This is for the UK's Department of Health to decide once it has digested the 1,000 or so pages of the OFT's market study on the operation of the Pharmaceutical Price Regulation Scheme (PPRS). The study recommends retaining the PPRS structure of a pact between industry and government, but removing the current profit cap on an individual company's drug portfolio and replacing it with an up front, per drug, value-based price approval.

Such a system could be introduced at the end of the current PPRS (2010). The Department is taking three months to reflect on the recommendations, a period which will elapse shortly before the mid-point review of the PPRS.

The PPRS can be seen as an overall procurement framework. The OFT claims that the current profit cap distorts incentives by encouraging expenditure on marketing across an entire drug portfolio rather than favouring product innovation. The study's conclusion would shift the balance of power in the procurement bargain more firmly in the government's favour.

But does a pre-launch health technology value assessment send the right signal to incentivise product development? The OFT study criticises the large number of similar drugs in the same therapeutic category which have little advantage over one another. It is not clear that the proposed approach would do much to change this. The product development cycle is too long and uncertain. Even at a late stage in development a company may not know whether a drug will succeed or fail or whether it will be a significant advance, an incremental advance or little advance at all. It would be unfortunate if a value-based approach were to choke off investment even in what turns out to be incremental improvement. Part of the logic of the OFT's approach would also be the stranding of historic investment costs involved in developing products to which the new system would not attach value.

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This is for the UK's Department of Health to decide once it has digested the 1,000 or so pages of the OFT's market study on the operation of the Pharmaceutical Price Regulation Scheme (PPRS). The study recommends retaining the PPRS structure of a pact between industry and government, but removing the current profit cap on an individual company's drug portfolio and replacing it with an up front, per drug, value-based price approval.

Such a system could be introduced at the end of the current PPRS (2010). The Department is taking three months to reflect on the recommendations, a period which will elapse shortly before the mid-point review of the PPRS.

The PPRS can be seen as an overall procurement framework. The OFT claims that the current profit cap distorts incentives by encouraging expenditure on marketing across an entire drug portfolio rather than favouring product innovation. The study's conclusion would shift the balance of power in the procurement bargain more firmly in the government's favour.

But does a pre-launch health technology value assessment send the right signal to incentivise product development? The OFT study criticises the large number of similar drugs in the same therapeutic category which have little advantage over one another. It is not clear that the proposed approach would do much to change this. The product development cycle is too long and uncertain. Even at a late stage in development a company may not know whether a drug will succeed or fail or whether it will be a significant advance, an incremental advance or little advance at all. It would be unfortunate if a value-based approach were to choke off investment even in what turns out to be incremental improvement. Part of the logic of the OFT's approach would also be the stranding of historic investment costs involved in developing products to which the new system would not attach value.

The introduction of a pre-launch health technology value assessment will give rise to concerns over delay and accountability. Assessments would take time and delay launch in the UK, a country where the uptake of new medical technologies is already slow. This eats into a drug's effective patent life. Assessments would be based on a broad 'equivalence' between products. Therapeutic comparisons have proved a particularly problematic area in the introduction of limited reimbursement lists, in establishing data exclusivity, in identifying relevant product markets for competition law purposes and in creating specifications for therapeutic tendering. Accountability is also a concern. It remains an open question whether the 'guidance' provided by HTA bodies such as the National Institute of Clinical Excellence (NICE) are capable of judicial challenge. So perhaps value-based price assessments will similarly be advisory, highly influential on the international stage, but may not be capable of challenge.

The OFT is conscious of the international impact of UK policy. Although the UK accounts for only 4% of sales, UK prices have a disproportionate impact through reference pricing systems in countries which account for some 25% of world sales. Nonetheless it can be doubted whether this really can have an impact over drug development and investment choices, the great majority of which take place outside the UK.

There is scope for some upheaval ahead. The Department's reaction is awaited with more than passing interest, and not just in the UK. Still, the Department has not always been known to adopt the OFT's thinking in the past, notably in relation to pharmacy liberalisation where the Department's approach was much more conservative than the OFT's. The OFT's study is not the last word on the PPRS: instead the debate is only just beginning.

The OFT’s study is available here. The annexes to the report are also available.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 05/03/2007.