29 Jul 2014 Posted in Opinion By Alison Clough
There has been great interest in Professor David Haslam’s recent interview with Pharmafocus, which included his views on the pharmaceutical industry’s transparency when it comes to the pricing of its medicines, whilst also expressing confusion on why criticism from the media always lies on NICE’s doorstep.
I am going to tackle the latter point first and point out that criticism of NICE is often linked to its increased rejection rate for both cancer medicines and medicines for other diseases, something that causes much public concern. This isn’t something that NICE should shy away from. Just as Professor Haslam believes industry has work to do to increase transparency on this issue, I too would strongly argue that NICE needs a more coherent narrative about the decisions it makes and what it is willing to accept.
Of course, the challenge as to how pharmaceutical companies set prices is a legitimate one. The industry’s stakeholders, including the NHS, want to understand how decisions are made and be assured that they are based on considered and measured rationale. Shareholders want a return on investment on the cost of R&D, and NHS patients and taxpayers want to know that rewards are not excessive. To address much of this, the current Pharmaceutical Price Regulation Scheme (PPRS), negotiated and agreed with Government, sees the pharmaceutical industry helping to keep NHS expenditure on branded medicines in the scheme flat for two years and keeps the growth rate below two per cent for a further three years by underwriting expenditure above these growth rates. This deal was agreed even though prices for current medicines in the UK are lower than in most other comparable European Union countries.
When looking at the pricing of medicines debate, it is important to have the context. Typically it costs £1.15 billion and takes 12 years to research and develop a new medicine. Furthermore, only one-third of medicines developed end up covering their research and development costs. Then there’s the lifespan of the medicine - the patent life of a medicine is 20 years, but once you factor in the research and development timeframe, companies only typically have around 8–10 years to sell before their period of exclusivity is lost. This means that there is a defined window in time when the company can sell and try to make a profit thereafter; particularly in the UK there is usually rapid prescribing of cheaper copy medicines – generics – and the brand prescribing tails off very quickly. Statins are a good example of this but there are many more examples too.
The cost and timelines associated with the development of new medicines reflects not only clinical trial costs and the cost of tying investment funds up for such a long time, but also the scientific challenges. For every one successful medicine, there are thousands of unsuccessful medicines that do not reach the market. The prices of successful medicines have to cover all of these costs if investors are to get a return. For the global industry as a whole, prices need to provide a return on global investment. If this doesn’t happen, companies will need to reduce investment.
Factors that need to be taken into consideration by companies when pricing an individual medicine include the added therapeutic value or relative effectiveness, the extent of competition, patent status and duration, and anticipated volume. These all combine to influence a company’s estimate of the income to be generated by sales of a medicine. Added therapeutic value and competition are related. Increasingly, breakthrough first in class products have fast followers which provide payers with more bargaining power. This reflects the fact that R&D increasingly follows a breakthrough in basic science. Companies compete to translate this knowledge about a disease mechanism or a potential disease modifier into medicines which deliver health and related gains to patients with the disease.
We are under no illusion that pricing will be the next big issue for our industry. Volume will become a more important factor in pricing as R&D is increasingly being invested in specialised medicines, often with accompanying diagnostics aimed at much smaller patient populations. These sorts of targeted or stratified medicines will help improve outcomes and increase effectiveness but, in many cases, reduce the numbers of eligible patients. In effect “blockbuster” large volume medicines are being replaced by more targeted therapies which will work for a much higher proportion of patients to whom they are given.
Small volumes may mean that for some medicines – for example those sometimes described as “ultra-orphans” – prices cannot be justified by any usual measure of value. The costs of R&D to meet the scientific challenges, regulatory hurdles and payer requirements for evidence are simply too high. NICE has inherited from the Advisory Group for National Specialised Services (AGNSS) the remit to appraise Highly Specialised Treatments (HSTs) and has developed a framework in which cost-per-QALY plays no role. NICE needs to ask the question: “Does the new treatment add value to society - both in terms of stimulating research and innovation and meeting the needs of patients and society?” It remains to be seen how NICE will approach these issues in practice. Value based assessment is also providing an opportunity for NICE to rethink its approach to assessing value and to increase approval rates within its proposed £20K–50K threshold range. However, there is going to be an urgent requirement to provide robust interpretation of the assessment proposals.
Schemes like Early Access to Medicines and Adaptive Licensing will help to address a related NHS concern about pricing - uncertainty about the health effects the medicine will deliver to patients in practice. Both are designed to enable early use by patients whilst additional evidence is collected about effectiveness. Logically price can adjust to reflect value. The PPRS allows this to happen through patient access schemes and flexible pricing, but more use needs to be made of these arrangements rather than refusing to make new medicines available to NHS patients.
No one expects the NHS to pay any price for treatments that benefit patients. Budgets have to be rationally set and managed. However, the implications of turning medicines down have to be well understood. As well as depriving patients of access to treatments, the clear signals to companies are that if research in some disease areas cannot be profitably undertaken at lower prices, society would rather it did not happen. It has been interesting to see recent discussions in the media on dementia medicines and novel antibiotics, where there are very long development timelines and greater scientific challenges. Government agrees that new financial models are needed to incentivise R&D and hasten solutions to these major public health issues.
The issue of the price of medicines is no doubt complex and industry undoubtedly plays a major role in unravelling the complexity. Over the next five years, industry has greatly curtailed the impact of price by agreeing to a PPRS scheme where growth in the branded medicines bill has been underwritten by industry. This means patients and clinicians can benefit from greater freedom to prescribe whichever of the newer medicines are deemed appropriate. This needs to be a transparent dialogue on what society can and cannot afford to invest in diseases so that we can continue with an honest and open debate.
ABPI Executive Director - Commercial UK