Much has been made – and this is being discussed elsewhere on Elements - of the fact that the current raft of health reforms will encourage the private sector to play a greater role in the new NHS.
But what of those companies whose commercial fate is already inextricably tied with healthcare provision? The pharmaceutical industry, which employs approximately 72,000 people in the UK, is a case in point.
Pharmaceutical companies are frequent targets for criticism, and their profit motive is often seen as a malign influence. But we should not forget that the pharmaceutical industry has, over the last 50 years, provided medications (at a price, of course) that have prolonged and improved the lives of millions of people.
Bringing a drug to market is already a time-consuming and immensely costly process. The research and development (R&D) process which any new drug has to go through is tightly regulated by powerful national and international bodies. In the UK, regulation is provided by the European Medicines Agency (EMEA) and the Medicines and Healthcare products Regulatory Agency (MHRA).
But even after those hurdles have been cleared, medicines are further subject to the critical eye of the National Institute for Health and Clinical Effectiveness (NICE), which evaluates whether each drug is sufficiently cost effective to warrant inclusion in the British National Formulary and hence be prescribed to patients.
So, it’s already quite a complex affair for pharmaceutical companies to get their products into the hands of doctors and down the throats of patients. Will the Coalition Government’s plans to minimise bureaucracy in healthcare make this process easier? And will the NHS reforms somehow affect the all-important R&D process?
In search of answers to these questions, I spoke with Neil Johnson, a consultant with RJW & Partners, and someone with considerable experience working in the pharmaceutical industry.
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Note: A transcript of the audio appears at the bottom of this article
There are several proposed changes to the UK’s healthcare system which haven’t been so widely publicised as the main body of NHS reforms, but which may have even greater consequences for the pharmaceutical sector.
In particular, the Government recently concluded its consultation on a new mechanism for the pricing of pharmaceutical products. This system, called “value-based pricing”, is set to be introduced in 2014.
In addition, there has been a gradual move away from the targets-based culture of the previous Government and a move to reward healthcare providers who achieve positive patient outcomes.
How will these changes affect the pharmaceutical industry?
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These changes are happening at a time when the pharmaceutical industry in the UK is in less than robust health. Pfizer announced the closure of their Sandwich R&D Centre earlier in the year and AstraZeneca have announced job losses as well.
It could be imagined that the pharmaceutical industry is just the kind of hi-tech, innovative sector that the Government would like to promote. Is it not possible that many of the healthcare reforms might be geared, however indirectly, to doing just that?
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Images: Pharmaceuticals on a tray by Amira Elwakil-Lucman (Creative Commons 2.0), Neil Johnson by James Brooks (all rights reserved)
Transcript of the audio:
Part 1
James Brooks: I’m sitting with Neil Johnson in the rather studious calm of his office and I must say that the furore that’s been generated by the NHS reforms does seem a world away. That’s maybe somewhat appropriate as we’re here to discuss an issue slightly tangential to much of the coverage about the reforms and that’s the effect on the pharmaceutical industry.
Neil has a rather diverse 25 years’ experience in big pharma, as the larger companies are known, in positions leading international clinical development projects to senior roles with a more commercial or marketing flavour. Today he’s a consultant with RJW & Partners and among other things advises pharmaceutical companies on pricing and reimbursement issues. We’ll come onto those in a moment but first, Neil, do you think that the NHS reforms will affect the UK pharmaceutical industry, particularly in the way that the industry goes about things commercially?
Neil Johnson: I think it will. I guess one of the things that the UK industry will be concerned about will be the size of its customer base.
Although the UK health service has always been quite fragmented, there’s probably more of a focus around what happens at the national level. So if you’re a UK company at the moment you have a very strong focus on the way NICE thinks, the way the Scottish Medicines Consortium thinks, as well as having an interest in the way the Primary Care Trusts operate.
But I think in the future as these GP-led consortia start to develop I think the key questions are going to be: “How will they operate?” and “How many of them will there be?” Because the industry in recent years has taken a lot of significant steps in reducing its sales force size for reasons of efficiency and also because of a lot of promotional activity is not well accepted by the NHS at the moment.
If there’s now an increase in the number of customer groups that are out there with these new GP-led consortia, then that may get the industry to think again about the size of its sales forces.
JB: So maybe a return of the medical sales rep, then. A lot has been made of the opening of the door to private companies within the NHS-to-come. Could this then be an opportunity commercially for the pharmaceutical industry?
NJ: Yeah, I think a lot of companies will think of it that way and we’ve seen a lot of positive remarks recently about the potential interactions between the NHS and the industry. There’s a shift towards outcome-based funding mechanisms so there should be a reward in there for the NHS and anybody who can help the NHS to improve medical outcomes for patients.
Well, of course, that’s exactly the kind of thing that the industry’s been working on for the last 50 years, really. So there ought to be an opportunity there for much closer partnerships between the industry and certain members of the NHS.
JB: With regard to the research and development, the R&D, that the industry undertakes to bring us new drugs, do you that that could be impacted by the reforms?
