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Pharmacoeconomics 2008; 26 (2): 91-98CURRENT OPINION 1170-7690/08/0002-0091/$48.00/0

© 2008 Adis Data Information BV. All rights reserved.

Having Your Cake and Eating ItOffice of Fair Trading Proposal for Funding New Drugs toBenefit Patients and Innovative Companies

Brian Godman,1 Alan Haycox,2 Ulrich Schwabe,3 Roberta Joppi1,4 and Silvio Garattini1

1 Pharmacology Research Institute ‘Mario Negri’, Milan, Italy2 Management School, University of Liverpool, Liverpool, UK3 Institute of Pharmacology, University of Heidelberg, Heidelberg, Germany4 Pharmaceutical Drug Department, Azienda Sanitaria Locale of Verona, Verona, Italy

There are insufficient resources in the UK to fund all new technologies andAbstractnew indications approved by the National Institute for Health and ClinicalExcellence (NICE). Diverting funding from existing sources will have a detrimen-tal effect on the provision of other priority services. The UK Office of FairTrading (OFT) recently suggested a value-based pricing approach that appearsworkable but has generated considerable debate. Their proposal of a 25% premi-um for the originator product once generics are available is more generous thanseen in a number of other European countries, where typically only the lowestpriced product is reimbursed. The OFT proposal for a maximum 50% premiumfor patent-protected products, versus the prices of generics in a class or relatedclasses, is also more generous than the proposed reforms for the pricing of protonpump inhibitors in Sweden or current reforms in Germany.

In our opinion, the OFT proposals are persuasive and in accordance with thereforms seen in other European countries, and therefore should be adopted. Thealternatives to fully funding new drugs or new indications as approved by NICEare either tightening the cost per QALY threshold, giving NICE an annualnotional budget to fund its advice alongside suggested areas for disinvestment,proactively switching patients from high-cost brand-name drugs to generics, orfurther delaying funding for new drugs and new indications approved by NICE.The majority of these suggestions are not in the best interests of patients orinnovative pharmaceutical companies seeking to reap the rewards of their efforts.

There are insufficient resources in the UK to fund tives,[1-3] financial management models[1,4] and largeincreases in UK NHS funding in recent years.all new technologies and new indications approved

by the National Institute for Health and Clinical NICE’s preferred form of assessing productExcellence (NICE), despite government direc- value is the cost per QALY.[2,5,6] While there is no

92 Godman et al.

absolute cost per QALY threshold to guide decision adopted. This review does not critique the method-making, NICE has stated that technologies will not ology used by the OFT to calculate potential savingsbe rejected solely on the basis of cost effectiveness if nor does it discuss key issues surrounding the fund-the ratios are between £5000 and £15 000/QALY.[6] ing of innovation, such as cost-effectiveness thresh-Special reasons are needed for approval if ratios are olds, or risk-sharing arrangements where uncertain-between £25 000 and £35 000 per QALY.[6] In reali- ties with outcomes exist. However, we do review thety, NICE funds (with few exceptions) new technolo- pricing proposals for brands (originator or other)gies with a cost per QALY of <£30 000/year.[5,7,8] once generics are available in a class and compare

them with similar proposals in other European coun-However, NICE does not consider issues of af-tries.fordability in its decision making, as it believes this

is the role of the Secretary of State for Health.[2,3,5,6]

1. UK Office of Fair Trading ProposalThis, coupled with the generous cost per QALYallowance, has led to variable implementation ofNICE guidance,[1,2,7,9,10] especially with Primary 1.1 Limiting the Premium for OriginatorCare Trusts (PCTs) having to fund other priorities Brands Once Multiple Generic Versionssuch as the National Service Framework directives, are Availableinflationary pay settlements and working time direc-tives, while striving to keep within budget.[5] Hence, The OFT proposal for a 25% premium for thediverting additional funds to help more fully cover continued listing of originator brand products in theNICE guidance has been difficult and not always in Drug Tariff1 once generic versions are available isthe best interest of patients, as there may be more more generous than the reforms in, for instance,efficient and more acceptable investments, such as Austria, France, Italy, Poland and Sweden. In thesereduced waiting times. Consequently, other funding countries, only the reference price is reimbursed,alternatives are needed to help patients have full with patients funding the difference if originatoraccess to new innovative drugs approved by NICE, brands are still premium priced.[15] Generally, com-so that PCTs can also fund other priorities. panies will initially lower originator product prices

