Everybody now knows that while the outbreak of swine flu reached pandemic proportions, the disease itself was less severe than first feared. Illness and death certainly occurred but the original figures never materialised. Despite early estimates suggesting deaths in the UK alone of between 3,100 – 65,000, recent evidence indicates that the figure will be closer to around 400.

Faced with this pandemic, the UK government (like many others) adopted a worst-case scenario, and stockpiled thousands of batches of the antiviral drug Tamiflu (oseltamivir; made by Roche) and the swine flu vaccine Pandemrix (GlaxoSmithKline). As it turned out, much of these products went unused and now the Council of Europe has blamed governments, and that includes ours, of “wasting large sums of public money.”

What the Council of Europe does not seem to recognise is that because of four key clauses in the pricing contract drawn up between government and the drugs industry, we in the UK stand to lose little or nothing.  Put another way, the amount that will be paid to Roche and GlaxoSmithKline for these last twelve moths will not exceed a predetermined and agreed fixed total.

The four particular clauses (paragraphs 8.12 – 8.15) form part of the 2009 Pharmaceutical Price Regulation Scheme (PPRS). The scheme, which has been updated around every 5 years or so for over half a century, is an agreement between the UK government and each of the drug companies that sells brand name medicines to the NHS. Essentially, the scheme provides a basis on which civil servants in the Department of Health determine the total profit a company can earn through their annual sale to the NHS.  In brief, the scheme states that, taking into account all the drugs a company will sell to the NHS in the forthcoming year, there will be an agreed target maximum amount the NHS will pay.  This target is based on certain defined assets of the company (its historic capital) and permits certain allowances (for research, information, promotion etc), and is then adjusted upwards to build in a margin of tolerance (MOT). If, in any one year, the total figure is exceeded, and this will be revealed in the company’s annual financial returns (AFRs), then the company must return the excess to the government in the following year.

This reimbursement can be achieved by either the company simply repaying the amount, and/or by it cutting its drug prices, and/or by restricting previously-agreed future price increases.

This being the case, although the NHS will have paid out large amounts on anti-flu medicines in the past 12 months, some of which will have certainly helped alleviate suffering, we can assume that any company that has made excessive amounts of monies from their sales (i.e. exceeding their overall allowable profit cap) will pay that excess back. Industry and government are usually pretty sheepish about making such figures public, but we should be able to see the details for ourselves in the annual report by the Department of Health on the PPRS which is submitted to the Houses of Parliament. For industry watchers like myself this will be required reading.

Joe Collier is emeritus professor of medicines policy at St George’s, University of London