Please login to the form below

Not currently logged in
Email:
Password:

Whatever next?

The PPRS changes could spell the end of pharma as we know it unless a compromise is reached

We recently held a social evening, inviting colleagues from across the health and pharmaceutical sectors to enjoy a light-hearted, lively debate on an issue of pertinence to the industry. The ambience was lovely and relaxed but the topic of choice made this year's event a little more heated. The topic under discussion was the abolition of the Pharmaceutical Price Regulation Scheme (PPRS).

At the heart of the UK pharmaceutical industry's finances, the PPRS's central purpose is to set overall profit limits on pharmaceutical and biotech companies'  sales to the NHS. Its significance lies in recent developments that threaten the future of this arrangement and the proposal by the Office of Fair Trading (OFT) to replace it with a new form of pricing based on evaluation of individual medicines. What does this mean? Could it spell the end of the pharma industry in the UK as we know it, or signal the beginning of a new era of innovation and revolutionary new medicines?

Is this Pharmageddon?

The value of PPRS
The PPRS, in various forms, has been in place for over 50 years and has been effective in a number of ways. It has helped ensure a stable pricing regimen for both government and industry, sustained a strong pharmaceutical industry and nurtured a growing biotech industry, as well as supported the production and availability of valuable medicines for the UK and other populations.

However, no matter how great its virtues appear on the surface, it must be remembered that - like the pharmaceutical industry itself - any changes to its pricing system will have reverberations across many sectors of the economy, not just the supply of medicines to our domestic market.

The OFT report
The main thrust of the OFT report is that the pricing system should be reformed to deliver better value for money to the NHS and to focus business investment on drugs that have the greatest benefits for patients. A fair point. The current ex-ante pricing system means that the price of a medicine can be decided by the company at the point of launch, so long as the agreed profit limit is not exceeded.

Usually backed by a supportive (but topline) NICE appraisal, the government pays for medicines with very little idea of the long-term patient benefits and outcomes for their money.
The OFT study identified price differences of up to 500 per cent between similar products, with no corresponding differences in effectiveness. It estimates that £500m or more could be saved annually if changes to pricing are made.


Since its creation in 1999, NICE has advised against the NHS's use of several costly new drugs, ranging from cancer therapies to degenerative disease treatments, and has drawn heavy criticism for its overly financial focus - as opposed to a focus on patient benefits.

 

Dr Richard Barker, director general of the ABPI comments

Pharma is deeply concerned over the termination of the current Pharmaceutical Price Regulation Scheme (PPRS) - just halfway through its life-cycle, and the impact of this on both the nation's health, economy and bioscience base. Until the terms of any new PPRS deal are known, the full extent of the problem cannot be understood. 
  In recent months, the ABPI - on behalf of the pharmaceutical industry - has been in intensive negotiations with the DoH. Our goal is to secure the provision of safe and effective medicines for the NHS at reasonable prices, while simultaneously promoting a strong and profitable pharmaceutical industry that will continue as a world-leader in the development of future medicines.
  Premature PPRS termination has already taken its toll. There are indicators that a number of pharmaceutical companies are losing confidence in Britain as a place to invest. Take the recent joint ABPI/CBI survey, which revealed that 83 per cent of pharmaceutical companies believe the UK business environment will become less attractive in the future. 
  This is just one of many external initiatives we have taken to ensure all in government who have a voice on this critical issue understand exactly what is at stake. 
  Last month a senior vice president at sanofi-aventis announced that if the UK government significantly slashes the price of medicines, the company will consider shifting its investments out of the UK and into emerging markets. 
  There is no doubt that if the government fails to recognise the importance of such an innovative industry, Britain will lose out to overseas competitors, and our knowledge base and economic strength will suffer, probably irreparably.
  Ultimately, we know that any pricing scheme must account for the full value of medicines in terms of its impact on patients, their carers and societal benefits. And the fact remains: medicines can improve quality of life while saving the NHS money. Just take a look at Sir Derek Wanless's report that found in return for the £617m the NHS has spent on statins, effectively £5.2m has been saved.
  The UK is a world leader when it comes to developing new medicines. UK researchers are playing a role in the development of more than 300 cancer medicines, 33 heart disease treatments and 23 medicines for Alzheimer's and dementia. Indeed, our researchers have been responsible for the development of  one-fifth of the world's top medicines. Yet, the irony remains; while  Britain's medical innovations remain in rude health, the uptake of these life saving treatments is weak. Take-up of medicines launched in the last five years in the UK languishes at 14 per cent - making the UK a poor relative to all major advanced economies. Retaining Britain's thriving R&D base, and rewarding innovation, is essential, not just for the economy, but for the improving health of UK patients. 
  It would be a bitter pill to swallow if the UK were to lose its leading science-based sector - an industry which is, quite frankly, priceless.
 

Investment threat
A 2007 report commissioned by US, Dutch and British funds showed that investments are slowly shifting away from 'big pharma' towards other niches in the sector. Investors are looking for new business models that offer better value for money and a greater insight into the quality of drugs being produced. Adopting a cost-effectiveness system to determine the value of medicines at launch could help meet these expectations and ensure that medicines with the greatest benefit are prioritised for use in the health system.

But can we really work out the value of a drug at launch, and in whose interest is it to do so anyway?

