BOSTON – It's a long path from all the fascinating science discussed at BIO last week to getting a new drug into the hands of patients, and now in Europe, convulsions in the pricing and reimbursement environment are stretching the time from discovery to first revenues even further.

Those shifts in Europe will impact the value of products and are influencing the terms and conditions of licensing deals. To give one example: A focus on value-based pricing and judging efficacy relative to comparator products means that meeting the endpoint in a Phase III trial may no longer be good enough to trigger a clinical milestone payment.

"We're looking at a tighter definition of successful completion in Phase III – it's not just hitting the primary endpoint, because you may get statistical significance, but there's not enough clinical significance," Paul Pay, vice president of corporate development at the European specialty pharma company Norgine BV, told delegates at a session at the BIO International Convention Thursday.

Alongside austerity-driven cuts to national drug budgets and an increased focus on health technology assessments (HTA), changes in the pricing and reimbursement regimes in the UK and Germany will have an impact, not only in those two large national markets, but in the dozen or so countries that reference UK or German prices.

"The reality is there is an unpredictable and changing landscape," said Susan Garfield, of GfK Bridgehead, a consultancy specializing in market access. National governments are trying to balance meeting the needs of patients, providing equity of access and making sure innovative biologic drugs get to market and improve health outcomes. "Unfortunately, austerity means there is less receptivity to innovative products because [payers] are already struggling to pay for what they agreed to in the past," Garfield said.

Alongside austerity, access for new products is being impacted by the requirement to cross HTA barriers postmarketing approval. And while the path to regulatory approval may be harmonized across Europe, HTAs are country-specific. "This makes it hard to value an asset," Garfield said. There is risk around the pricing and reimbursement in each country, and HTA is extending the time frame for return on investment.

One of the biggest upheavals is in Germany, which has gone from a free-pricing regime to one where the price is set with reference to a comparator product that is chosen by the pricing authority. One of Garfield's clients with a novel treatment in an orphan indication finds it is being compared to an existing technology that has been on the market for a long time, is low cost and does not work very well.

"So you've got to position to show [your product] is different and what a more appropriate comparator might be. You need to do this early, [thinking] about what the comparator might be and what is the best/worst case," Garfield said.

The new German system is playing out in real time, and Garfield said currently there are not enough data available to do the modeling and predict how those changes should be reflected in the terms of licensing deals.

Similarly, in the UK, a new system of value-based pricing is due to replace the existing cost-plus scheme in January 2014. That will emphasise cost-effectiveness, and companies will need to provide the relevant data and pass the value assessment before going into pricing negotiations. The assessments will not only create an extra hurdle to market in the UK, but also in a number of other countries that reference HTAs carried out by the UK's influential National Institute for Health and Clinical Excellence.

"International price referencing is going to be impacted by changes in Germany and the UK because they are the reference [points], and more especially because the UK and Germany supported higher prices in the past," Garfield said.

Balanced against those shifts and difficulties, half of the top 20 pharma markets in the world are in Europe, and will continue to be so. "You can't ignore Europe; it's still a good market for pharma products," Pay said.

In all of Europe's national markets, the power of the payer is increasing and as a result licensees and licensors must understand what the payers need when discussing a partnership. "You have to set a price that is acceptable to the payer, because there's no point in having a great price if no one is going to buy it," Pay said.

Another element of the European scene that needs to be factored into licensing discussions is the time lag between marketing approval and market launch. That varies from being immediate in the UK to 400 days in Belgium.

"We have to take account of the time lag in our deal terms and also consider if we launch in all markets," Pay said. Europe's single market means drugs can freely be shipped from one country to another. "You probably wouldn't launch in Greece at one-third the price of the UK, France and Germany, because then the rest of Europe will be supplied from Greece," Pay said.

Licenses also need to take into account the need for post-approval studies in Europe. "They are now becoming compulsory requirements, and you need to build them into the valuation model," Pay said.

Over the past two to three years, Norgine has begun to reflect all these changes in its licensing agreements. For example, milestones are now conditional, not fixed.

"[They] are proportional to the pricing we achieve; in other words, we try and think about how the market may go and build risk-sharing into the license terms," Pay said.

The overall message is that marketing approval is no longer the key milestone. "Pricing and reimbursement is king, because it's only then you know the value of the asset," Pay said.