February 26, 2013 10:34 pm

Novartis has fair claim to challenge German drug pricing law though weak case to protect diabetes drugs

This article is provided to FT.com readers by BioPharm Insight—a news service focused on providing insight into the most price sensitive issues in the global pharmaceutical market. www.biopharminsight.com

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Novartis (VTX:NOVN) has a reasonable argument to attempt a legal challenge defending its current pricing for two marketed diabetes drugs, based on ambiguous drafting of the new German pricing law, lawyers and reimbursement experts told BioPharm Insight.

However, while the company is within its rights to file the case, it may have a tougher time arguing that its currently marketed products should not be up for a cost benefit review, because the law, known as AMNOG, clearly states that existing drugs may be reviewed.

Merck (NYSE:MRK), AstraZeneca (LON:AZN) and Novartis face price cuts in Germany for their diabetes drugs that work by blocking the dipeptidyl peptidase-4 (DPP-4) receptor. Novartis’ two DPP-4 products up for review are Galvus (vildagliptin) and Eucreas (vildagliptin/metformin). Pricing varies regionally within Germany, but one German endocrinologist said in his practise Galvus costs EUR 2.05 per day and Eucreas costs EUR 1.94 per day. The drugs were approved in 2008, and Galvus made USD 910m (EUR 686m) in global sales in 2012, according to a Novartis financial statement, while a breakdown for Eucreas was not reported.

The DPP-4 inhibitors were all approved prior to the new AMNOG law, passed in January 2011 to regulate the pricing of newly approved drugs relative to their benefit over currently marketed drugs. This drug class is the first of the established market products assessed on their existing cost benefit merits, which is also allowed as part of AMNOG, as previously reported.

Novartis filed a lawsuit with the social court in Berlin-Brandenburg in late 2012 (Az.: L 7 KA 106/12 KL ER) in response to Germany’s Federal Joint Committee (G-BA) requesting a benefit and pricing review of all existing DPP-4 inhibitors on the German market, it was previously reported. This request by the G-BA was made in June 2012. The deadline for the manufacturers’ benefit dossier submissions to the G-BA was originally 31 December 2012, but was extended to 31 March 2013 after Novartis launched its legal challenge, it was reported.

A Novartis spokesperson said that with AMNOG, the German authorities are evaluating the value and benefit of new as well as already-marketed brands. The company recognises this procedure, but a condition for this, however, is an evaluation system that fulfills the legal criteria, said the spokesperson. In the current case, there are questions around this which are being reviewed by the courts, he said. Novartis was asked to provide further clarification but did not do so.

Fair grounds to challenge based on ambiguous drafting of AMNOG law

The social court decision on preliminary proceedings for Novartis’ lawsuit was expected last Thursday, 21 February, with official wording of this preliminary decision expected to be published within the week, BioPharm Insight reported Thursday.

Justus Dehnen, principal and head of Pricing and Market Access Germany, IMS Consulting Group, Munich, Germany, explained that claims against the early benefit assessment of new drugs or the decision as well as against the assignment of new drugs without additional benefit into reference price groups, are prohibited by law (social code book V). This is to avoid delays in the AMNOG benefit assessment results, he noted.

Novartis filed its lawsuit based on the point that this paragraph -- Section 35a -- only covers new drugs, not already existing drugs, he said. It needs to be clarified whether Section 35a is also valid for already marketed products, said Dehnen.

If one reads the wording of the reference paragraph in question, Novartis seems entitled to challenge the review of existing drugs because of the way it is drafted, said Stephan Rau, partner at law firm McDermott Will & Emery, Munich, Germany. Based on this, it is “very likely the case will be admissible,” said Rau.

Politicians involved in drafting AMNOG declared the legislator intended to make the law say something different, thus the legislator likely wanted the law to be applicable to all drugs, said Rau.

It is unclear whether the courts will give priority to the understanding that derives from the wording of the law or to what is presumed to be the real intent, said Rau. Because Germany is a civil law country, courts tend to place more weight on the actual wording of a law when interpreting it, he noted. Therefore, it is more likely the courts will regard Novartis’ legal action admissible, he said.

Grounds for Novartis challenge still questionable

While Novartis has a strong case to initiate a challenge the review of Galvus and Eucreas, Novartis still needs to have a good argument as to why it should not submit dossiers for evaluation, he said. Novartis’ argument for why it should not have to submit manufacturing details is weaker, added a German healthcare lawyer.

This is a new case, and there is no precedence, noted a second German lawyer. Some commentators said the way the social code and AMNOG law has been drafted, it is debatable as to whether the G-BA can request to review certain existing drugs, said the second German lawyer.

Dehnen countered Section 35a (6) of the social code book V clearly states AMNOG is applicable to products marketed before 1 January 2011. It also clearly declares the focus of such benefits assessment will be linked to therapeutic areas and products that are of specific importance to the statutory sickness funds, said Dehnen. The statutory sickness funds provide insurance and health benefits to the majority of the German population.

The main reason the AMNOG law was enacted was to save money for the social sick funds, so it is reasonable for the G-BA to focus first on therapeutic areas that impact the sick funds the most, such as diabetes, added Dehnen.

The second German lawyer noted, however, that it is unclear what circumstances allow the G-BA to call upon a re-review of existing drugs. G-BA has a certain amount of discretion when calling existing drugs to be reviewed, the second German lawyer said.

The discretion is allowed to be exercised under two prerequisites: the “importance” of the medicine to the greater population and its competitiveness to newly approved drugs coming onto the market, a source explained. The major thing Novartis is arguing is whether the drugs fit this criteria, which is currently ambiguous and subject to various interpretations, the second German lawyer and the source noted.

The AMNOG law was intended to be applicable to both old and new products, the first German lawyer said. Novartis will have to convince the court that it is illegal for the G-BA to ask Novartis to submit dossiers for a pricing review, the first German lawyer said. Novartis may argue the current law is not clear enough, “but I don’t agree,” he added. AMNOG specifically says a pricing review may be done for existing drugs that are comparable to new drugs being evaluated as well as for high-earning drugs, and both situations apply here, he said.

One potential argument Novartis could try to make is to say the pricing review is a violation of its constitutional rights by stopping its freedom of enterprise, the first German lawyer said. However, in healthcare, it is relatively easy for the government to argue that these limitations are justified to save healthcare costs, and many courts are inclined to decide in the interest of public payers, he said. “Personally I don’t think Novartis will be successful here,” said the first German lawyer.

This is a very unique case as nobody was able to foresee this massive issue when the AMNOG law was passed, said the source. There are still many unanswered questions and complications surrounding this law, the source added.

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