THE EFFECT OF COMPETITION ON DRUG PRICES

For most pharmaceutical companies, price competition is only starting to become a compelling day to day reality. Outside the US, much of the industry had been in a pre-competition phase until 1993: changes in market structure and in cost awareness were taking place but had not yet led to active competition. Buyers sought to exercise or increase their market power, for instance through managed care in the US, while sellers sought to protect their market share, market power and financial performance through rationalisation and merger. The long term result would determine power to maintain prices and margins on established drugs. Changes in government policy from 1990 onwards had further closed the opportunity for rapid increases in prices, even in countries which formerly had pricing freedom. Companies have to live with the fact of downward pressure on prices in formerly high price countries such as Germany, the US and The Netherlands. New entrants with innovative drugs have found payers taking a different view of the value of ‘innovation’ in terms of gains in effective patient care. The hope of faster international adoption and greater freedom to price new products realistically had not yet come to fruition. For all firms in the industry, the mid-1990s represented a period of greater uncertainty, regrouping and development of new strategies for the future. © 1995, Springer International Publishing AG. All rights reserved.