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A new PPRS in the UK: What does it bring?

26 November 2013 Kavita Rainova

Earlier this month, following months of wait and speculation, the UK Department of Health (DH) and the pharma industry announced the successor to the 2009 Pharmaceutical Price Regulation Scheme (PPRS). The new PPRS, 2014 PPRS, comes after two years of discussion over the possible overhaul of the PPRS scheme with the introduction of value-based pricing (VBP). With VBP set to be introduced in autumn next year, the details on what it will entail still remain vague. In the meantime, the new 2014 PPRS introduces a payback scheme. This payback is in contrast to previous PPRS schemes which have all included price cuts.

2009 and 2014 PPRS
The current PPRS, introduced in 2009, involves free pricing for new pharmaceuticals, with the profits made from the sale of drugs to the NHS controlled. Furthermore, it was required to introduce a price cut under the 2009 PPRS. However, since the price cut was an average across the portfolio, companies could choose where to make the price cut. Thus, price cuts for new drugs could be avoided by imposing a higher price cut for older products.

Similar to the 2009 PPRS, the new deal is a non-contractual and voluntary agreement; financial penalties apply to companies that opt out. It will apply to all branded, licensed products, as defined by the 2009 scheme (excluding OTC drugs). The 2014 PPRS is set to begin on 1 January 2014 and will run for five years. As per the agreement

  • The growth rate of the sales of NHS-branded drugs under the scheme is to remain 0% for the first two years, following which for the next three years they will be allowed to grow at 1.8%, 1.8%, and 1.9% respectively. The industry will then pay back money to the NHS if the allowed growth rate is exceeded. This is aimed at controlling the NHS expenditure on branded drugs.
  • Thus, the scheme includes annual payments set at a level to ensure that the growth rate of the sales of NHS branded medicines that are supplied by the companies is at the aforementioned "Allowed Growth Rate". The initial annual payment is set at 3.74%for 2014.
  • Companies, whose sales in the previous year were below GBP5 million will be exempt from making payments.
  • As to the pricing of new products, as under the current PPRS, companies will be able to price new active substances at their discretion.

What next for VBP When the introduction of VBP was initially proposed, it was intended to apply to new active substances launched from 1 January 2014 onwards. There was to be a basic threshold, and a higher threshold for drugs for the treatment of diseases that had greater burden of illness, for those that could demonstrate greater therapeutic innovation, and for those that demonstrated wider societal benefits. The agreement between the ABPI and the DH, however, does not shed light on the specifics of the VBP, its methodology, or how it is going to be applied. Nonetheless, it is noteworthy that the 2014 PPRS specifies that the basic cost-effectiveness threshold will be consistent with the current range. The agreement also specifies that "companies may request value-based appraisal for their medicine".

Industry reaction
The industry reaction to the current PPRS has been so far primarily directed at criticising the lack of support for small and medium enterprises (SMEs). The ABPI chief executive, Stephen Whitehead, expressed concerns over the government not giving any payback exemptions for companies with NHS sales of between GBP 5 million and GBP 25 million, noting that companies falling within this bracket "will find this extremely tough". The chairman of the Ethical Medicines Industry Group, Leslie Galloway, said that the agreement "will sadly adversely affect the ability of biopharmaceutical SMEs to invest and further innovate".

In conclusion
It remains to be seen to what extent the 2014 PPRS will affect the SMEs and pharmaceutical innovation in the UK. Meanwhile, several other aspects of the system have yet to be clarified, not least the VBP mechanism, and how it will fit with the PPRS scheme. Given that one of the principles of the PPRS is to "improve access to innovative medicines…ensuring that medicines approved by NICE are available widely in the NHS", and given that VBP when initially proposed was also expected to tackle the so-called "postcode lottery" in access to medicines under the NHS, it seems that the PPRS and VBP may be at odds with each other.

In the meantime, the PPRS deal, and the pharma industry agreeing to a payback scheme seems to point to companies agreeing to the deal, potentially, as a trade off for DH agreement to soften some of the provisions of the yet-to-be-introduced VBP. Given that UK is one of the largest EU markets, a new policy will have serious implications for the industry in the future. Particularly, considering that many countries such as France and Germany (among others) include UK in their basket of reference countries, a decrease in prices in the UK could have a knock-on effect on prices in other countries as well (although the fluctuating currency means that the UK has increasingly been removed as a major reference country).

Posted 26 November 2013

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