The UK Office of Fair Trading (OFT) has recent- to compete. This can lead to price reductions of 60%ly suggested a value-based pricing approach, once or more (table I).generics are available in a class, as a method to help The OFT proposal is similar to level 1 (productsfund NICE guidance. This includes a maximum with identical bioactive ingredients) pricing calcula-25% premium over generic prices for the originator tions for generics and originator brand products inbrand and a maximum 50% premium over generic Germany, where the prices of the three most expen-prices for interchangeable patent-protected products sive products for the compound are averaged out,in the class or related classes.[7] However, their divided by three, and added to the average price ofproposal has generated considerable debate.[11-13] the three cheapest products to set reference

Based on reforms in other European countries, prices.[22] For example, currently in Germany thewhich have been accepted by the industry, we be- cost of Zocor® 2 (simvastatin) is €84.13 for 100 ×lieve the OFT proposal is workable and should be 20 mg (down from €193.12) and generic simvasta-

1 The Drug Tariff is the maximum reimbursed price paid to pharmacists for the product, dosage and pack size,excluding the dispensing fee.[14]

2 The use of trade names is for product identification only and does not imply endorsement.

© 2008 Adis Data Information BV. All rights reserved. Pharmacoeconomics 2008; 26 (2)

OFT Proposal for Funding New Drugs 93

tin is €62.45.[23] Patients pay the difference betweenthe actual and reference prices if applicable.[15]

It is envisaged that manufacturers in the UK willlower prices of the originator brands, certainly ini-tially, in order to compete and to gain some marketshare, given high exemption rates from co-pays(currently 86–88% in England)[24,25] and generalcost-reducing behaviour among British patients.[25]

However, any potential Government savings de-rived from the OFT proposal are limited by thealready high international non-proprietary name (i.e.generic) prescribing rates in the UK (81.8% of allprescriptions).[24,26]

1.2 Reducing Existing Brand Prices OnceGenerics are Available in a Class(Value-Based Pricing)

There is consensus that different products areneeded in a class to maximize patient care in view ofinter-patient variation, which may not be evidentfrom randomized controlled trials, and there is oftenincremental development with the addition of newproducts to the market.[7,27] As a result, the OFTproposed a maximum 50% premium versus genericprices for continued reimbursement of patent-pro-tected products in a class or related classes oncestandards become generic and products are seen asinterchangeable. This figure is seen as attractiveenough to encourage competition while still beingeconomically sustainable.

Patient care is not compromised if the productsare interchangeable (e.g. GPs in PCTs believe thatthere are similarities between atorvastatin andsimvastatin and are already successfully switchingpatients from atorvastatin to generic simvastatinwhere possible, so as to conserve costs).[28] TheLondon New Drugs Group and others believe thereare limited clinical differences between omeprazoleand other proton pump inhibitors (PPIs), such asesomeprazole (Nexium®), so patients can be readilyswitched.[27,29] However, there is consensus that


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94 Godman et al.

sometimes products are not seen as interchangeable The alternative to the OFT pricing proposalwithout compromising efficacy, such as prepara- would be to keep existing brand prices the same buttions of modified-release diltiazem, oral mesalazine instigate rebates based on a maximum 50% premi-or oral modified-release opioids,[26] or where pa- um versus class generic prices for all or target popu-tients are switched from an ACE inhibitor (because lations. For instance, this could include a rebate forof a dry cough) to an angiotensin II receptor ant- patients currently prescribed an A2RA who couldagonist (A2RA).[7,27] This must be acknowledged in tolerate a generic ACE inhibitor or patients with aany value-based pricing consideration. This is the condition that is likely to be well controlled oncase in the OFT proposal for the A2RAs versus the simvastatin 20 mg or 40 mg but who are currentlyACE inhibitors. However, the OFT believe that prescribed atorvastatin (Lipitor®) or rosuvastatinswitching patients from an ACE inhibitor to an (Crestor®). Rebates are a possibility as a significantA2RA is only justified in approximately 5% of number of countries use UK prices as a referencepatients.[7,27] However, in their calculations they point in their pricing and reimbursement delibera-have allowed for up to 40% of patients to be receiv- tions.[7,13] In addition, rebates are accepted by theing A2RAs (table II). industry as part of reimbursement agreements for

Table II. Value-based pricing regulations in selected European countries

Country Pricing reforms

Germany[30] The reference price for brand and generic products in level 2 reference groups (drugs grouped by comparablepharmacological and therapeutic activities) is set at the top of the lowest third of products within a class. Patientsare required to pay any difference above the reference price. Currently 70–80% of reimbursed products are inreference groups in Germany

