries, monitoring  Showing added value/value for money (business cases) 39

40. New times also means: new opportunities! May it sometimes feel like… … the challenge for the Pharmaceutical industry is to contribute to: affordable health care added value in health care appropriate use of medicine 40

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