Host of pricing models proposed for UK drugs

April 09, 2008
Financial Times

UK pharmaceuticals companies are introducing new drug pricing models as pressure mounts to offer better value for money.
The National Institute for Health and Clinical Excellence (Nice), the government's medicines advisory body that studies clinical and cost effectiveness, has agreed three different experimental approaches to pricing with drug companies in the past year alone.
Manufacturers have also proposed their own money-back offers and discounts as a way to win reimbursement by the National Health Service or boost sales for costly new treatments. The initiatives are important for drug companies' sales and future pricing strategy around the world.
Belen Garijo, senior vice-president for Europe and Canada for Sanofi-Aventis, said: "Pressure to keep costs under control is forcing us more and more to document the value of new products. These are times of unprecedented change. The UK has almost invented pay for performance."
While the UK accounts for about 3 per cent of global pharmaceutical sales, it has a disproportionately greater influence internationally, reflecting its importance in research and development, relatively high prices and methods of scrutiny.
Since its creation in 1999, Nice has advised against NHS use of costly new drugs including GlaxoSmithKline's antiviral flu drug Relenza, its first decision, to more recent rejections of Pfizer's oral insulin Exubera for diabetics and Eisai's Aricept in patients with early Alzheimer's disease.
Aside from threats and legal appeals, the industry has also responded commercially. Drug pricing in the UK, like elsewhere in Europe, is tightly regulated. The UK's Pharmaceutical Price Regulation Scheme (PPRS), currently being renegotiated, forbids increases - although it permits and even periodically imposes reductions.
Pfizer worked within the system to launch a pioneering "outcomes guarantee programme" with 18 primary care trusts in 1999. It agreed to reimburse the extra costs of using its higher priced cholesterol-lowering Lipitor over other similar drugs if patients did not show improvement.
Other variants have followed. When in 2002 Nice advised against reimbursement of beta interferons, a class of drugs to treat multiple sclerosis, the Department of Health established a "risk-sharing" scheme. The NHS would pay but periodically review effectiveness, adjusting price as a result.
Then last June, Janssen-Cilag, a subsidiary of Johnson & Johnson, avoided a negative Nice recommendation by agreeing to reimburse the NHS for the cost of Velcade, its multiple myeloma treatment, to any patients who failed to respond significantly.
The Office of Fair Trading last year endorsed "value- based pricing", which is designed to link costs more closely to benefits, in a report calling for an overhaul of the PPRS. GSK argued prices should be re-examined after two to three years of patient use, with price increases or reductions in response to efficacy.
However, Panos Kanavos from the London School of Economics warns that such an approach "does not encourage risk taking or reward innovation".
There are also practical difficulties. With Velcade, Nice was able to identify very precise medical measures to assess how far the medicine is helping patients. But for many other drugs, outcomes are more difficult to measure.
Michael Rawlins, chairman of Nice, suggests the potential for risk-sharing schemes is limited. "I doubt whether they have legs in the long run," he said. He suggests companies propose them to avoid cutting prices in the UK - a decision that would spark copycat reductions by payers across Europe, but which is in any case inevitable over time.

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