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GSK agrees 'risk-sharing' price schemes with European governments

Flexible deals allow for price rises or cuts depending on post-launch health outcomes

Groundbreaking 'risk-sharing' deals agreed between GlaxoSmithKline (GSK) and two European member states, which allow prices of new drugs to be raised or lowered depending on the outcome of post-launch phase IV trials, have been welcomed by the industry.

Andrew Witty, head of European pharmaceuticals at GSK, said the firm was exploring the novel pricing model with several governments and was hopeful that many other countries would adopt the idea in the future.

The European industry has been severely critical of the price controls that many European governments have fixed on new drugs at the time of launch when information on their true value is still limited, without the flexibility to alter the price once that data becomes available.

GSK has declined to name the countries or medicines involved due to the commercially sensitive nature of the information.

Kieron Sparrowhawk, principal at pharma pricing consultancy, PriceSpective, described the deals as ìgroundbreakingî and said that by entering into the agreements, GSK was effectively ìputting its money where its mouth isî.

ìThis type of deal is not without risk to both sides,î he told PMLive. ìGSK is saying it will cut the price if the health outcomes deem it necessary and that's something companies haven't really been prepared to do in the past. Yes, there have been price/volume agreements but not ones that have been linked to the overall effectiveness of the product.î

The agreements are surprising in that payers traditionally keen to maintain control of a pricing regime so they can budget accordingly in future years, have ceded some of that power in favour of a more flexible system.

Witty said that the two separate schemes were structured in different ways. While one agreement had set the price relatively low, with scope for future price rises, in the second case, the launch price was relatively high but susceptible to reductions based on phase IV data.

A GSK spokeswoman told PMLive that the pricing environment had changed a lot in the last five years.

ìWhereas before, we were ready to launch and had eight years' patent protection left, we were finding that two years of that period was caught up in price negotiations,î she said. ìWe've tried to sit down and work out a model that reflects the true value of products.î

She added that the system would work best with treatments in chronic disease areas, which rely on lengthy outcome studies to show their effectiveness and cost benefits to health services.

GSK has recently spent about $200m on such studies for its new diabetes drug, Avandia. Recently published results of the largest ever clinical study into diabetes prevention found that the drug reduced the chance that at-risk patients would eventually develop type II diabetes by 62 per cent.

Sparrowhawk said that GSK's new model fitted in with the notion of `value-based' pricing, in that innovative products would be rewarded, while prices would be cut for relatively ineffective `me-too' drugs.

ìIt's all about pricing the product to the value of its worth to a healthcare system, based on the clinical proof,î he said. ìI think the rest of the industry will look on with much interest.î

30th September 2008

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