Pharmaceuticals

The international pharmaceutical industry is highly regulated. National regulatory authorities administer a panoply of laws and regulations governing the testing, approval, manufacturing, labelling and marketing of drugs and also review the safety and effectiveness of pharmaceutical products. These regulatory requirements are a major factor in determining whether a substance can be developed into a marketable product and the amount of time and expense associated with such development.

Of particular importance is the requirement in many countries that products be authorised or registered prior to marketing and that such authorisation or registration be maintained subsequently.

The national regulatory authorities in many jurisdictions, including the USA, the European Union, Japan and Australia, have high standards of technical appraisal and consequently the introduction of new pharmaceutical products generally entails a lengthy approval process.

In the European Union, there are two procedures for obtaining marketing authorisations for medicinal products:

Grant of a marketing authorisation affords the company a data protection period during which a competitor cannot rely on confidential data in the regulatory file as a basis for its own marketing authorisation. The data protection period begins on the date an authorisation is first granted in the European Union and expires after ten years for authorisations granted via the Centralised Procedure, or ten or six years for authorisations granted via the Mutual Recognition procedure, depending on the country concerned.

GlaxoSmithKline anticipates that the introduction of new products will continue to require substantial effort, time and expense to comply with regulatory requirements.

Price controls
In addition to the forms of regulation already referred to, in many countries the prices of pharmaceutical products are controlled by law.

Governments may also influence the prices of pharmaceutical products through their control of national healthcare organisations which may bear a large part of the cost of supplying such products to consumers.

In some countries, such as France and Japan, the prices of individual products are regulated. In the UK, prices are controlled by reference to limits upon the overall profitability, measured by the rate of return on capital employed, of sales of products supplied under the National Health Service.

In the USA, debate over the reform of the healthcare system has resulted in an increased focus on pricing. Although there are currently no government price controls over private sector purchases in the USA, federal legislation requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to enable them to be eligible for reimbursement under Medicaid healthcare programmes.

During 2000 the pharmaceutical market worldwide continued to experience increasing pressure on pricing and reimbursement from governments and healthcare providers, though it is non-price factors (new products and higher volumes) which are principally driving the growth of pharmaceutical expenditure.

In Europe, historically affected by government regulation in pricing and reimbursement, the pharmaceutical industry continued to experience pressure on its prices through a range of measures, including across-the-board price cuts, linking of prices to low-cost countries (price referencing) and delays in agreeing reimbursement. There is an increasing pressure for generic substitution and demonstration of the added value of new medicines. In some countries cross-border imports from low-priced markets exert a commercial pressure on in-country pricing.

In Japan the government has measures to curb the growth of healthcare expenditure including biennial price cuts.

Value for money
It is becoming increasingly necessary to demonstrate the value for money of new products, in particular the overall effect on healthcare costs. In some markets, the need to satisfy healthcare purchasers as to value for money is becoming a hurdle in terms of product acceptance additional to the regulatory tests of safety, efficacy and quality.

In most markets it is difficult to obtain a premium price for new chemical entities, even if they represent a significant improvement over existing therapy. In the USA, however, some new products have been able to command prices reflecting a clear recognition of their value.

Future developments
It is not possible to predict whether, and to what extent, the Group’s business may be affected by future legislative and regulatory developments relating to specific pharmaceutical products or the pricing of such products.


Regulation – Consumer Healthcare

The consumer healthcare industry is subject to national regulation regarding the testing, approval, manufacturing, labelling and marketing of products. In many countries high standards of technical appraisal entail a lengthy approval process before a new product is launched.

National regulatory authorisation is also required to approve the switch of products from prescription to OTC. The requirements include long-term experience of the quality, safety and efficacy of the product in a wide patient population and data to confirm that the relevant condition is both self-limiting and can easily be diagnosed by the consumer.