Pharma is really starting to feel the pinch of the credit crunch, a new report from Datamonitor says.

Increasing healthcare costs, pressures for cost-effectiveness and an unstable economy with rising prices, is putting pharma in a pressure-cooker situation when it comes to innovation, the report said.

Fewer novel products were coming to the market meaning there was declining return on investment. But while there was a need for innovation, the increasingly safety-conscious and cost-effective conditions put pharma in a Catch-22 position, said Dr Sandra Reynolds, senior pharmaceutical analyst at Datamonitor.

“With pharma experiencing declining returns on investment, the ability to make a profit will become increasingly difficult if innovative drugs are not launched in the near future … Governments’ push for greater use of generic drugs will also increase the pressure on pharma and ultimately on its ability to be innovative.”

In the US, rising healthcare costs were seen to be driving up insurance premiums causing insurance firms to seek better deals on prescription drugs from pharma companies in a bid to avoid rising premiums even further.

Meanwhile, the US Government has considered negotiating drug prices with the pharmaceutical industry to reduce healthcare expenditure.

“In Europe,” the report stated, “healthcare systems are outdated, financially inefficient and in need of modernisation.”

Reynolds said the onus was on pharma to respond to the conditions by streamlining R&D efforts and making more efficient strategic pipeline decisions.

“New drugs must show value for money in terms of therapeutic outcomes and the companies that develop them must be able to demonstrate their efficacy if they want to receive favourable reimbursement.”

However, should prescription drug prices be slashed as a quick-fix to counteract the economic environment, there would be the problem that in the future this would be damaging to the development of new innovative drugs because there would be limited returns, Reynolds said.

“The way forward for pharma will be the implementation of assessments of cost-effectiveness that demonstrate the value for money in their products. In addition, strong differentiation from competitor products will be essential in order to achieve reimbursement status and a return on investment.”

The report, Pricing and Reimbursement – Seven Major Markets Update, focuses on the latest developments in pricing and reimbursement in the seven major markets providing analysis of P&R controls in each market and identifying key trends shaping overall market evolution and implications for pharma.