Health chief attacks drug giants over huge profits· Watchdog slams high medicine prices Share value driving industry priorities Gaby Hinsliff, political editor The Observer, Sunday August 17 2008 Article history The drugs industry is overpricing vital new medicines to boost its profits, the chair of the health watchdog Nice warns today in an explosive intervention into the debate over NHS rationing. Professor Sir Michael Rawlins spoke out after critics last week accused the National Institute for Health and Clinical Excellence (Nice) of 'barbarism' for refusing to approve expensive new kidney drugs for NHS use, on the grounds that they were not cost-effective. In an outspoken interview with The Observer, he warned of 'perverse incentives' to hike the prices of new drugs - including linking the pay of pharmaceutical company executives to their firm's share price, which in turn relied on keeping profits healthy. Traditionally some companies charged what they thought they could get away with, he said. 'We are told we are being mean all the time, but what nobody mentions is why the drugs are so expensive.' Kidney cancer drugs could be produced for about a tenth of their current cost, Rawlins said. While developing such medicines from scratch added to these costs, as did some 'unnecessary' bureaucracy around clinical trials which should be scrapped, he said that was not the whole story. 'Part of the problem is that the pharmaceutical industry is looking at a very bad period in the future because a lot of their big earners are going off patent [allowing rivals to make cheaper versions], and many companies are looking at a 30 or 40 per cent reduction in the next five years unless they come up with new drugs,' he said. 'And so part of the cost is cushioning against that. The other thing, of course, is that the share price is very important to a pharmaceutical company.' Share prices were driven by profits, he said. 'Pharmaceutical companies have enjoyed double-digit growth year on year and they are out to sustain that, not least because their senior management's earnings are related to the share price. It's not in their interests to take less profit, personally as well as from the point of view of the business. All these perverse incentives drive the price up. 'The other thing we have to pay for is the costs of marketing. Marketing costs generally are about twice the spend on research and development.' Advertising to patients was forbidden in Britain, but widespread in the US, and some of that marketing cost was built into European drug prices, Rawlins said. He said halting such perverse incentives could bring a 'significant' reduction in prices. 'Traditionally the pharmaceutical industry will admit that they actually charged what they think the market will bear. The wiser ones are recognising that that model is no longer available.' His claims will infuriate the industry, which argues that prices have fallen 21 per cent in real terms in 10 years. A spokesman for the Association of the British Pharmaceutical Industry said companies were committed to reducing prices, adding that one company had offered to make kidney drugs rejected by Nice available initially for free. 'Of course, pharmaceutical companies make a huge investment into public health when they develop a new medicine: it costs on average £550m, and takes more than 10 years, to bring each new treatment to patients,' she said. 'Naturally companies will look to recoup such costs through the final price.' However, the Office of Fair Trading found in a report last year that drug prices did not reflect benefits to patients, arguing that they should be directly linked to therapeutic value - with a pill delivering significantly better health to many people becoming more expensive than a drug giving only marginal benefits to a limited number of patients. Nice is discussing these proposals with the Department of Health, but Rawlins said some companies were already exploring possible deals, including making new drugs that will have limited applications available cheaply in return for being allowed to raise the price if wider uses for them emerge later. The kidney drugs assessed by Nice were rejected because they gave patients only a few months more to live at high cost, infuriating sufferers who said extra time with their families was priceless. But Rawlins said other patients would have lost out. 'We have a finite amount of money for healthcare, and if you spend money one way you can't spend it in another,' he said. Next year, however, Nice will review whether the criteria it uses to judge cost-effectiveness - linked to calculations about how many extra years a patient could expect, at what quality of life, for what price - are right. In his wide-ranging interview, Rawlins admitted he was 'disappointed' for personal reasons that Nice's advice to offer all infertile couples three free cycles of IVF had not been implemented. 'I have a little grandson who was the result of IVF. The sadness of people who want to have children and can't is very real and so I wish it was more widely available.' Rawlins, who is also the outgoing chair of the Advisory Council on Misuse of Drugs, also backed up suggestions last week by a senior government drugs adviser that drug crackdowns were misdirected. 'Parliamentarians think there's a legislative way out of it and there isn't,' he said, adding that it was 'absurd' to suggest teenagers could be locked up for possessing a few cannabis joints. 'There are criminal justice elements to the solution, but it's primarily a public health problem,' he added.