Investment Climate for Pharmaceutical Companies in The Netherlands Under Pressure
Introduction
The Pharmaceutical Committee of the American Chamber of Commerce in the Netherlands (AmCham) voices its concerns about the investment climate for pharmaceutical companies in the Netherlands. The medicines policy that has been initiated increasingly undermines the very basis that companies need to develop and market new medicines. AmCham therefore calls for a medicines policy that keeps the Netherlands an attractive investment location for pharmaceutical companies.
The Situation
The Minister for Medical Care recently called for a threefold approach to curb prices of medicines: asking pharmaceutical companies for transparency about price setting on a product level, intensifying European discussions on limiting incentives and intellectual property rights, as well as replacing registered products with pharmacy compounds.1 These intended measures do not stand on their own, but correspond with earlier policy ambitions.2
The Dutch Investment Climate for Pharmaceutical Companies
The Pharmaceutical Committee of AmCham seeks to improve the investment climate for American pharmaceutical companies in the Netherlands. The Netherlands has an interesting profile for such companies with the presence of eight highly regarded university hospitals, 26 top clinical hospitals, several (bio)pharmaceutical laboratories and a booming national biotech sector, all within a relatively small country.
The relocation of the European Medicines Agency (EMA) to the Netherlands can serve as a catalysator to make the Netherlands “the Boston of Europe”; a magnet for companies that invest in drug development. That would benefit Dutch health care, for instance by making medicines in development accessible at an earlier stage. It would also generate a boost for the Dutch economy. The Dutch pharmaceutical sector already generates 65 thousand jobs in the Netherlands, and this number will only grow if more companies base themselves in the Netherlands.3
Within the initiative Pharminvest Holland, several stakeholders use a bid book to actively interest pharmaceutical companies in a move to the Netherlands.4 In the foreword, the Minister of Economic Affairs emphasizes the importance of the pharmaceutical industry for the Dutch economy and also praises the sector as a “breeding ground for new talent.”5
Business Model
The pharmaceutical sector works with a business model in which medicines are developed by private companies.6 Partly assisted by financial support of their shareholders, they invest billions of dollars in long-term and risky research. Medicines that make it to the market, generate revenues while they have IP-protection. These revenues are utilized to finance research into new medicines. When patent protection expires, prices usually decrease and the same health benefits become available against much lower costs. These savings are then utilized to finance new innovation.
For us, it’s clear that this model works. Every year, it produces new innovative medicines and the corresponding health gains, while expenditures on medicines have remained relatively stable and only represent seven percent of the total health budget.
Profit margins are often used as an indication of the financial health of pharmaceutical companies. However, a much better indicator is the return on investment (ROI) in drug research, as this number is crucial for investors when determining in which sectors they want to invest. The ROI of pharmaceutical R&D has declined from more than 10 percent in 2010 to 1,9 percent in 2018. The claim that drug research is a lucrative business thus doesn’t withstand scrutiny. On the contrary, a ROI of 1,9 percent seems to low to keep the sector interesting for investors on the long term.7
The Measures Advocated by the Ministry Directly Oppose This Business Model
Asking companies to provide transparency about price setting on a product level doesn’t take into account that the primary goal of pharmaceutical companies is not to recoup R&D costs, but to invest today in the medicines of tomorrow. This is not possible when companies are only allowed to recoup R&D investments on a specific medicine. It also leaves no financial room to absorb the setbacks that are inevitable in drug research, as nine out of ten medicines fail at some point during the clinical stage.8
In an earlier position paper, we already discussed our views on limiting IP rights and incentives.9 Both intellectual property and incentives are indispensable for innovation. Limiting them will thus negatively influence the number of new medicines that reaches the patient. It will also provide a negative signal to other research-intensive industries that invest in the Netherlands.
We have also discussed the third measure – economic compounding – in an earlier position paper.10 Pharmacy compounds are indispensable for high-quality healthcare in a complementary role to registered medicines. However, they should not be used as a replacement of such registered products. Indeed, this is not in the interest of patients, innovation or the investment climate.
Investment Climate
The AmCham pharmaceutical committee therefore calls for restraint. The medicines policy that has been initiated could provide savings on the short term, but will make the Netherlands less attractive for pharmaceutical companies in the mid and long term.
