How are healthcare systems increasing their pressure on drug prices and how can pharma companies adapt?

What are the main causes for the rising costs of new drugs?

First, it is natural to wonder what are the causes of the increase in price that we see for some of the newer drugs coming to the market.

R&D as the main driver of drug prices

The most frequently mentioned reason is the cost of R&D, which can be tremendous. It is estimated that developing a drug until it reaches the market can take 10 to 15 years and 700 million to 2,6 billion USD¹DiMasi JA, Grabowski HG, Hansen RW 2016. Innovation in the pharmaceutical industry: new estimates of R&D costs. J. Health Econ. 47:20–33. Beyond the cost of developing a singular drug, this amount reflects the many potential drugs that never make it to the market due to disappointing safety or efficacy results and whose cost is ‘absorbed’ by the successful drugs. Although the pharma industry is putting important efforts in reducing the development cost (for instance with decentralized clinical trials, AI support, etc.), these efforts are not yet felt on marketed drug price due to the length of development periods. Moreover, reglementary constraints for approval and reimbursement of drugs can have a tendency to become more strict, often meaning that more clinical proof is required to get desired market access conditions. Pharma company are thus incentivized to invest even more in their clinical studies (more patients, more centers, longer observation period, etc.) to strengthen their data, which can in turn translate to higher prices for durgs. Notably, new treatments, like innovative cell or gene therapies can be especially complex to develop, requiring extra care in formulation, or special clinical trial protocols, which can inflate prices even more.

To keep an incentive for the development of new and innovative treatments, governments give pharma companies strong protection on their patents, preventing generics and biosimilars from reaching the market until a certain delay is reached. Moreover, additional incentives can exist to prolong patent protection (e.g. extension of indication for pediatric patients), of which the industry tries to make full use.

Rise in treatments for rare diseases

Additionally, more and more very innovative treatments, like cell & gene therapies, are being developed, notably to address rare diseases. To recoup important R&D expenses while only being able to sell these drugs for a limited amount of patients, the price of these medication is set very high, which, although being worth it on the long term (e.g. by reducing inpatient costs from hospitalization), represents a very important initial frontloaded cost for healthcare systems.

The local systems can impact drug prices

Finally, region specific mechanisms can favor high prices, like the Pharmacy Benefit Managers in the US, who negotiate prices and rebates on pharmaceuticals. As they are incentivized on the size of the rebate they are able to negotiate, high prices (thus high rebates) can often be set for key drugs.

How are governments and healthcare systems developing new strategies to regulate drug prices?

To cope with the rising prices, different strategies are being put in place by the different countries.

In the United States

In the US, the Inflation Reduction Act (IRA) from the Biden administration included several clauses on drug prices, notably a cap on price paid by patients for insulin, but also, and more importantly, a new power of negotiation given to Medicare. To note however that the scope of medicines that Medicare has power of negotiation over remains limited, excluding notably all medication that has competition from generics or biosimilars, but also only allowing negotiations to start 9 or 13 years after product launch (respectively for small molecules and biologics).

More recently the Trump administration is trying to reform part of the US healthcare system by developing a model of ‘Most Favored Nation’, which aims at aligning prices of drugs in the US on their prices in other developed countries (today, drug prices in the US can be several times higher than in Europe). This new reform also targets the PBMs and their opacity of drug prices negotiations, with a new federal legislation demanding PBMs to share publicly about their ongoing negotiations with drug manufacturers (including prices and rebates negotiated).

In Europe

In Europe, healthcare systems rely on Health Technology Assessments (HTA) from competent healthcare authorities, like the HAS in France or NICE in the UK. These HTAs give a vision on the value brought by the drug (notably versus current standard of care), and are a key pricing and reimbursement lever for European countries. However, these HTAs are currently done at the level of each country, and very rarely at European level. Over the past years, European countries are increasingly trying to cooperate for HTA but also more generally for pricing and reimbursement discussion with pharma companies, to leverage a larger bargaining power. For instance, they have developed EUNetHTA, a network of HTA organizations, the Competent Authorities on Pricing and Reimbursement (CAPR) network and Pharmaceutical Pricing and Reimbursement Information (PPRI) network.