Italy[31,32] The reference price for the class (ATC classification – fourth level [pharmacological subgroup]) is set at the levelwhere the accumulated number of DDDs consumed for the class is 60% of the total for the subgroup and theaccumulated NHS expenditure is 50% of the total NHS expenditure for the subgroup. The only exception iswhere a single active substance accounts for 50% of the total expenditure for the subgroup. In this case, thereference price is calculated at 15% above the cheapest active substance. Products are delisted if companies donot wish to lower prices to the reference price. New products in a class are exempt from reference pricing if theydemonstrate significant health gain (efficacy and/or safety) compared with standards in the class

Sweden[27,33-36] The LFN recently proposed that, given similar effectiveness, brand PPIs should be reimbursed up to a maximumof 25% above generic omeprazole, apart from esomeprazole (Nexium®a) in patients with endoscopy-provenoesophageal ulcers not responding to generic omeprazole or other reimbursed brand PPIs. It is envisaged thatidentified PPIs will be delisted if manufacturers are reluctant to lower prices. In another review, the LFN believedno single triptan (serotonin 1D receptor agonists) had a superior clinical advantage to justify premium prices vscheaper triptans. Consequently, Imigran® Novum is reimbursed, as the new price is 42% below the originatorsumitriptan price, and naratriptan 2.5 mg is reimbursed as its price was reduced by 14% to be nearer parallelimport prices for triptansIn a more recent review, four asthma treatments including theophyllines for maintenance have been delisted asthey are less cost effective than current treatments. Asmanex® (mometasone furoate) is under appeal as it is60–70% more expensive than alternatives without justification. The completed review of all the identified 49classes based on their ATC classification, including all products to treat hypertension, depression,hypercholesterolaemia and diabetes mellitus, will be in 2010

UK (OFT Maximum 50% premium vs generic prices for continued reimbursement of existing brands in a class or relatedproposal)[7,27] classes. Proposed reimbursed prices will reflect concerns where products are not seen as interchangeable, e.g.

OFT only considering price re-adjustment for 60% of patients on A2RAs who could be prescribed an ACE Iinhibitor without compromising long-term compliance

a The use of trade names is for product identification purposes only and does not imply endorsement.

A2RA = angiotensin II receptor antagonist; ATC = Anatomical Therapeutic Chemical; DDD = defined daily dose; LFN = SwedishPharmaceuticals Benefit Board; NHS = national health service; OFT = Office of Fair Trading; PPI = proton pump inhibitor.



Table III. Reference prices (€) for generic and brand proton pump inhibitors (PPIs) in Germany[23]

Product 2003–4 price (before 2006–7 reference 2007 retail pharmacy pricegeneric omeprazole) price

Omeprazole 20 mg 30 tabs: 51.74 30 tabs: 36.99 Now typically 25–50% below the reference60 tabs: 112.45 60 tabs: 65.77 price with recent reforms to remove patient

co-pays if generic price significantly lowerthan the reference price

Omeprazole 40 mg 30 tabs: 50.74 Typically 25–50% below reference to reduce60 tabs: 90.00 co-pays

Antra® (brand 30 tabs: 51.74 30 tabs: 36.99 30 tabs: 38.01omeprazole) 20 mg 60 tabs: 112.45 60 tabs: 65.77 60 tabs: 68.94

Nexium® 20 mg 30 tabs: 46.31 30 tabs: 32.30 30 tabs: 32.3060 tabs: 83.22 60 tabs: 56.16 60 tabs: 56.16

Nexium® 40 mg 30 tabs: 63.99 30 tabs: 32.30 30 tabs: 32.3060 tabs: 118.56 60 tabs: 56.16 60 tabs: 56.16

Pariet® 10 mg 28 tabs: 42.84 28 tabs: 29.82 28 tabs: 29.82

Pariet® 20 mg 28 tabs: 55.77 28 tabs: 39.83 28 tabs: 39.83

Pantozol® 20 mg 30 tabs: 46.31 30 tabs: 32.30 30 tabs: 32.30

Pantazol® 40 mg 30 tabs: 63.99 30 tabs: 43.68 30 tabs: 43.68

new premium priced drugs, for instance, in France from 1 October 2006[40] to help keep drug costswithin the agreed 16% of total healthcare costs.[41]and Italy.

