Branded Generics Included In PPRS Calculation

In a recent case concerning the Pharmaceutical Price Regulation Scheme (PPRS) the Court has upheld Glaxosmithkline’s (GSK) contention that it was not prohibited from including volumes of sales from branded products sold to fulfil generic prescriptions in its calculation of the list price reduction that it has delivered under the PPRS. This is likely to be a welcome decision for the pharmaceutical industry as it will help them to meet the average price reduction of 4.5% required under the PPRS. In addition, the Court refused to accept the Department of Health’s argument that the PPRS was a purely non-binding, voluntary scheme, rather than a binding contract.

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The PPRS is an agreement between the Department of Health and the pharmaceutical industry that governs the sales of branded medicines to the NHS. The PPRS was intended to provide rules to determine maximum prices that could be charged by members of the scheme with respect to health service medicines. The scheme is also intended to restrict the maximum profits that can be made from the sales of medicines covered by the scheme. The price regulation provisions allow members of the scheme to determine the prices of their individual products so long as the overall reductions in price in their supplies to the NHS under the scheme equated to at least a level of 4.5% in comparison to its list prices.

The products covered by the PPRS are "all branded, licensed NHS medicines". Generics, unbranded copies of out-of-patent products, as well as branded medicines sold over the counter and those products supplied predominately under private prescriptions are not covered under the PPRS. However, "branded generics" (copies of out-of-date patents that bear a brand name) along with branded products supplied through tendering processes or local/central contracts are included.

A dispute arose between GSK and the Department of Health, which was referred to a panel appointed under the scheme. The question was whether branded medicines, reimbursed as generics, should be included when calculating the overall price reductions given by a particular pharmaceutical company. The panel found in favour of the Department of Health and decided that these medicines should not be included.

GSK appealed the decision on a question of law as to whether, under the terms of the PPRS, sale of the medicines in question could be included in calculations of price reduction. At a late stage, the Department of Health raised an issue of jurisdiction; it contended that the PPRS constituted a purely non-binding and voluntary agreement under the Health Act 1999 and not a contract. It argued that since there was no intention to create legal relations (a key requirement for a valid contract), there was no obligation on the part of either party to comply with any decision of the panel and therefore no determination of legal rights which could be appealed to the Court.

The Court held that the scheme was voluntary in the sense that there was a choice whether or not to enter into it. However, there was no wording in the scheme, nor in the Health Act 1999, that suggested that this scheme was non-binding once entered into. The Court was therefore of the opinion that the PPRS did constitute a commercial contract and the Court did have jurisdiction to rule on any disputes arising under it. Therefore any finding by the Court as to the terms of the PPRS would be binding on the Department of Health and other contracting parties.

Having determined that it had jurisdiction, the Court went on to find that GSK was not prohibited, under the terms of the PPRS, from including sales of branded products sold to fulfil generic prescriptions in any calculation of list price reductions.

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

The original publication date for this article was 28/06/2007.