UK govt sets "tough starting point" for drug prices negotiations, says EIU analyst

Commenting on last week's news that the UK government is planning to reduce the price of some medicines by 10%-20% with the aim of reducing the National Health Service bill (The Pharma Letter June 21), Anna Nicholls, an analyst at the Economist Intelligence Unit, stated: “The plans for a 20% statutory discount on medicines for those companies that don't enter voluntary negotiations sets a tough starting point for talks over the five-year pharma price regulation scheme. With the scheme set to come into force in 2014, it will put pressure on pharma companies to come up with their own pricing proposals - and to make them generous ones.

Pharma companies will be dismayed by the high level of cuts being demanded, but not surprised, she suggested, adding: “The downwards pressure on pharma prices has been intensifying over the past few years as the government seeks to rein in health care spending. Pharma pricing is a far easier way to cut spending than, say, cutting hospital staff and in general far less apparent to the voting public. But where it does impinge on public consciousness is when patients fail to gain access to new drugs to treat cancers or other illnesses, and it is noticeable that the government is also promising to broaden the criteria NICE uses to judge the value of treatments. This should help to support innovation, too, by giving more assurance of a payback for new drug development - an important consideration given that the pharma sector remains one of the UK's strongest industries.”

Nevertheless, Ms Nicholls continued: “The pressures on UK pharma companies are increasing, with AstraZeneca in particular also suffering badly from patent expiries. As the APBI [Association of the British Pharmaceutical Industry] points out, the UK's pharma bill has been falling steady as a proportion of total health care spending. Still, the EIU's calculations suggest that it is still around average for West European countries, on par with countries such as Germany, Austria and Denmark. Some countries, including some with strong research-based pharma industries such as Switzerland, spend even less of their health budget on pharma - and the UK government obviously also feels there is more room for cuts.”