Amid intense pressure to reduce skyrocketing drug prices, pharmaceutical and biotech companies are trying to devise models that would give poor countries access to medicine while still covering high drug development costs and maintaining incentives for investors.

Drug wars: Access to expensive drugs is a contentious issue for diseases such as HIV/AIDS. Credit: Apoorva Mandavilli

Experts say differential drug pricing would transfer some of the financial burden—an estimated $800 million to bring a new drug to market—from the US to other developed nations. Proposals include pricing drugs according to countries' gross domestic product (GDP), or a uniform pricing system in which individual countries would negotiate confidential rebates.

These options are better than price controls, which would ultimately discourage investors and stall drug development, says Judy Lewent, head of Merck's Human Health Asia division. Lewent cites Europe's declining pharmaceutical industry as an example of price caps' negative impact.

Drug prices are higher in the US than in many European countries because the healthcare systems in those countries can negotiate better prices from pharmaceutical companies than can individual American insurers. Critics of differential pricing plans say that countries with effective plans for buying drugs shouldn't be forced to pay more. But changing the way money is allocated to buy drugs could be one solution, says Mark McClellan, former head of the US Food and Drug Administration. McClellan now heads Medicaid, a medical assistance program for low-income US families.

Generic drugs are relatively inexpensive and make up the majority of prescriptions in the US—but not in Italy or France. Negotiating cheaper rates for generics in those countries would encourage competition in that market and leave more money to spend on higher-priced medicines, says McClellan.

Representatives at a conference in August at the Massachusetts Institute of Technology (MIT) suggested various new pricing models. Una Ryan, chair of the Massachusetts Biotechnology Council, proposed a scheme where countries with high GDPs would pay higher prices, subsidizing costs for poorer nations. But a potential snag with this is that countries that qualify for cheap drugs could sell them elsewhere, much like the current parallel trade between the US and Canada.

Another option is to have countries pay a uniform price but negotiate confidential rebates, suggests Patricia Danzon, a health care professor at the Wharton School of Management in Pennsylvania. In this system, countries wouldn't know how much their neighbors pay for the same drugs, thus preventing parallel trade. Some researchers doubt it would be possible to maintain confidentiality.

But Ernst Berndt, an economist with MIT's Sloan School of Management, says the model has a sound track record among pharmaceutical companies, which are used to dealing with larger buyers and confidential rebates. The model would be widely applicable to different types of drugs, from medicines for rare orphan diseases to injectable vaccines, he says, but the real hurdle will be convincing countries they are getting a good deal.