When you are engulfed in flames: the dangers of Value Based Pricing for the UK pharmaceutical industry

Rob Walton

Wisper Public Affairs

We’ve heard a lot this year about fire as a catalyst for radical action. It started, back in February when Nokia CEO, Stephen Elop, sent a memo to his staff to tell them that his company was like a rigger standing on a burning oil platform, whose only choice was to be consumed by flames or plunge into the unknown icy waters beneath. Elop, in imploring his company to change or suffer the consequences of competition from Apple and Android, may have got more than he bargained for when the memo was leaked on the world wide web, but his words captured the public mood. Since then politicians around the world have been quick to adopt incendiary references, the latest coming from David Cameron when asking MPs to support his position in Europe. “When your neighbour’s house is on fire your first impulse should be to help them put out the flames, not least to stop the flames reaching your own house,” he implored.

In 2013 the Pharmaceutical Price Regulation Scheme (PPRS) will come to an end and the industry could very well find itself on the end of a burning platform if it can’t improve on the governments Value Based Pricing Proposals. The PPRS has served patients, the NHS and the British economy well for nearly half a century, but will be replaced by a system of Value Based Pricing (VBP) designed to separate the UK’s long-standing industrial policy to support innovation from the price that the NHS pays for medicines. The government held a period of consultation earlier this year and soon will announce its plans in detail.

“No one in the industry should have a problem with delivering good value for money.”

In December 2010, the government announced its plans on VBP as part of the coalition’s agreement. Its aims, among other things, were to improve outcomes for patients through better access to effective medicines and stimulate innovation and the development of high value treatments. Already then the flames were lapping at our door, but no-one sounded the alarm.

No one in the industry should have a problem with delivering good value for money. Indeed the UK has secured some of the lowest prices for medicines in Europe. We should, however, be concerned about the government views on innovation.

According to the government consultation, a bit like the UK rail service, which blames the wrong type of snow for long delays in winter the industry is delivering the wrong type of innovation. The state, it seems, wants to pay less for incremental innovation. Instead it wants solutions in unmet medical needs – solutions simply unavailable on demand. Higher prices for solving unmet medical needs are all well and good, but without fair returns for stepwise innovation, it’s hard to see where the resource for remedying untreatable conditions will come from.

The government seems to have forgotten how the model of pharmaceutical innovation works. True, the sector occasionally provides a breakthrough of epic proportions, but often this is more by luck than judgement. Everyone in the industry knows the stories of medicines developed for one thing that prove to be better suited to another in the end – Sildenafil Citrate, which was prescribed in Erectile Dysfunction and Pulmonary Arterial Hypertension but was originally identified to treat angina, is a case in point. The majority of medicines, whether blockbuster or precision, are the product of a kind of medicinal Darwinism where, by taking one small step after another, treatment outcomes ultimately improve.

Of course it would be wonderful if we could find big solutions to the big problems of unmet medical need, as the British government would like, but this policy is more akin to the practice of magic than medicine. We know from the challenges we face to develop treatments for diseases such as HIV and Cancer that the industry is not in the business of pulling rabbits out of hats. Rather, by repeatedly making small advances, it contributes incrementally to improvements in health outcomes.

The consultation on VBP, which closed earlier this year, yielded 188 responses from diverse sources. A clear majority of these responses were supportive of moving to a pricing system based on value, less than a third of the responses came from industry and even fewer seemed to challenge the government’s supposition that the PPRS should be scrapped.

So uncontroversial was the industry’s position during the consultation that the government was able to cite the ABPI’s submission to the consultation in pride of place in its own formal response. “The development of value based pricing for new medicines for 2014 provides significant opportunity to both improve patient outcomes through the more appropriate use of medicines and to stimulate the development of new and innovative medicines of the future”. We have finished up on the wrong side of the argument, with public positions from both the ABPI and individual companies supporting the government’s proposals, despite the obvious value of the PPRS.

“The fact of the matter is that in the current economic climate, VBP does not offer an improvement on the status quo…”

The fact of the matter is that in the current economic climate, VBP does not offer an improvement on the status quo, not least because there is no meaningful plan to connect the NHS interpretation of value to wider imperatives of medico-regulatory, industrial and economic policy.

Without much more detail about how the government proposes to rebalance its health, industrial and economic policies, and in the absence of any proposed alternative from industry, we should prepare for a period of significant retrenchment in the UK pharmaceutical base once the PPRS has gone.

Last week, David Cameron himself was fighting fire with fire when he addressed the Commonwealth Heads of State meeting in Sydney to defend London’s financial sector in the face of EU “attacks” on the city. If only the Secretary of State for Health could see the attacks launched on the pharmaceutical industry, by his own department, in a similar light he might yet be persuaded to safeguard the contribution it has been making to the country since the inception of the PPRS, and either withdraw or rethink the proposals.

The UK economy is shaky. When the government’s plans for VBP were drawn up, the world was a different place. In the current economic climate, and without the benefit of sound evidence, logic or common sense, the country faces further erosion to its science base as a result of VBP. That would lead to a situation where everyone loses. It is time for the sector to take the Prime Minister’s lead and try to put out the flames now threatening to engulf us.

The appointment of Stephen Whitehead as Chief Executive of the ABPI is good news. The fire could still be extinguished. In September, he sounded the fire alarm when he told the Daily Telegraph that the proposed system of Value Based Pricing “doesn’t actually seem to do anything to encourage innovation”.

Under his leadership the association will take a more robust stance, but for now his comments, while well received, are not enough to douse the flames. We need something more substantive and assertive that challenges the government to rethink its position or provide a considered alternative. The fire is spreading swiftly and, without immediate action, it will be too late.

“When the government’s plans for VBP were drawn up, the world was a different place.”

Public perceptions of the industry are not often favourable. Many of our stakeholders, or as David Cameron sees them – neighbours – will not rush to help us extinguish the inferno. In fact, a few might even rejoice if our house was to burn to the ground. It is now time to pick up the hose pipe ourselves, but we need to act fast. The government plans to launch a more detailed plan in the coming months and it wants VBP to be operating fully by 2014.

An ill-judged jump into these unknown icy waters poses a significant and an equally ill-judged risk, not just for the sector but for the UK economy as a whole. Government proposals and the industry’s response have so far been inadequate. In accepting either, we run the risk of failing the patients we serve. It’s time to challenge the entire notion of implementing VBP under today’s economic conditions. A vibrant pharmaceutical industry is essential to the future of Britain’s role as a competitive innovator and to improved healthcare, both at home and around the world. We need to retain the PPRS or find a workable alternative. VBP is not it.

About the author:

Rob Walton is Managing Partner at Wisper Public Affairs, a member of the iS Health Group of companies.

What dangers can you see for UK pharma with the implementation of VBP?