More stringent clinical trials and a regulatory environment that gets tighter year-on-year mean that companies already face long timelines for getting a drug to market. Adding a health technology assessment (HTA) aspect into it would delay the process even further and we could very well end up depriving patients in this country of access to medicines.

From the industry side, first-in-class patent expiries mean that companies already have less time in which to recoup large investment costs.

Quantifying patient outcomes has proved a tenuous business. NICE is already facing questions over the arbitrary nature of the QALY index, and if this were adopted as the baseline determinant for pricing of medicines, getting a drug to market would be fraught with a plethora of ethical issues.

Threat to R&D
What of those who view this through a more economic lens; who purport that contribution to the economy is of greater importance than value to the individual patient (which, they will conveniently argue, is hard to measure anyway)? Proponents of the PPRS argue that it makes the UK an attractive investment ground for big pharma with lots of money and that, as an added bonus, it encourages competitive development in the economy.

In 2006, pharmaceutical companies contributed over £3bn to R&D in this country (making it the largest European recipient) and exported over £12bn worth of goods (making it one of the largest exporters by value). The sector employs over 75,000 people directly and almost a quarter of a million people in related industries. Challenging the cosy set-up that is the PPRS would effectively pull the rug out from under the UK industry, threatening the future of inward investment and accelerating the inevitable move of monies eastward.

The PPRS is seen as a system of fair reward for investment in R&D and if this incentive is removed it is likely to have detrimental effects, not only on the industry, but on the 'knowledge economy' and life-sciences strategy that is underway in other government houses outside of the Department of Health (DoH). With confidence already declining in the UK economy, the Department of Business, Enterprise and Regulatory Reform (DBERR), in conjunction with UK Trade and Investment, are pushing hard to ensure that investment levels are secured for the coming years. Earlier this month, DBERR announced the creation of the UK Life Science Marketing Strategy Implementation Board to promote the industry globally and encourage inward investment. This seems at direct right angles to the recent actions of the DoH, which, if proposed revisions to the current pricing arrangements are pursued, may be held accountable for driving interest away from the UK.

Fostering innovation
So what could be the plus side of this seemingly destructive behaviour? We can only speculate about the outcome of forcing pharma to aggressively compete for premium pricing in this country. What we can say is that the very notion of stability can create a cosy environment and undermine innovation.

If companies are free to set and earn high prices for new, but not hugely differentiated drugs, then what is the incentive to shake up the status quo and explore, new, potentially more expensive R&D routes?

A value-based system may stop the onset of complacency and create the right incentives to do better for the paying customer (in this case the government). A fair pricing system would recognise the value of intellectual property, encouraging innovation and securing the future of the pharma industry.

Doing away with the PPRS may actually remove the limits to pharma industry success, resulting in massive benefits for patient and public health.

If companies can retain excess profits as rightfully theirs rather than repaying them to government, we might actually foster more of an innovation culture. Whatever replaces the PPRS will likely result in a more flexible pricing system, benefiting both government and industry.

What's to come
This is not an 'either-or' situation. The OFT did propose an alternative: an ex-post pricing system where companies can free-price at the point of launch, subject to cost-effectiveness reviews post launch. Although the feeling may be that it is a case of 'better the devil you know than the devil you don't', the truth may lie somewhere in between. The cosy comfortable deal of the present simply won't do, but the alternative is just not commercial enough. Neither can it ensure expedient delivery of new medicines to support the clinical and public health policy of a developed nation.

Risk sharing has also been put forward as a possible alternative and has been piloted in several therapeutic areas. Critics maintain, however, that with patient outcomes being so hard to measure, such a system will further discourage risk-taking behaviour.

Conclusion
Faced with drying up pipelines, the dramatic annual reduction in molecules making it to commercial production and the end of the blockbuster era, we should be valuing and rewarding innovation now more than ever. We should be pulling out all the stops to incentivise pharma to invest in drug discovery for rare and killer diseases.

Evolution is at the heart of all development and the pharmaceutical industry is no different. Incremental change is the way in which we innovate and it should be valued. We forget that seemingly minor changes, over time, accumulate to result in great technological advancement in the bigger scheme of things. We only see the value of this in hindsight. Right now, we can only hope that the government and industry meet somewhere in the middle, that their powers combine so that we can avoid.... Pharmageddon.

The Author:
Lisa Mehigan is a consultant, healthcare public affairs at Fleishman Hillard

13th May 2008

Share

Featured jobs

Subscribe to our email news alerts

PMHub

Add my company
Six Degrees Medical Consulting

Partnering with top global pharmaceutical companies, we push the boundaries to create meaningful, impactful and lasting learning opportunities. We leverage...

Latest intelligence

What pharma marketers can learn from behavioural science
Pharma behavioural science and traditional emotional marketing create a powerful mix of techniques that have impact on real lives....
NEW EU DATA PROTECTION REGULATION POISED TO CHANGE DATA PRIVACY LANDSCAPE
NEW EU DATA PROTECTION REGULATION POISED TO CHANGE DATA PRIVACY LANDSCAPE The bold digital clock featured on the EUGDPR (EU General Data Protection Regulation)1 website indicates – to the second...
Health knowledge: Why is it so important?
Health knowledge plays an important role in population health, but by itself is rarely enough to prompt a change in the behaviours that cause the risks....

Infographics