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GSK gambles on success of new European pricing deal

Published on 25/09/06 at 11:22am

GlaxoSmithKline has unveiled a new deal which could break the deadlock over the pricing of medicines in Europe.

The groundbreaking agreement is with two European Union countries, which have pledged to allow GSK to increase the price of a drug if and when it demonstrates the drug's clinical and cost effectiveness.

GSK has not revealed the name of the drug at the centre of the agreement, or the identity of either country, although one is understood to be France.

Andrew Witty, GSK's head of pharmaceuticals in Europe has brokered the deal with the countries to break out of the current pricing system seen in many EU countries, where negotiations over price frequently delay new drug launches by more than a year.

Speaking at the Financial Times pharmaceutical and biotech conference in London, Witty said the deal was "something we have spent a lot of time working on" and indicated it could help change the current unproductive pharma-government relationship.

"The basic logic is that innovation  successful innovation  should accrue greater reward."

He said the current situation dictated that pharma companies would always push for the highest price possible at launch, in the knowledge that price cuts will inevitably be enforced at a national level later on. This dynamic sets companies against governments, and Witty believes it "generates all the wrong signals in the system," he said.

"Apart from the UK and Germany, there is currently a one to two-year delay in product price approval. If you put that in [the context of] eight years of surviving patent life, you are really talking about burning up 25% of your time with that discussion."

Witty said the industry should be allowed to negotiate not only on price, but on volume and on timescales as well, in order to make discussions fair.

A number of market studies have backed up claims about delays, including a Karolinksa Institute report on cancer drug uptake published in 2005.

France is one of Europe's worst offenders, with one study showing drugs were delayed on average 431 days due to pricing negotiations, second only to Belgium, which showed an average of 435 days.

GSK's new approach is one of the most high-profile attempts to introduce a 'risk share' model into pharmaceutical pricing  - if the company proves the added value of its medicines, the governments must pay more, but the deal also allows the price to be cut if no such benefits are proven.

As such, the move is a gamble for GSK, but is likely to stem from a realisation that a consensus on price reforms in Europe may never emerge.

In 2003, Europe's pharma companies backed proposals from the European Commission to allow free pricing across the Union, but there has been little progress since, with healthcare being one area in which member states are not obliged to harmonise policies.

In the early part of this decade, GSK was vilified by access-to-medicines campaigners because of its inflexible approach to pricing for drugs in poorer countries, but the company is increasingly applying new thinking to the subject in a number of markets.

Andrew Witty has just overseen a deal to sell HIV medicines to Russia at a discount, thereby securing the first ever federal government purchase of its drugs. Witty, a Brit who graduated with a degree in Economics has been head of GSK's European pharma operation since 2003, and is tipped as a possible successor to the company's current chief executive J P Garnier.

Pricing was just one issue raised by Witty and other senior pharma figures at the FT conference. ABPI president and managing director of Sanofi-Aventis UK Nigel Brooksby said trust was an essential ingredient in relations with healthcare professionals, governments and patients.

Significantly, he said the industry now recognised that the NHS operates within a finite budget. The remarks signal a more realistic and collaborative attitude, which the ABPI hopes will be reciprocated with a UK focus on quality and cost-effective prescribing for maximum patient benefit and not on what Brooksby called "short-termist price slashing."

An investigation by the Office of Fair Trading into the UK's own medicines price system, the PPRS, is currently under way, with a judgement expected sometime in the first half of 2007.

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