The Pharmaceutical Price Regulation Scheme Outcomes and implications of the OFT Study

1. PDIG Summer Symposium The Pharmaceutical Price Regulation Scheme Outcomes and implications of the OFT Study Simeon ThorntonOffice of Fair Trading 07 June 2007

2. Introduction to study Study process Main findings – the case for reform Recommendations Key challenges / issues to address from recommendations Address some misconceptions Overview

3. Overview of study • Remit • Assess whether PPRS best means of meeting its objectives – VfM and incentives to invest • … or whether case for reform • Timetable • Launched September 05 • Published February 07 • Government response expected late June 07

4. What is the PPRS? • £8n pa spent in UK on branded drugs prescribed in NHS. PPRS means of influencing price • Profit controls • Cap and floor on company profits on sales to NHS • Rules for allowable costs • Price controls • Freedom of pricing up front. Subsequent restrictions on increasing prices • Periodic price cuts imposed. 7% in 2005. Can be delivered through ‘modulation’

6. PPRS is a demand side instrument • Not a truly regulatory measure. Attempt to exercise buyer power in purchase of prescription drugs • Structure of demand atypical • PPRS certainly atypical! • Works in conjunction with other demand side measures • National level – NICE, SMC, AWMSG, NPC etc • Local level – primary and secondary care • Aims to deliver VfM for NHS and give companies incentives to invest in useful drugs in future

7. Focus on dynamic incentives • Why care about effects on innovation? • R&D global common cost but UK sales only c. 4% of world demand. But • At least 12 countries (c. 25% of world market) peg prices to reference basket that includes UK • Used informally in negotiations as well • UK prices likely to influence incentives to invest in drugs • Focus on static and dynamic efficiency legitimate

8. Companies welcome stability and speed of access But neither profit nor price controls take account of value of drugs: implications for VfM and incentives to invest Profit cap ill suited to an innovative sector. Plus practical difficulties. Repayments 0.01% of revenue 99 – 04 Price cuts again blind to value of drugs – winners and losers. Plus sustainable in the future? Portfolio effects (and margin differences) potential to distort competition Main concerns with current scheme

9. Identified drugs for which NHS stakeholders had expressed concern over cost effectiveness. Reviewed price and clinical efficacy data with advice from experts. Over £600 m in 2005 could have been used more cost effectively in primary care under alternative regime. Benefits for patients NHS and innovative companies from reform Snapshot. Small sample of drugs. Does not quantify gains in secondary care (data issues) Practical implications

10. That Government work towards reform of PPRS replacing current profit and price controls with a value based approach to pricing On patent Off patent New system would free resources to improve patient access to treatments and give companies stronger incentives to invest in the most useful drugs Key recommendation

11. Ex ante or ex post vbp? Either an improvement Ex post alone closer to current arrangements. Ex ante risk of delay but maximises benefits of vbp and improvement in uptake of ce medicines? Recommendation: hybrid vbp Fast track ex ante assessment and five yearly ex post reviews Possibility of risk sharing Flexible price structure to reflect different value in different indications. Could be achieved through rebates On patent brands

13. Off patent brands with bioequivalent Cat M comparator Price set in relation to that of Cat M generic equivalent Brand premium for originator brands Where no Cat M equivalent treat as on patent Off-patent brands

14. Make use of existing institutions and expertise in the NHS Reform would need to be phased in – capacity building Key challenges UK prices while retaining devolved institutions and responsibilities Avoiding duplication and ensuring consistency of approach Institutional arrangements

15. Medium term – post 2010

16. Possible long term

17. Based on interaction with stakeholders pre and post launch Definition of value Information requirements Choice of comparators There are others (level of threshold etc). Key challenges for implementation

18. Value to patient – quality of life and length of life. Recognise different benefits in different indications / subgroups Case for including non-patient benefits Value in “innovation per se” more problematic Novelty unrelated to patient benefits. Operational? Transparent? Public subsidy / support for genuine market failures Allow for brand premium for plausible but undemonstrated benefits. But size should reflect fact that value has not been demonstrated Definition of value

19. Is VBP feasible / practical given information constraints? One extreme – no information – a problem for rational prescribing regardless of pricing approach Recognise the challenges – case for early stage engagement and support (Cooksey) Recognise that value can emerge over time an argument for ex post assessments possibly risk sharing (Velcade) not a case for ignoring value Information

20. Comparing ce of on-patent brands with generics – premium only if demonstrated to be better Main controversy relates to comparison of existing products with generics Recognise short run implications. But is there a sustainable long term alternative? Can we systematically turn a blind eye to cost effective substitutes? Not efficient and not sustainable Not in interests of patients or innovative companies Recognise that there may be benefits that have not been demonstrated in RCTs – brand premium. Choice of comparators

21. “Ignores incremental innovation” Recommendations take full account of incremental innovation Reflect different values in different indications / patient subgroups For some drugs we could not find evidence of differential benefits (argument about the clinical evidence not the principle) “Disadvantages 2nd, 3rd etc in class” Products that arrive on market soon after originator will prosper (unlike other systems – FIC premium, therapeutic tendering) Products that arrive many years later without offering benefits over existing products will not Good dynamic incentives Some misconceptions (1)

22. “May adversely affect investment in the UK” Footloose investment - price not related to where investment carried out Scheme does not provide explicit incentives to invest in UK – R&D allowance applies wherever carried out. Cannot legally do so Loose bargaining – threats etc. Credible? Even if so, not recommending reductions in expenditure – reallocation of spend – winners and losers Some misconceptions (2)

23. “Leave it to the demand side” This is part of the demand side! Complementary with other measures to encourage cost effective prescribing Not currently sufficient on their own in all cases (particularly primary care awareness of price, clinical effectiveness etc.) – economies of scale If we can get price right should alleviate need for other forms of rationing Some misconceptions (3)

24. Long term model. Sustainable because based on best use of expenditure – in interests of patients and innovative companies Major implications – winners and losers. But unrelated to question of overall spend. Challenging questions of implementation – evidential threshold. Conclusion