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BREXIT – A Risk to Public Health or Manufacturers’ Wealth? Chapter I

By James Robinson, Director of Industry Solutions, Model N

Through the myriad of contradicting political rhetoric, media opinion, bullish optimism or doomsday warnings, it seems to be an impossible task for anyone to make sense of how BREXIT will impact both patients and drug providers when that fateful day eventually comes around.

In the end perhaps many should remember the old mantra of “Keep Calm and Carry On”. While separation is never simple to manage, catastrophic outcomes are surely not on the agenda because neither the legislators, regulators, manufacturers or providers will ever entertain endangering public health.

From my experiences speaking with and working for many of the largest pharmaceutical firms, there are three common themes that most are concerned about and planning for:

  • Price Impact
  • Launch Sequence Impact
  • Research, Manufacturing and Trade

We will consider today the first one: Price Impact. Other themes will be explored in future blog entries.

Price Impact

BREXIT is likely to have two impacts on the price of drugs both domestically and abroad.

  1. Ripples through International Price Referencing: The headline price of a drug is set by each government and published, the so-called Ex-Manufacturer price. The UK is the most “referenced” country globally with something like 20 countries using the price in the UK as the “reference point” for drug pricing. That means more countries look at the UK price when deciding what they themselves should pay for the same drug in their own country. This interconnecting web of inter-country comparisons is a major policy tool for cost control around the world. The devaluation of sterling means that the UK price converted into the referencing country’s currency will be lower. Should that country then use this ’lower’ price to mandate a reduction in the domestic price, then it will almost certainly succeed. The ripple effect could impact prices in Europe and further afield through direct and indirect referencing relationships. In all cases, forcing price reductions.
  2. Deeper discounting in times of austerity: While the ex-manufacturer price is important, in reality the governments and manufacturers negotiate confidential discounts as a condition of reimbursement. These agreements are subject to review, and the UK government also uses a mechanism, the “PPRS”, to cap drug spending growth. Pressure on NHS budgets can only increase post Brexit – if the UK is likely to face a medium term or maybe even lengthy impact on its prosperity due to leaving the customs union, if it makes the settlement payments to the EU for the “divorce, and even faces increased costs of having to run a National Health Service with a much reduced availability of migrant workers. At times like these, the playbook response is to re-enter price negotiations and reduce or cap the drug “bill” by extracting extra concessions from manufacturers. Even to date Britain’s ‘hard-line’ on pricing has make the headlines concerning high-value cancer treatments or even fines for somewhat sharp practices to raise generics prices. Surely there is a similar approach forthcoming.

Verdict

Positive for payers and patients with downward pressure on prices making drugs cheaper and perhaps more available. Not so good for the manufacturers who might well be facing unavoidable price erosions.

In my next post, I will share opinions and analysis about how BREXIT could have real impacts on the Launch Sequence of new drugs and when they might be available in the UK.

Meanwhile, I invite you to join us at the Commercial and Pricing Innovation Forum (Vienna, October 10-12, 2017). You will be inspired to grow your revenue by thought leaders active in the Life Sciences industry, discuss about key best practices managing pricing globally, and get actionable insights for global pricing and commercial improvement programs.

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