New UK drug pricing system agreed

A new UK system for controlling drug prices, whose details have now been finalised between the pharmaceutical industry and government, could trigger a huge jump in the number of drugs receiving approval for use by the state-run National Health Service (NHS), which spends ?8 billion on branded drugs every year. 

Under the old price control system, the Pharmaceutical price regulation scheme (PPRS), companies were allowed to set their own fixed prices when launching new medicines, but had to keep their UK-earned profit margins within an agreed limit. The most recent incarnation of the PPRS, agreed in 2005, was supposed to last to 2010, but was scrapped in 2007 after the Office of Fair Trading, the government’s anti-monopoly agency, argued that it had failed to restrain drug prices, with popular branded drugs more expensive than their clinical value warranted. Government insisted that industry accept a more cost-effective pricing deal by the end of 2008 (Chemistry World, April 2008, p18).

The new agreement, whose negotiations have been a source of friction between government and the pharmaceutical industry, will cut ?400-500 million from the NHS’s annual bill. All branded drugs will receive a price cut of 3.9 per cent from February 2009, with a further 1.9 per cent reduction a year later. 

In return, however, drug manufacturers have been given the ability to raise the price of a drug already on the market, if new evidence emerges of its clinical effectiveness. This could encourage companies to launch new products cheaply to gain approval from the NHS’s appraisals body, the National Institute of Clinical Excellence (NICE), then ratchet up prices later.

David Fisher, of the Association of the British Pharmaceutical Industry (ABPI) who were involved in negotiating the scheme, says the result could be a flood of new drugs passing successfully through the appraisal process. ’The ABPI have opened the door [to that strategy],’ he says. ’We’ll have to see how many companies will walk through it.’ 

Even those drugs rejected by NICE could still be sold to patients under special arrangements to be negotiated ad hoc between drug companies and the government.

Generic competition

The new scheme also insists that from January 2010, the NHS will routinely substitute all off-patent branded drugs with cheaper unbranded generics - bad news for companies who sell branded reformulations of off-patent drugs. In October, pharmaceutical company Norgine, which specialises in these ’branded generics’, resigned from the ABPI over the dispute, saying that the scheme had been set up to favour big pharma.

Ian Oliver, senior partner at industry consultancy Ernst & Young, notes the agreement does contain measures to protect smaller firms. Companies with turnover below ?35 million need not report their profits to the government and those with sales below ?5 million are exempted from making price cuts. ’It will be good for biotech,’ said Oliver. But there may also be losers, he added - especially companies who have branded drugs at the end of their patent life and about to face generic competition. The Ethical Medicines Industry Group (EMIG), the trade association representing smaller drug companies, said it would have to ’carefully consider the details’ of the generic substitution proposal.

The new deal is guaranteed to continue for five years - a great relief to the industry, which was ’horrified’ when the government reneged on the last one, says Fisher. ’We needed to restore some stability.’

Pete Mitchell

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