Indeed, companies that are currently active in the Netherlands or that seek to expand their activities in the Netherlands could be discouraged by a medicines policy that takes the protecting and rewarding of innovation rather lightly. It would also send the wrong signal to other so-called “priority sectors” of the Dutch economy, which together produce more than a quarter of the Dutch GDP. Indeed, these are all research-intensive industries for whom it’s crucial that innovation is valued.11
Price Discussion
We recognize the current discussion about prices of medicines, but we also call for measures that combine affordability and innovation. In many cases, our member companies already deploy such initiatives. Examples are investments in the appropriate use of medicines and diagnostics, improvement of therapy adherence, introduction of new pricing models and widespread use of national registries that measure treatment results. This way, we are working toward payment based on treatment result, which is complementary to the current trend toward personalized treatment.
The pharmaceutical industry – individual member companies, the Association of Innovative Medicines, HollandBIO and the AmCham Pharmaceutical Committee – have repeatedly called for a dialogue with other parties to jointly work toward a widespread use of the measures mentioned above. We call on other stakeholders to accept this invitation for a dialogue, so as to jointly keep Dutch healthcare sustainable and innovative.
Published: February 5, 2019
Authored by: Pharmaceutical Committee AmCham.
Michel van Agthoven, Chair Pharmaceutical Committee American Chamber of Commerce (AmCham) / Janssen, Pharmaceutical Companies of Johnson & Johnson.
Ad Antonisse, Co-Chair, Pharmaceutical Committee American Chamber of Commerce (AmCham) / AstraZeneca.
References:
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NRC, “Minister Bruins: we kunnen maar kleine stapjes zetten bij grote farmaceuten”, January 15, 2019, https://www.nrc.nl/nieuws/2019/01/15/minister-bruins-we-kunnen-maar-kleine-stapjes-zetten-bij-de-grote-farmaceuten-a3637998
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The Minister voiced his support of a “cost plus”-approach to pricing medicines, in which prices would be based on investments in research and production, plus a profit margin. See for instance WNL op zondag, October 21, 2018, 12:25. Available through https://www.npostart.nl/wnl-op-zondag/21-10-2018/POW_03914552
In his first Parliamentary debate, the Minister also referenced to limiting IP rights and incentives. He stated (in Dutch): “mijn ambtsvoorganger heeft al ingezet op onderzoek naar de voors en tegens van het patentsysteem en beschermingscertificaten van geneesmiddelen en ik wil hierop doorpakken, want het moet de industrie wel duidelijk zijn dat bij absurd hoge prijzen de overheidskant zijn verantwoordelijkheid zal pakken om de spelregels aan te passen.” Tweede Kamer, vergaderjaar 2017-2018, Kamerstuk 29477 nr. 456, gepubliceerd op 11 december 2017.
In the TV show Jinek, Minister Bruins said on economic compounding (in Dutch): “Er is soms een medicijn wat redelijk goed zelf te maken is voor een ziekenhuis. Dat gebeurt vaak ook wel voor kleine groepen. Dat zou ook best voor grotere groepen kunnen, als het maar gaat om de eigen patiënten van het eigen ziekenhuis. Ik ben daar een groot voorstander van.” Jinek, January 9, 2019, available through https://evajinek.kro-ncrv.nl/fragmenten/wat-betekent-de-eerste-grote-brexit-buit-eigenlijk-voor-nederland. The quoted fragment starts at 10:43 -
PWC, Economische Footprint Geneesmiddelensector, May 30, 2017, page 17.
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The bid book is available on https://www.health-holland.com/internationalisation/bidbook
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Health Holland, the Netherlands: Europe’s most attractive and innovative biopharmaceutical industry environment, page 5, https://www.health-holland.com/biopharma_bidbook_2018_3/4/
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For a further explanation of this business model, please see https://amcham.nl/news/effective-intellectual-property-rights-indispensable-pharmaceutical-sector
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https://www2.deloitte.com/uk/en/pages/life-sciences-and-healthcare/articles/measuring-return-from-pharmaceutical-innovation.html;
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Michael Hay et al., Clinical development success rates for investigational drugs. Nature Biotechnology 32, 1 (2014); 46.
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https://amcham.nl/news/effective-intellectual-property-rights-indispensable-pharmaceutical-sector
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https://www.amcham.nl/importance-registration-pharmaceutical-sector
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Centraal Bureau voor Statistiek, “topsectoren goed voor een kwart van het BBP, October 9, 2018, https://www.cbs.nl/nl-nl/achtergrond/2017/41/topsectoren-goed-voor-een-kwart-van-het-bbp.
