Under the five-year agreement, which will kick in after the existing Pharmaceutical Price Regulation Scheme (PPRS) ends on 31 December, pharmaceutical companies would absorb the costs of NHS spending on branded drugs above the maximum-capped amount. This results from the Government’s aim to negotiate a fixed limit to the total drug spend in a bid to cut costs within the NHS.
"NHS spending on branded medicines – more than £12bn in 2011/12 – will remain flat for two years, followed by small increases of less than 2% in the following three years," a statement issued by the Department of Health (DoH) said. "This marks a significant saving for the taxpayer when compared to an average growth of 5% in previous years."
"The demand for medicines has grown steadily in the UK and is expected to increase further as more people live longer, and so the new arrangements will allow the NHS to make better use of its precious resources," it added.
The ABPI, which represents more than 150 companies operating in the UK life sciences sector, said it had recognised the financial pressures facing the NHS by agreeing a fixed price limit but called for the Government to boost its investment in the latest medicines.
"We now need the Government and the NHS to respond positively to this unique opportunity to demonstrate their active commitment to improving patients’ access to the latest medicines," ABPI chief executive Stephen Whitehead said. "We have five years to fix the access problem so that NHS patients get the best quality healthcare they deserve and to address the long history of low patient usage of innovative medicines in the UK."
There are a number of exceptions that will apply to the price fixing rules under the PPRS agreement (29-page / 198KB PDF). These include exempting companies that generate less than £5 million in annual sales of branded drugs to the NHS from price cuts.
Christian Hill of life sciences consultancy business MAP BioPharma warned that the low threshold for exemptions, as well as the loss of the £5m being discounted from the first £25m of sales, would "stifle innovation, particularly for small and medium sized enterprises".
"The benefits of this PPRS may not outweigh the risks if we do not take corrective action to support SMEs which are defined by the European Commission as being companies with annual turnover of less than €50m, somewhat higher than the £5m being offered here," Hill said. "This is in direct contrast to the UK’s selling messages intended to attract SME investors to the UK."
The ABPI said that it was "disappointed" that companies with NHS sales between £5m and £25m would not benefit from exemptions and said businesses operating at such a level would "find this extremely tough". "We need the Government to work to ensure the UK is attractive to smaller companies," Whitehead said.
Leslie Galloway, chairman of the Ethical Medicines Industry Group (EMIG), the trade body for over 200 small and medium-sized enterprises (SMEs) in the sector, whilst acknowledging the need for austerity, said: "It is widely recognised that SMEs drive 80% of innovation and the UK's biotech and pharmaceutical industry is the source of world-leading innovation that leads better healthcare and job creation ... We urge the government to work with us to guard against unintended consequences of the new pricing legislation."
The agreement between the DoH and the ABPI will still allow companies to set the price at which new drugs enter the market, although the expectation is that the price will be set "close" to the value placed on the product by the National Institute for Health and Care Excellence (NICE) through its own value-based pricing assessment.
Where amendments are made to the initial prices set, NICE will have the power to intervene and challenge any amendments to prices to ensure that "the proposed revised price provides value to the NHS", according to the heads of agreement for the PPRS.
NICE is to consult on the factors that should be considered when assessing the value of drugs.
The PPRS agreement is voluntary and some branded drugs manufacturers can elect not to sign up to the deal. The Government has, though, separately outlined its intention to cut the price it pays companies through the statutory scheme by 15% from January (18-page / 118KB PDF), and has reserved the right to make further changes to the framework. The statutory scheme is the price control mechanism applying to companies choosing not to join the voluntary scheme. A number of exemptions apply within the statutory scheme, including for companies whose NHS sales of branded medicines remain under £5m, which aligns with the approach taken under the PPRS.
"Asking companies who enter the statutory scheme to contribute even more at a time when the industry has already made huge savings is excessive and unnecessary," Whitehead said. "The ABPI is concerned about the impact of potential future changes to the statutory scheme, which Government could introduce at any time. Companies will need to take this into account when making decisions about which scheme to join."
The DoH also announced that there would be a delay in the introduction of a new value-based pricing regime. It had been anticipated that value-based pricing would be introduced from 1 January 2014, but a consultation is first to be conducted by NICE.
Editor's note 08/11/2013: This story has been updated to clarify aspects of the PPRS and statutory scheme and to include comments from EMIG's Leslie Galloway.
