Access to new medicines: shifting the blame

Access to medicines continues to be a bone of contention, but one little-known aim of the original proposals for Value Based Pricing (VBP) in the UK was to shift the blame for rejections from NICE to the companies involved. Leela Barham assesses the ongoing debate.

The hidden result of VBP

The proposals for VBP, published back in 2010, pointed out that under VBP, “if companies decline to supply a medicine at a price that relates to its value, it will be their responsibility to explain why” (my emphasis added). And don’t forget that when those proposals came out, the previous year’s headlines had been all about the National Institute for Health and Care Excellence (NICE) and how it was denying access to new medicines, especially those to treat cancer. Though not the only reason that NICE says no, the high price of a new medicine is one of them.

Today’s debate in the UK…

There’s good evidence that the shift in blame that the then Health Secretary Andrew Lansley hoped for has, to a degree, been happening.

For example, Breakthrough Breast Cancer has been campaigning for a ‘fair’ price from companies. Much has focused on Roche’s Kadcyla for breast cancer, coming at a cost of £90,000 per patient and netting rejections from both NICE and the Scottish Medicines Consortium (SMC). Here both NICE and patients hit back. NICE said it was ‘disappointed that Roche…has decided not to offer its treatment at a price that would enable it to be available for routine use in the NHS’. One patient set up a petition calling for Roche to lower the price.

The media, too, took a dim view, pointing out that it was a bit rich for Roche to act surprised when NICE said no. Roche could hardly say it didn’t know that the cost per Quality Adjusted Life year (QALY) was nowhere near the £20,000 to £30,000 per QALY NICE usually uses to judge cost effectiveness and give a product the nod. The cost per QALY at the price Roche wanted to charge was closer to £180,000 per QALY. And let’s not forget that Roche would be looking to get a high price in a more common cancer, so couldn’t play the rare card either.

Gilead’s Solvadi for Hepatitis C has also been in the spotlight. At a cost of close to £35,000 per patient for a 12-week course of treatment in the UK, it’s highlighted the challenge between cost effectiveness and affordability. NICE says it is cost effective. NHS England (NHSE), charged with managing spend on specialised services, asked NICE to delay the guidance which would mean that NHSE would have to make it available to patients. This delay puts the budget impact of Solvadi into the 2014/15 financial year, easing the financial strain temporarily. The budget impact is big, given the number of patients who could benefit; estimates suggest £1 billion for every 20,000 patients treated. This example also clearly illustrates the trade-off between high price and fast access; a lower price and hence lower budget impact would probably have been more manageable for NHSE.

…and internationally

Beyond the UK, there’s evidence of the shift too. With echoes of the petition in the UK, Access Our Medicines is calling for everyone to have access to affordable medicine. The goal is to get 200,000 people or organisations to sign up. It already has support from the British Heart Foundation and celebrities including Richard Branson, Sean Penn and even a dragon from Dragon’s Den.

Gilead, in particular, has come under intense scrutiny for its pricing internationally. In the US a much lower price of $36,000 would have still made Solvadi profitable, apparently, but Gilead is charging $84,000. Quite a difference. At the same time, it has discounted – heavily – in other countries so that those in countries that simply cannot afford the price tag can still get access. The company remains under fire from Medicines Sans Frontiers (MSF). MSF dislikes the monitoring requirements Gilead has asked for when other companies in India make the generic (and cheaper) version of the drug under a licence with Gilead. Gilead is pursuing controls to stop parallel importation, and hence erosion of sales, in higher priced countries. MSF is also challenging the Gilead patent.

Other drugs have generated debate too, including Kalydeco for cystic fibrosis, and Zaltrap for colorectal cancer. The debate isn’t company-, disease- or country-specific, but widespread.

MSF, not happy with pricing of vaccines either, has also launched it’s ‘a fair shot’ campaign calling for GlaxoSmithKline (GSK) and Pfizer to cut the pneumococcal vaccine price down to $5 per child. That seemed to spark a response from none other than Bill Gates. He warned that criticising the cost of vaccines could simply deter companies from conducting R&D.

The controversy over pricing isn’t just an issue that those outside industry have been focusing on. Sir Andrew Witty, as chief executive of GSK, is reported to have said that: “the weather is turning” against expensive specialist drugs – expensive presumably because of the high price tags. GSK is instead going to focus on emerging markets, including vaccines to use there.

Setting prices in today’s competitive and global market

How companies go about setting prices remains a mystery to those outside the industry. Naturally, commercial companies have to cover their costs and then some, in order to make returns that will keep shareholders happy.