European countries have also been using Managed-Entry Agreements (MEA) for high-priced medicine, which can take the form of simple discounts or price-volume agreements, but also more sophisticated health-outcome based agreements, meaning that the price or reimbursement of a drug is tied to health outcomes observed in real life and could thus vary over time. The latter are yet the rarest, and these agreements have been criticized for being confidential in some countries. They however offer the opportunity for easier and quicker market access and potential lower prices, although it can be noted that reducing reimbursement or increasing price of a drug after it has reached the market can cause major pushback from HCPs and patient associations.

In China

In China, beyond the implementation of HTA in 2018 by the local healthcare authority (National Healthcare Security Administration – NHSA), the government has adopted a completely different strategy than Europe or the US, based on harsh negotiation with drug manufacturers, in exchange for a promise of large volumes. Indeed, manufacturers have to negotiate with the NHSA to figure on the National Reimbursement Drug List (NRDL). These negotiations take down the price of the drug by an average of 50%. In exchange, all drugs on the NRDL are heavily favored nationally (both in hospitals and retail), allowing pharma companies to reach quickly a large volume of prescriptions. In 2023, the NRDL was reformed and put in place price renegotiations every 2 years and more important price drops after patent expiration. This system makes China a very unique market, in which access and regulatory plays an even more important role (especially foreign companies) for a drug launch than in other countries and where volume can be more important than price.

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What can pharma companies expect, and how can they move forward?

As discussed, a key reason for high prices of drugs is the investment required in R&D to get them to the market. Thus, a more strict control of price might lead to tensions in R&D funding. We can already observe, on the clinical trials database GlobalData, that a few percent of clinical trials stopped for financial reasons, especially in oncology (1.6% of clinical trials stopped for financial reasons)²GlobalData, accessed in May 2025. Moreover, pharma companies should expect increasing competition from generics and biosimilars, which are a key lever for healthcare systems to reduce drug prices. Also, price negotiations with healthcare authorities will likely become more and more difficult, especially if the prices in the US are lowered, which could push pharma companies to set a higher price in other countries to compensate.

To navigate this new paradigm, pharma companies can make use of several strategies:

• Governments are now expecting a measurable ‘return on investment’ for each drug on the market, measured during clinical trials, but also increasingly in real life. To showcase the value of their product, pharma companies can generate these Real-World Evidence (RWE) themselves, which shows good faith to payers, gives additional arguments during pricing negotiations, engages local KOLs, allows to understand how their product is used in real life and can even, with the help of AI, support strategic decisions.
• Moreover, in some cases, the market entry models of drugs will likely need to evolve in the coming years, moving from short-term returns via high prices negotiated thanks to excellent clinical results, to long-term value assessment, collaboration with healthcare systems and renegotiations based on real life data over the life cycle of the product.
• Finally, as market access is likely to become complex and require important resources, successful companies seem to put an increasingly important focus on their key countries, often being the US, EU5, China & Japan. Ensuring the right access and price in these markets is what will yield the highest return on investment and can have a positive ripple effect to lower priority countries, notably in Europe.

Today, the global pharmaceutical industry is compelled to adapt to increasing cost pressures, heightened regulatory requirements, and a demand for transparency on drug price. Major countries are passing legislation or imagining new models that will give greater bargaining power to their healthcare authorities over drug manufacturers. Companies’ ability to demonstrate the value of their innovations, adapt to new pricing models, and collaborate with payers, governments and each other will be critical to their future success.

At Alcimed, we love exploring this complex and rapidly-evolving topic, and we can support you in understanding the stakes and updating your strategy to take into consideration the recent regulatory or geopolitical situations. Do not hesitate to contact our team!

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About the author, 

Martin, Project Manager in Alcimed’s Healthcare team in France