The Potential Impact of Current and Future Pharmaceutical Policy Changes on Cash Flows for Innovative Medicines

Licensing used to be the main requirement for marketing a new pharmaceutical. Now, decisions by reimbursement authorities and other pharmaceutical policy changes are increasingly determining future profitability. We explore the financial consequences for the pharmaceutical industry of complying with requirements of reimbursement authorities and pharmaceutical policy reforms and find that the financial value of a pharmaceutical company is a function of its current and potential future revenues and expenditures. These are heavily influenced by regulatory decisions, often taken at, or near, product launch. The scenarios discussed are: central evaluation of cost-effectiveness, conditional reimbursement, risk-sharing schemes, pay-for-performance models, value-based assessment, and decentralization. Requirements to submit economic data to inform the pricing and reimbursement process, and new business models, such as value-based pricing and risk-sharing agreements, have financial consequences for the pharmaceutical industry, altering their net present value of future cash flows from new drugs. We conclude that reimbursement, rather than licensing, is essential to generate sales. Hence, the initial market valuation of positive clinical trial results or a new registration must be adjusted for the expected outcome of reimbursement, actual market access, and the corresponding cash flows resulting from sales and costs. © 2014, Institutional Investor, Inc. All rights reserved.