The 50% premium proposed by the OFT is moreIn France, manufacturers must either lowergenerous, for instance, than ongoing pricing reformsprices or give rebates if sales volumes, daily dosagesfor PPIs in Sweden and possibly Germany with leveland/or daily costs exceed a negotiated limit for2 reference pricing3 for a class (table II).specified drugs in ambulatory care and outpatient

The impact of the pricing reforms in Germanysettings.[16,17,37] Furthermore, manufacturers musthas been substantial. The significant reduction ingive an aggregate rebate if a drug class exceeds itsPPI prices[23] (table III) led to reasonable savingsagreed budget, average growth rate or agreed vol-despite a >50% increase in prescribed volumes inume threshold.[37] Rebates are based on the salesrecent years[42,43] (table IV). Interestingly, the refer-growth of a given drug in a class and on the totalence prices for new brand PPIs such as es-company sales volume.[37] Special rebates are also

paid as part of annual agreements if prescribingvolumes in a given class are high compared withthose in other countries.[17,37] Rebates amounted to€670m in France in 2004.[37]

In Italy, the industry rebated €733m in 2005.[38]

Furthermore, a 4.4% price cut was applied to mostproducts in December 2005, increasing to a 5%price cut from mid-July 2006.[39] There were alsotemporary price cuts of up to 12% applied to selec-tive products in 2006 (based on their actual sales)[39]

and an additional across-the-board price cut of 5%

Table IV. Savings (€ [millions]) associated with level 2 referencepricing for HMG-CoA reductase inhibitors (statins) and proton pumpinhibitors (PPIs) in Germany[42,43]

Drug 2003 2006 Savings Prescribedclass salesa sales from 2003 volumes in

2006 vs 2003

Statins 1091 561 530 49% increasebased onDDDs

PPIs 1006 891 115 57% increasebased onDDDs

a Before generics available.

DDD = defined daily dose.

3 Drugs grouped by comparable pharmacological and therapeutic activities.


96 Godman et al.

omeprazole and rabeprazole were set significantly information from the industry,[49-52] despite Pharma-lower than Antra® (brand omeprazole) at the time of ceutical Advisers and incentive schemes,[53] and thislaunch. This was most likely in anticipation of level is exacerbated by the industry investing over2 reference pricing with generic omeprazole. Prices £850m/year in marketing in the UK.[7,48] In addition,are still below the current reference price for generic there is still a general lack of awareness of drugomeprazole (table III). This will not last, with retail prices among GPs.[7,54]

omeprazole prices falling substantially with recent Suggestions such as tightening the cost per QA-reforms.[44] The combined savings from these two LY threshold would not be in the best interests ofclasses (table IV) mirror the estimated savings of patients, with NICE already rejecting new cancer£574.7m annually in the UK for selected inter- drugs, such as bevacizumab and cetuximab, for thechangeable products.[7,27] treatment of metastatic colorectal cancer,[55] and

erlotinib for non-small cell lung cancer being sub-2. Discussion ject to an ongoing review.[56] Drugs with a high

likelihood of rejection with significant tightening ofIn our opinion, the OFT proposal for pricing the cost per QALY threshold (even where indica-

originator brands once generics are available (table tions are already restricted) include the Beta in-I), and for interchangeable brand products once terferons for multiple sclerosis,[57] the anti-tumourstandards in a class or related classes become gener- necrosis factor α drugs for rheumatoid arthritis andic (table II) is persuasive and in accordance with the trastuzumab for advanced breast cancer.[58]

reforms seen in other European countries (e.g. Ger-many, Italy and Sweden), which have been accepted 3. Conclusionby the pharmaceutical industry.

The alternative, to try and improve implementa- We believe the OFT proposal merits serious con-tion of NICE guidance alongside increased drug sideration to help fund new innovative drugs andvolumes and other priorities, would be to tighten the new indications approved by NICE, with the cumu-cost per QALY threshold (e.g. £12 000 to £20 000 lative cost of implementing positive NICE apprais-per QALY)[45,46] give NICE an annual notional or als issued between 1999 and 2004 already at £800m/top sliced budget of, for instance, £500m/year to year in 2005,[1] even before looking at ways to fundfund its advice alongside suggested areas for disin- trastuzumab (Herceptin®) in early stage breast can-vestment,[45] or proactively switch patients from cer.[5,8] This has considerable resource implications.high-cost brands to generics, where suitable and The OFT proposal releases valuable resources,seen as equivalent (e.g. HMG-CoA reductase inhibi- avoiding additional delays in PCTs implementingtors [statins]).[28,47] The latter is already happening, NICE guidance and/or tougher approval criteria.with the National Audit Office in the UK suggesting Neither of these suggestions is in the best interests ofa minimum target of 66% of statin prescriptions as patients or innovative pharmaceutical companiesgeneric simvastatin to conserve resources.[48] seeking to reap the rewards of their research efforts.

However, switching significant numbers of pa- The OFT proposals should be workable, as theytients from existing brands to generics where inter- build on existing reforms in other European coun-changeable will require considerable effort, as pre- tries and are significantly less complex than, forscribing is complex and must take into account the instance, the value-based pricing formulas in Ger-needs of patients and the healthcare system.[49] Fur- many and Italy. In addition, under the new schemethermore, a number of GPs still obtain their drug for reimbursing generics in the UK, data are sent



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