NJ: It is quite possible. If you look at the current situation… the current situation really is geared towards national decision making on the part of organisations like NICE. And the way in which they do that is that they will take account of an evidence base, a clinical evidence base, which is directed actually at the regulatory authorities: so, the likes of the FDA in the US; you’ve got the European Medicines agency in Europe.
The industry at the moment is focused very much on generating cross-national databases and it’s that kind of information that NICE will take into account. And that’s fine when you want to make big population decisions, national-level decisions, but of course what we’re hearing about the new NHS is that this is going to be much more localised in its response to patient needs. So, one of the questions I wonder about is how applicable this cross-national dataset that’s currently being generated is to the needs of local providers and purchasers of healthcare.
It’s possible that what could happen is there could be much more of a focus on – and this is where the partnership idea comes in – the generation of local outcomes information which is not the kind of stuff that’s generated right now by the industry.
Part 2
JB: Moving more peripherally to the main body of the NHS reforms, I think there have been other proposals, which have slipped under the radar maybe of much of the media, which do look set to affect pharmaceutical companies in some way. I’m thinking particularly of “value-based pricing”.
Now, what is meant by that phrase and then how do you think it will affect the industry?
NJ: Yeah, it’s a good question. At the moment what happens in terms of pricing of pharmaceuticals, companies work within a voluntary scheme which is called the PPRS, the Pharmaceutical Price Regulation Scheme, and this is a scheme whereby prices are established by the manufacturer, primarily, but according to certain profit controls applied to the company, or the company’s whole portfolio.
Well, that scheme, the PPRS, will end at the end of 2013 and as of 2014 all new products will come under this new system called value-based pricing. One of the reasons the new system is being introduced is because there is some concern that the PPRS, first of all from the industry’s perspective, does not reward innovation very well and there are other opponents of the PPRS who say that the industry has a fairly free opportunity in setting its prices and that there’s actually no control over the price level that’s set in compensation for any particular level of therapeutic value.
So this whole idea of value based pricing is there to try and encourage a closer link between the price level that’s set and the potential value, or the added value, that a new product might offer.
JB: Do you think that value based pricing will be a good thing for the pharmaceutical industry?
NJ: It’s actually a very difficult question to answer and obviously nobody knows because the system’s not yet in place but what I can say is that the new system that’s been proposed does look a little bit like the system that’s just been introduced in to Germany at the start of this year. And the expectations are that that is going to bring prices down in Germany.
Now, Germany’s unusual in Europe because it does have some of the highest prices in Europe whereas the UK does have some of the lowest prices in Europe, so how exactly it’s going to affect the UK is not really clear.
I think where most people in the industry will be more focused actually is not so much on the absolute price level that’s achieved but the level of access. Because one of the challenges with the UK, and it’s been there since before NICE was introduced, is that new medicines only get into the UK market very slowly which means that patients don’t get access to new treatments as quickly as they do in other countries.
There’s no doubt that’s one of the main reasons why the PPRS is being changed and new ways of managing not just value based pricing, but also the role of NICE for example, why that’s also changing… because it’s all geared towards trying to encourage greater and faster access of patients to some of the treatments which currently are denied in the UK and which are available more widely in continental Europe.
JB: Is there really such a difference?
NJ: Yeah, there’s no doubt that there is and recent research has shown that in areas like oncology, rheumatoid arthritis, respiratory disease, the rate or the speed with which patients are able to gain access to new medicines is much less in the UK than it is in many major European markets.
It’s obviously a multi-dimensional problem, this, and it would be wrong to say that there’s an easy solution, although this new focus on clinical outcomes ought to, over time, incentivise people to think more in terms of “OK, how do I improve this particular clinical situation for this patient and what role should new drugs play in that whole process?”
So, I think the incentive systems are starting to get aligned in the right direction so it should have, overall, a beneficial effect in terms of improving access. But whether or not it will and how that’s going to play against the pricing opportunities and so on is obviously very difficult to judge at this stage.
Part 3
JB: If we look at the UK pharmaceutical industry today, it’s not a very pretty picture. I’m thinking about the closure of Pfizer’s big R&D centre in Sandwich, AstraZeneca, as well, has lost jobs. Can this be tied in any way with what’s happening in terms of policy?
NJ: I think there probably is some link between reforms around the pricing system and the reforms that are intended to improve access to new medicines – there’s a link between those things and the UK as a base for R&D and as a base within the global pharmaceutical sector.
So, for example, you mention Pfizer in Sandwich: the loss of 2,700 jobs there in Sandwich is actually quite an important issue, clearly for people at Pfizer, but also for the local community. Sandwich is a pretty isolated spot and there’ll be a lot of other jobs contingent upon the loss of the site there.
And the Government is well aware of the importance of the industry as a contributor to the economy but also as a major employer. There’s something like 70,000 people employed by the pharmaceutical industry in the UK and the Government wants to try and make sure that, where possible, the industry does remain competitive and does keep its workforces and its R&D bases located in the UK.
As we move towards a new type of pricing system, I’m sure the Government will be very concerned to make sure that that new system, however it’s structured, is appropriate to the needs of the industry as well as appropriate to the needs of the NHS.
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