The costs that companies need to cover are many and varied. The cost of R&D is a large one, plus successful drugs have to help recoup the cost of those that fail along the way. Critics point out that much of R&D comes from the public purse anyway.

Then there are costs that aren’t strictly down to the company to control, although they do have to take responsibility for being as efficient as possible, whilst meeting the requirements of regulators (clinical trials are not cheap) and the submissions needed for Health Technology Assessment (HTA). The costs really are high for bringing a new product all the way from the lab to the patient; in 2014 the Tufts Centre for the Study of Drug Development estimated $2.6 billion for an FDA-approved medicine. But even those numbers are debated and controversial, with some putting the cost at a mere $50 million.

Companies also have to operate in an increasingly networked, global marketplace. International reference pricing, where individual countries use the prices paid in others, is widespread (and complex). There is also sharing of price information across countries that can happen outside of formal reference pricing, which happened in the case of Solvadi in Europe.

Add to that the moderating impact of HTA requirements, when used for pricing and/or reimbursement, where cost effectiveness thresholds may influence the price being sought. After all, the easiest ways to be cost effective is to drop the price or have an impressive benefit profile; since the latter can be hard to do and/or prove, it’s the former that can, in theory, flex in response to help meet prevailing cost effectiveness thresholds. That’s really what Patient Access Schemes (PAS) do here in the UK, but with confidentiality over the discounted price.

Maximising revenue over the lifecycle

Companies take a lifecycle perspective on their new products, and their wider portfolios. So those launch prices need to feed into revenue expectations over a longer time period.

Here there are uncertainties that companies need to factor in; payers can change the rules and make companies pay back or cut prices, not quite at a whim, but definitely over the lifetime of a product. In the UK, the Pharmaceutical Price Regulation Scheme (PPRS) with its rising payments back to the Department of Health, is one illustration.

Companies also want to keep their patents effective for as long as possible, to stem the price erosion that comes from products going off patent and generic competition. Critics accuse some companies of ‘evergreening’ – where companies seek extra patents on variations of the original drug through new doses, or new combinations, for example. Companies might prefer to call this lifecycle management. Even here, though, there have been concerns about the rising price of some generics in the US, or the new patenting of existing medicines and then rising prices.

So, at launch, a company needs to consider price over the product lifecycle as part of maximising revenue, and there are some big uncertainties to try to account for. Plus there’s competition to factor in, since companies rarely have a complete monopoly.

All of these aspects make it much easier to ask for ‘fair’ or ‘reasonable’ pricing than define what that actually translates to.

A call for transparency

Some of the arguments about cost, and how that translates into the price of new medicines, are well worn. A more recent part of the debate now however is whether companies can be more transparent in how they got to their price. This is something that Professor David Haslam, as chair of NICE, has been vocal about. He said that there is a need for “greater clarity as to why drugs are priced as they are and establishing why they are as expensive as they are is key”.

But why don’t companies want to reveal how they price? Part of the reason is practical; splitting out true costs for one product when development is not linear and a company has a portfolio can be tricky. That’s not to say it can’t be done, rather that there is a challenge in how meaningfully it can be done. It’s also partly commercial, as companies may not want others to know how their costs break down.

Revealing the breakdown of costs could also spark controversy about the balance between R&D spend and marketing. Some are less convinced about companies sharing ‘information’ on their product than they are simply ‘persuading’ clinicians to prescribe.

Partly it’s simply unappealing since it could be used against industry in the future. Giving up the detail of how costs break down for a specific product could open the door to cost-plus pricing. It’s being mooted in the US in the fallout of the Sovaldi price debate. The danger of cost-plus pricing is that it could end up with a focus on getting prices down to manufacturing costs, and not allowing for future innovation. Whatever you think of those arguments, cost-plus pricing isn’t in line with delivering value for patients anyway, which is something that most will agree is what we want companies to be doing.

For some companies, pricing is also less of a science, “it’s a feel” according to former Genzyme CEO Henri Termeer. Pricing is as much about the value that a product brings, which can be tremendous when there is a real unmet medical need, and what the market will bear.

Whatever your standpoint, the blame game for access and pricing will continue.

About the author:

Leela Barham is an independent health economist and policy expert who has worked with all stakeholders across the health care system, both in the UK and internationally. Leela works on a variety of issues: from the health and wellbeing of NHS staff to pricing and reimbursement of medicines and policies such as the Cancer Drugs Fund and Patient Access Schemes. Find out more here and you can contact Leela on

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