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Profits, costs and investment
The fact that companies operating within the PPRS are in
competition to supply an increasingly price-conscious NHS
also ensures that their costs and prices are held down. No
PPRS company is guaranteed its target earnings. Less efficient
concerns, with less successful products, cannot simply put
up prices in order to achieve their allowable profits. Apart
from the restraints on price rises imposed by the PPRS itself,
such companies would incur further competitive disadvantage
against their commercial rivals.
It is noteworthy that:
- more than 20 per cent of total UK pharmaceutical company
income is re-invested in research and development - three
times more than any other industry sector. Highly skilled
R&D staff make up more than half of the total industry workforce
(Figure 3). The finished products are relatively easy to
copy and thus fundamentally different in nature from other
'high tech' products like, say, modern aircraft, which have
many thousands of discrete parts.
- Average actual profits for pharmaceutical companies
of 17-18 per cent Return on Capital on NHS sales are in
line with the average profits of leading UK companies in
other sectors.
- the UK pharmaceutical industry is allowed to spend
on average only 7 - 8 per cent of its NHS income on sales
promotion. This includes information provided to doctors
and other health professionals to help keep them up to date
with advances in medicines and medical knowledge.
Appropriate promotional spending is in the public interest,
as well as that of innovative companies. Low rates of uptake
of new medicines can damage public health, as this country's
record in areas such as cancer survival demonstrates1
to a degree (Figure 4). Achieving national targets for further
reducing heart disease mortality and preventing strokes will
also depend on adequate use of modern pharmaceuticals, alongside
other effective interventions.
In the rest of the EU, different methods are used to control
the prices of medicines and to influence the use of pharmaceuticals.
Typically, dossiers on costs and product benefits relating
to individual products have to be submitted to Government
appointed committees. The latter consider whether a proposed
price should or should not be approved. In some countries
price levels elsewhere in Europe are taken into account: in
others the price of similar competitor products available
domestically is a critical issue.
The British system is different in that it leaves innovators
free to price new products at market determined levels but
within the overall constraints of a company's PPRS profit
cap.
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