The Health (Pricing and Supply of Medical Goods) Bill 2012 (the Bill), which was published last week, proposes significant changes to the way in which drugs will be sold in Ireland. It is the Government's intention that this Bill will become law by the end of the year, so this article will look at the motivations and aims behind the Bill and what it means for the pharmaceutical industry.
The main driving factor behind the Bill is the Government’s focus on reducing spending on health. It believes that savings are to be had by facilitating and increasing the uptake of generics by individual patients and the Health Service Executive (HSE). Put simply, branded pharmaceuticals tend to be much more expensive than their generic equivalents. The Government hopes that the Bill will achieve the increased uptake and substantial cost savings by introducing generic reference pricing and opening up price competition between pharmaceutical suppliers.
Introduction of Generic Referencing Pricing
If enacted, the Bill will establish a list of groups of branded drugs and their equivalent generics that (for prescription purposes) are interchangeable. Pharmacists will be required to inform patients of the cheaper generics that are available when branded drugs are requested.
If a patient wishes to purchase the more expensive branded drugs, the patient will be required to pay the difference between the purchase price and the reference price. The reference price will be established by the Government and for each group it will be the maximum amount reimbursed by the State, regardless of the actual cost of the drugs in the pharmacy.
Impact on Drug Manufacturers
Generics manufacturers look likely to reap the rewards of this Bill. This is particularly so given that the timing coincides with a number of high-value, “blockbuster” brand drugs coming off patent protection; most notably, the launch of generic versions of Pfizer’s cholesterol lowering drug, Lipitor. This expiry of such patents has made for greater market competition, generally affecting demand and pricing at a global level. Generics manufacturers are experiencing strong sector growth, particularly in emerging markets, and branded manufacturers are having to adapt traditional research and development models to diversify in the face of altered revenue streams. For example, branded manufacturers are increasingly looking towards licensing and commercialisation arrangements that take advantage of the lower development and manufacturing costs offered by generics manufacturers, while continuing to benefit from big-name brands.
Outlook in Ireland
According to the Minister for Health, the measures to be implemented by the Bill are set to save the State €50 million in the annual health budget. However, the general industry consensus is that the savings are unlikely to be as significant, particularly given the measures already taken by the Irish Pharmaceutical Healthcare Association (IPHA) and large pharmacy chains in terms of cost concessions and in aligning generic and branded prices. Notably, the IPHA has been vocal in questioning the sustainability of the Bill in practice. It considers that the Bill, rather than simply increasing price competition and consumer choice, potentially restricts the range of drugs that doctors will be able to prescribe. The IPHA has called on the State to conduct an industry-wide consultation before the Bill becomes law.
While the full repercussions of the Bill are not yet clear, the proposed measures do appear to be a catalyst for both generics and branded drug manufacturers to diversify and look towards adapting traditional drug development models so as to benefit from the changing landscape.
We at LK Shields will be closely monitoring these developments. The new legislation will have an impact on our life science clients at all levels of the supply chain: manufacturers (generics and patent-holders), distributors and pharmacies. It would be prudent for all those who operate in this industry to conduct a review of their business plans and intellectual property strategies with reference to this Bill that is likely to be law by the end of 2012.