UK budget heralds price cuts on branded pharmaceuticals

Due to the global economic downturn, branded pharmaceutical sales are suffering in countries such as the US, which lack a nationalized healthcare system. The rising number of unemployed, and therefore uninsured patients, are switching to cheaper generic alternatives, the result of which will be a knock on effect on branded prescription drug sales, which are now forecast to decline by 1-2% in 2009 (IMS Health). This is not the case however in the UK, where patient out-of-pocket costs are capped at GBP7.20 ($10) for prescriptions of either generic or branded drugs (where no generic is available). Moreover, in many cases, the prescription charge is waived due to the financial status of the patient. Nevertheless, the global economic downturn has exacerbated challenges that branded drug makers face in the UK market.

The UK pharmaceutical market is highly genericized, with generic drugs responsible for 65% of drug volume and 25% of sales (European Generic Medicines Association, 2007). Indeed, uptake is set to rise as many big name branded products lose patent protection in the UK within the next decade. Furthermore, more than 87% of prescriptions are written generically, with the remaining 13% likely attributable to branded biologic drugs which are yet to face non-branded 'biosimilar' competition. Furthermore, following agreement during the Pharmaceutical Price Regulation Scheme (PPRS) negotiations, generic substitution by pharmacists will become mandatory from 2010, unless the physician has ticked a 'do not substitute' box.

The latest initiative undertaken to reduce the NHS drug bill is to cut spending on branded pharmaceuticals by GBP550m ($800m) during 2010-11, as part of a wider scheme to save the NHS GBP2.3 billion ($3.4 billion) over the same period, as announced in the UK's 2009 budget. The savings will be derived from the newly revised PPRS, which came into effect on February 1, 2009 with a 3.9% reduction of prescription drug price. A further 1.9% price cut from February 1, 2010 will provide additional savings to the NHS, which could in fact exceed the GBP550m ($800m) target announced by the government.

However, the branded drugs industry has been compensated by price increases of 0.1% in January 2011, 0.2% in January 2012, and 0.2% in January 2013, plus the introduction in February 2009 of a flexible pricing scheme aimed at rewarding innovation, to offset the impact of the PPRS price cuts and growing generic incentivization initiatives.

The government has also announced a new GBP750m ($1.1 billion) Strategic Investment Fund to support advanced industrial projects of strategic importance, which can potentially be accessed by struggling UK biotechnology companies. However, with GBP250m ($363m) earmarked for low-carbon investment, the GBP500m ($727m) to be allocated across the rest of UK R&D is too little too late for small biotechs, many of which have already gone to the wall, with more undoubtedly to follow before the year's end.

On top of the PPRS price cuts and growing genericization of small molecule drugs, branded drug makers now face a new threat from biosimilars (generic versions of biologic drugs), which are expected to enter the UK market imminently' providing a lower cost alternative to expensive branded biologics. While uptake may initially be slow, it will inevitably grow, driven by the need to cut healthcare costs coupled to a growing physician and patient confidence in the drugs over time. Consequently, with the volume of branded drugs having remained flat over the last four years, total sales of the UK branded pharmaceutical industry are forecast to decline from 2009 onwards due to the multitude of negative factors facing the industry.
 

Related research
• Future Pharmaceutical Industry Trends: Long-term opportunities tempered by short-term challenges

• Generic Benchmarking: Brand Erosion at Patent Expiry 

Alistair Sinclair - Datamonitor