Guest Blogspot: A wrong decision on UK drug pricing could seriously undermine all the good work that HM Treasury and the Department for Business, Innovation and Skills have done to encourage the UK pharmaceutical industry.

The recent local elections highlight the political dangers ahead. The current UK coalition government has lost popularity through decisions that do not all relate to austerity measures. Shortly after the General Election Andrew Lansley’s plans to increase the say of medical professionals and patients in the NHS looked like a vote winner. The bill had over 1,000 amendments and was sadly misrepresented by the media, political opponents and some professional bodies. Many supporters have become worried.

The present British Government has done more than any other in the history of the UK to help pharmaceutical companies and biotechnology firms . Unfortunately this long overdue action has come at a time of pharmaceutical job losses, caused largely by short-term international pressures and the policies of past administrations. The benefits of the Government’s actions aimed at restoring the UK’s standing as one of the most attractive long-term bases for pharmaceutical investment will be tragically squandered if the Department of Health does not follow through with a well thought-out drug pricing scheme. The Government must also be careful to ensure that the contributions of the departments involved work harmoniously together. No details must fall between two stools.

The key recommendations in this article are already achieved by the current pricing system, the PPRS. Further improvements are possible to address weaknesses in the scheme. Value-based pricing sounds like a noble idea in principle but devising an objective version that will avoid controversy and work well in practice is proving too difficult. The Treasury, the Department for Business, Innovation and Skills and the Department of Health must work closely together and advise ministers about whether or not value-based pricing is an unacceptable risk. The practical difficulties being faced seem to have grown rather than diminished. Support for value-based pricing is eroding as people grapple with the practicalities. A cynic might suggest that the only strong supporters left are academics with an interest in being involved in the valuation process and politicians who do not yet appreciate the difficulties ahead.  Time is running out if the proposed schedule remains a target.

The UK pharmaceutical market is about £14 billion, representing just 3% of the world drug market of about £520 billion. No major pharmaceutical company is going to tailor its R&D to fit in with the dogma of individual European governments. The two largest UK pharmaceutical companies, GlaxoSmithKline and AstraZeneca, had combined worldwide R&D spending of £ 7.8 billion in 2011. The entire profit of the whole pharmaceutical industry on selling drugs to the NHS does not even come close to paying for the global R&D of just these top two British drug companies. Total worldwide R&D spending by the entire drug industry, excluding work by academics, charities and governments, is around £85 billion per annum. This is 6 times higher than all drug sales to the NHS and many more times bigger than the profit on NHS pharmaceutical business.

The pharmaceutical industry is an international business. Only the USA and maybe in the future China represent large enough markets to have a major influence on what pharmaceutical R&D projects are pursued. The USA is pre-eminent with 38% of the world market and is much larger than the whole of Europe. For individual European countries to try to lecture the pharmaceutical industry about the rewards for fulfilling unmet medical needs whilst organisations such as NICE block many of the most needed new drugs only damages morale. Deciding R&D priorities depends on what technology, skills and ideas each company has. The decisions are really not a matter for individual European countries acting alone.

A second serious error would be to try to enforce rigid opinions about what prices are acceptable for individual drugs. Parallel importing & exporting and the use of countries as reference markets for pricing drugs elsewhere are commercial facts of life. A drug company will not supply the UK at a substantial price discount. Holding the international pricing structure on drugs is more important to the industry than supplying a relatively small market like the UK. One of the ways in which the log jam can sometimes be broken is through a patient access scheme with a confidential price. Such schemes should be encouraged as a way of introducing flexibility and should be made to work more effectively.  They should not be disparaged because of preconceptions or a desire for transparency.

The policy objectives that a good drug pricing scheme should have are:

1.   Making medicines available as widely as possible. We should not go so far as to pay for every new drug irrespective of price. However, any system that delays the use of valuable new medicines or frequently refuses to pay prices accepted in other countries is failing. NICE is fully recommending only a minority of new drugs and will support even less if proposals from academics at York University are followed.

2.   Encouraging companies to carry out R&D and manufacturing in the UK.This policy will provide highly skilled employment, help exports and improve the UK’s technology base.

The UK also has a moral responsibility like all countries to pay what it can reasonably be expected to afford towards the international effort to discover new medicines. Pharmaceuticals have been one of the most important factors in improving life expectancy and the quality of life since World War II. Whilst academics, charities and government laboratories have played an invaluable role the principal driver of success has been the commercial pharmaceutical industry.  If organisations like the NHS around the world do not support drug R&D by paying the prices necessary for it to prosper then the progress of mankind will be compromised. The R&D in most need of most financial encouragement is that with the longest time horizons in companies that are not yet profitable because this activity stands the highest risk of being cut for reasons of short-term expediency during challenging times.

Paying for valuable new medicines does not mean that total drug spending cannot be controlled. A reasonable budget needs, as it always has, to allow for real growth caused by improved or new treatments, the ageing population and a desire to encourage R&D to satisfy unmet medical needs. However, drugs are generally expensive to discover and develop but cheap to manufacture. It is right and proper that the price of a drug should fall once an appropriate financial return has been received on the R&D expenditure. This goal is largely achieved through the patent system. Nevertheless, the majority of drugs in R&D at all large companies fail and never reach the market. The drug pricing system has to play its role in funding failures as well as successes.

Control of the pharmaceutical bill requires drug prices to be managed effectively over the whole commercial lives of products, not just on launch. If we want to encourage R&D without allocating more funds to pharmaceuticals, we need to raise the price of valuable new drugs and lower the price of older, outdated ones. There is nothing wrong with drugs being launched at a price higher than their monetary value. The premium is a payment to encourage R&D and to help fund unsuccessful projects. The price of drugs can be cut later in their commercial lives to levels well below their value. What matters is that the total pharmaceutical bill is fair and distributed between manufacturers in a way that supports achievable policy objectives.

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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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