Health News

ANALYSIS-UK turns screw on drug prices in hunt for value

LONDON, Aug 3 (Reuters) - Britain is becoming a less comfortable location for drug companies to do business as value for money becomes a health service mantra, and where the UK goes, other countries may follow.

A threat by new health minister Alan Johnson to tear up the current deal covering profits on medicines sold to the state health service signals a new get-tough attitude.

Britain is not alone.

Governments around the world increasingly have to weigh the benefits of modern medicines against their cost in an equation that ultimately raises dilemmas over valuing a healthy life.

“It seems Johnson wants to turn the screw further and have branded drug manufacturers justify, by cost-effectiveness means, the prices they charge for products that are already on the market,” Mike Ward, an analyst with Nomura Code, said.

“You can guarantee that the industry and government will be at loggerheads right the way down the line in this debate.”

Johnson’s move on Thursday followed a report from the UK’s Office of Fair Trading estimating the state could save 500 million pounds ($1 billion) a year by moving to a system of pricing drugs according to their cost-effectiveness.

An overhaul of the relatively small British market on its own is not going to upset the fortunes of industry giants like Pfizer PFE.N and GlaxoSmithKline GSK.L.

But the country’s uniquely comprehensive National Health Service (NHS) and its pioneering attempts to measure the value of drugs -- in addition to their safety and efficacy -- means decisions here are closely watched around the world.

British-based Glaxo, Europe’s biggest drugmaker, is certainly taking the debate seriously.

Andrew Witty, its European pharmaceuticals head, said he favoured a system that genuinely rewarded value and encouraged innovation but warned that patients and British competitiveness would suffer if discussions focused only on price.

Although it accounts for only just over 3 percent of world pharmaceutical sales, Britain is home to 10 percent of global drug research and development.


The industry’s drug pricing pact with the NHS is only part of the debate.

Attention will shift next to the High Court in London, where a verdict is due on Aug. 10 in a ground-breaking case challenging restrictions on the use of drugs for Alzheimer’s.

The case stems from a move by the National Institute for Health and Clinical Excellence (NICE) to recommend funding for Eisai 4523.T and Pfizer's Aricept and similar drugs only for NHS patients with significant symptoms of dementia.

The drugmakers claim NICE’s calculations on the cost-effectiveness of the 1,000-pound-a-year drugs are flawed.

It is a complex issue.

NICE bases its assessments on “quality-adjusted life years”, or QALYs, which measure a person’s state of health. One QALY equals one year of perfect health, two years of half-perfect health or four years of one-quarter perfect health.

As a rule of thumb, NICE reckons medicines costing more than 30,000 pounds per QALY are too expensive, though it does make exceptions.

The concept of QALYs is well established in healthcare but the complexity of any calculation has led to many cases where NICE rejects drugs that firms think offer clear value.

Bristol-Myers Squibb's BMY.N rheumatoid arthritis drug Orencia was knocked back by NICE as too costly on Thursday in the latest such assessment.

A third battle front is also emerging in the arena of clinical trials.

The NHS announced this week it was funding its own head-to-head clinical trial to see whether tiny shots of colon cancer drug Avastin are as good as the pricey treatment Lucentis in treating wet age-related macular degeneration (AMD), a common cause of blindness in the elderly.

If successful, Avastin would be a much cheaper option. Both drugs were developed by Genentech DNA.N, which is keen to differentiate the separate uses of its medicines.

((Reporting by Ben Hirschler; Editing by Andrew Callus; email:; Reuters Messaging:; +44 20 7542 5082))

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