Guest Blogspot- Dept. of Health Consultation on Drug Pricing: “A new value-based approach to the pricing of branded medicines”

The Department of Health deadline for public submissions on pharmaceutical pricing is this Thursday. Many pitfalls must be avoided if the Government’s proposals are to form the basis of a successful drug pricing policy.

Some problems are not easy to solve:

  • Meeting some unmet medical needs would have a value too high for any Government to pay. For example, in the unlikely event that a single drug were found to cure all cancers, it could save around £ 5 billion per annum in NHS treatment costs, to which the value to patients and society should be added!
  • The Government’s pricing proposals do not encourage R&D and production in the UK. Strong, positive signals have come from HM Treasury with R&D tax credits and the Patent Box. Help for small businesses and therefore start-up biotechnology companies has also come from the Department for Business, Innovation and Skills. Hopefully the Department of Health will find affordable ways to add to the encouragement.
  • Whilst R&D is by definition innovative, the aim is not maximum innovation but rather to benefit patients and society. I remember Sir David Jack, one of history’s great pharmaceutical R&D directors, saying to me, “Any fool can have a complicated idea.”
  • Running a value-based pricing system for drugs launched after 1st January 2014 alongside the old system for earlier drugs will create some anomalies that can only be resolved by reassessing whole drug classes.
  • The price of a drug not only has to be set at launch but also throughout its commercial life as more evidence emerges and the competition changes. One approach is to launch drugs at a price above their value and, in the absence of new positive evidence, to let the price to fall in real terms thereafter. An appropriate average price over a product’s life cycle can then be achieved whilst encouraging the uptake of newly launched drugs.
  • The value of a drug may vary greatly between indications and between different categories of patient for the same indication. Value-based pricing does not offer a good solution to this problem unless different formulations are required.
  • The UK cannot sensibly price a drug at a level very different from other EU countries because of parallel importing or exporting.
  • The value of the benefits of many drugs to patients and society is very much a matter of opinion. Fixing a value-based price is often going to be controversial.
  • The UK Government alone cannot influence the direction of R&D significantly. The sums of money involved are so vast that R&D only makes sense in a global context. The UK is around 3% of the world market. No company will tailor its R&D to suit us if the demands in the world marketplace are different.
  • If drugs have been developed or undergone clinical trials in the UK, companies will be disappointed if attractive prices are not achieved quickly.
  • The “winner takes all” strategy of rewarding companies purely for successful products penalises companies going through a barren period in R&D, just when they need help.

The safest way to avoid the drawbacks of value-based pricing is to include more elements of the old pricing system (PPRS) in the new one. The PPRS has delivered amongst the lowest drug spending per capita in an advanced country. It also received wide industry support.

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About Barbara Arzymanow

Barbara Arzymanow is a Research Fellow at 2020health and is a founding director of an independent healthcare consultancy firm. She has been an investment analyst specialising in Pharmaceuticals for 25 years, prior to which she carried out academic medical research in university laboratories. Her experience, obtained entirely from outside the pharmaceutical industry, gives her a unique, political perspective independent of commercial lobbies. She has extensive experience in financing the biotechnology industry, which is vital for the long-term standing of medical research in the UK. She has always been inspired by the scientific excellence within the UK and would like to see collaborations between industry, the NHS and academia strengthened. For more information about Barbara's research and writings including submissions to Government Departments please visit http://www.researchideas.co.uk . Barbara also tweets as @barbararesearch .
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