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'It won't be Brexit that kills the generic drug market's golden goose'

Increasing manufacturing costs, FMD and category M clawbacks – as well as the UK's departure from the EU – are all threats to low generic drug prices, says the BGMA's Warwick Smith

The focus on the UK’s impending exit from the European Union has generated significant and widespread planning and preparation, particularly around the scenario of an exit without a deal.

This Brexit backdrop has coincided with a rise in the number of products at concessionary prices, and pharmacists have had to work harder in some cases to access products. This causes clear issues for them. But it is wrong to assume a simple direct correlation between the number of products on concession and Brexit.

There are a number of issues currently impacting the manufacture of medicines, restricting supply and increasing costs. Clearly, stockpiling medicines in preparation for Brexit has a cost for manufacturers. While the government has intimated that it will cover the cost of additional warehousing, manufacturers are having to meet the upfront costs of stockpiling, including the higher cost of capital.

We are seeing a shortage in active pharmaceutical ingredients (API) from manufacturers in India, and also in China, where the Chinese government is seeking to move manufacturing facilities away from residential areas. This is increasing API prices, and this will inevitably feed through to manufacturers’ market prices. Some manufacturers are having to find new sources of API, that require regulatory approval – again at a cost.

The implementation of the Falsified Medicines Directive (FMD) obviously impacts pharmacy, but manufacturers have had to invest in new production facilities to serialise their products, and pay for the creation of the European and national IT systems to manage the system. These costs, and those due to other increased regulatory burdens, will have to be recovered through increased prices.

Not only have manufacturers’ costs increased, but there is less ability to maintain unprofitable products in the market. Pressure on manufacturers in respect of higher prices on some specific products means that they are unable to continue to supply loss-making or less profitable medicines as part of their portfolios. We are seeing manufacturers withdrawing products rather than face criticism for increasing prices.

The UK’s competitive market delivers the lowest overall prices of generic medicines in Europe. The flexibility of the market allows it to respond to pressures, enabling investment to be made to ensure that shocks are dealt with, and the supply of medicines to patients maintained through increased prices. The UK’s low prices, delivered by this price competition and flexibility, have allowed greater patient access to treatments while delivering considerable savings to the NHS.

The concessionary price system ensures that pharmacists do not suffer financially due to this process, though we all recognise that the supply chain as a whole needs to work harder to keep medicines flowing in times of difficulty. But we are seeing tension in the market at the moment. The Department of Health and Social Care (DH) has reduced reimbursement prices this year to claw back overpayment last year: so there is less fat in the system to soak up price increases.

The UK’s low market prices have been the envy of payers elsewhere in Europe and more widely. They have been sustained by low levels of official intervention and high levels of competition. But the goose that lays the golden egg, year after year, is at risk if the generic market is not seen in the round. Moves to increase intervention, in the misplaced enthusiasm to deal with the prices of individual products, will be counterproductive. Even during the period where high levels of concessionary prices were being set by the DH, the average cost to the NHS of generic medicines as a whole continued to fall.   

The UK’s generic medicines supply market is complex, but it is responsive and it works. Supply of products can be impacted by all sorts of factors, but the multi-source nature of the market usually means the effects are short-lived, while continuing to deliver value overall. A no-deal Brexit will undoubtedly create potentially significant issues – but it can be too easy to lay the blame for all of our challenges at its door.

We must continue to work together, both towards short-term challenges and more fundamentally, to ensure patients continue to receive the right medicine at the right time.

Warwick Smith is director general of the British Generic Manufacturers Association (BGMA)


Pharmacy Dispenser/ Technician
Bethnal Green North, London
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