David Taylor
Professor of Pharmaceutical and Public Health Policy,
The School of Pharmacy, University of London
The Value and Pricing of Medicines
in a post blockbuster age (?)
SIS Foundation Debates on Health Economics
Royal Catalan Academy of Pharmacy, Barcelona, June
28th 2010
This presentation –Discusses the reasons for
and goals of pharmaceutical
pricing policies and drug
price controls in Europe and
globally
–Outlines UK experience with
the NHS Pharmaceutical
Price Regulation Scheme
and the possibility of ‘value
based’/cost effectiveness
analysis based pricing
–Analyses from a European
perspective issues relating to
the future funding of both
new drug development
health service improvement
“A fool knows the price of everything and the value of nothing"
Michael Rawlins and
Oscar Wilde
My interests and prejudices (?)
I have worked in or with the
pharmaceutical industry, health
charities, the NHS, professional
bodies, government agencies
and Universities
I personally still regard the
research based pharmaceutical
industry as the most valuable of
all these important human
assets
William Allen
The public has multiple, sometimes conflicting, interests
in medicines and health care. They range from ensuring
affordable access to existing treatments to investing in
therapeutic and scientific progress for future generations
Medicines are atypical high technology products. Once
developed and introduced to the medical market they can
normally be copied at relatively low cost. In economic
terms, their supply typically involves high ‘sunk’ costs
and low marginal costs of production
The current financial crisis facing Europe is creating a
risk that cutting medicines costs will be used as an
emergency economic regulator in ways that may threaten
the viability of not just the research based
pharmaceutical industry. Established patterns of
medicines supply via pharmaceutical wholesaling and
community pharmacy are also at risk
The inherent complexity of many of the policy issues
involved in pharmaceutical sector decisions is a barrier
to balanced public debate. But a failure today to value the
pharmaceutical sector appropriately would impose very
significant costs on twenty first century Europe
Changing research and development challenges
– The great age of ‘receptor-ology’
is drawing to its end. Community
pharmacy will increasingly be
concerned with low cost generic
medicines supply, unless/until
‘personalised medicine’
becomes a reality outside the
context of specialised hospital
care
– The research challenges
involved in treating conditions
such as the cancers and the
neurological diseases are more
complex and difficult than those
faced in the past. Development
times and costs are increasing
along with regulatory constraints
and drug price and spending
controls
Professor Sir James Black 1924-2010
The VBP offer as developed in the UK by York
and NICE – In the UK model advocated by
official bodies such as NICE and
the OFT value based pricing seeks
to link the maximum price of a
patented (or other single source
medicine) to an affordable level of
cost effectiveness, judged by the
cost per incremental QALY
delivered (the ICER)
– VBP aspires to deliver greater
fairness and equity in health care
resource allocation. Logically, its
proponents may wish for it to be
applied in all areas of health care.
However, other commentators
believe that the scope of VBP
should be expanded to include
industrial and other community
benefits
Professors Alan Williams and Alan Maynard
Pharmaceutical spending in total health spending
Source: Pharmaceutical pricing in a global market, OECD, 2008
Pharmaceutical retail price components
Source: Pharmaceutical pricing in a global market, OECD, 2008
Some key dates in UK and EU drug pricing
– 1948 The NHS and ABPI established
– 1952 Prescription charges and the
Korean War
– 1956/7 The VPRS, later the PPRS, first
established
– Circa 1960 Thalidomide
– 1965 Directive 65/65/EEC
– 1968 the UK Medicines Act
– 1973 The UK enters the European
Union
– The 1980s – from Hatch Waxman in the
US to extended European patent lives
(SPCs)
– 1995 the EMEA established in London
– 1999 NICE established
– 2005 The 2005 PPRS and the
publication of an OFT study on its
relevance to today’s requirements
– 2009 The last PPRS?
– 2010 Andrew Lansley become
Secretary of state for Health in a new
Coalitio0n. In Spain 1000 million Euro is
cut from innovative medicines costs.
Similar action is taken in countries such
as Italy and Greece
What are we trying to do with pricing policies?
– Correct market imperfections?
– Minimise drug costs?
– Protect national or regional industry?
– Set ‘fair average’ cost related prices?
– Deliver marginal cost related prices?
– Reward current innovators?
– Protect the poorest, nationally and/or internationally?
– Assure long term innovation and investment in health
promoting research?
Approaches to (drug) price regulation
– Free pricing – requires demand side
competency
– Profit control – the UK PPRS (note
the Averch-Johnson effect)
– International comparison based price
controls (which countries, why and
how?)
– Reference pricing (which medicine
groups, and at what price levels?)
– Tendering – see recent developments
in The Netherlands
– Risk sharing and price/volume based
agreements
– ‘Value based’ pricing. That is,
HTA/CEA based pricing based on
ICERs
In the UK Alzheimer’s disease care provides a good illustration of
a field where the actual cost of a disputed medicine may only be
2,000 Euro a year, but the incremental cost per Quality Adjusted
Life Year gained may be judged to be well in excess of 30,000
Euro
Problems with ‘value based pricing’
– Implies that the clinical value of a medicine can be determined at
around half way through its patent life (ie at the time of launch)? This
is not in reality the case, especially with agents such as anticancer
medicines
– Undermines the value of individual and population ‘willingness to pay’
as a market signal? (Gives managers and regulators undue control
over defining value)
– Affordable ICER thresholds are artificial and highly variable between
social groups and societies? (If different thresholds used VBP would
not solve either EU wide or locality based problems)
– Methodology for measuring and valuing quality of life contestable?
– Fails to consider the post patent expiry societal value of innovations
appropriately?
Fundamental issues
– Do we genuinely want to invest
sufficiently in Europe to lead
innovation in areas such as
applying genomics and genetics
based knowledge in contexts
such as cancer treatment and
neurology?
– Could timely therapeutic
progress be achieved purely by
public investment, or is a
balance of public and private
investment desirable?
– To what extent do prices alone
determine access to medicines
or overall spending upon them?
– If rates of pharmaceutical
innovation are slowing and
returns falling, should patent
protection periods be extended?
– Should we be seeking to charge
marginal cost based (or lower)
prices for new medicines in poor
countries, and above average
cost based prices in rich ones?
– What changes are needed in
areas such as the way we gather
evidence about effectiveness
and license medicines and
diagnostic products, and
regulate them through their life
cycles?
What are our options?
– A single European free
pharmaceutical market?
– A mosaic EU pharma market:
locally negotiated drug prices
with or without controls on
internal drug price importation
and/or exportation?
– A lowest possible supply cost
European medicines strategy,
using the health care system in
Holland as a model?
– A ‘European PPRS’, perhaps
based in part on CEA pricing?
Would Spain benefit from a VBP based pricing
approach?
– In the UK VBP is continuing to
evolve. The new Secretary of
State is seeking fundamental
changes in NICE and the PPRS
– If VBP based approaches build
in long term community interest
evaluations alongside
immediate personal gain
calculations would they increase
rather than decrease the prices
of innovative medicines?
Charles Darwin and Andrew Lansley
Conclusions
– Pharmaceutical sector pricing (and other) policies and the regulatory
interventions made to implement them are complex and have multiple
objectives
– Public and professional attitudes and political debates and actions are
often temporally lagged, and based on limited information
– The research based pharmaceutical industry and associated public
sector institutions represent an important human asset in the EU and
globally. But its current business model is close to breaking, as is that
underpinning community pharmacy in parts of Europe
– We should avoid prejudice and seek via informed pricing and other
policies to promote the sector’s continued development in ways
consistent with the public’s immediate and long term health and
welfare interests
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