April 2000

The UK pharmaceutical market is a successful, research-driven,
high-technology industry. The UK market is dynamic and increasingly competitive and, with a trade surplus of £2.44bn in 1998, it ranks third after Germany and Switzerland in the global pharmaceutical industry rankings in terms of trade balance. According to the Association of the British Pharmaceutical Industry (ABPI), the industry employs around 75,000 people, of whom over 25% are graduates.
Research and development (R&D) is extremely important to the pharmaceutical market. It takes many years and hundreds of millions of pounds to develop and launch a new drug, with the ever-present threat of failure. At the same time, product lifecycles are shortening because of increasing competition within the different therapeutic categories. In 1998, in the UK, pharmaceutical R&D expenditure was £3.54bn, almost a third of total UK expenditure on R&D. The ABPI claims that the UK pharmaceutical industry invests more than 20% of its total turnover in R&D and is responsible for over 70% of pharmaceutical research within the UK.
The increasing costs of drug R&D, coupled with increasing cost rationalisations and control in healthcare systems throughout the world, has fuelled the huge amount of acquisition and merger activity within the industry, which has now reached another stage. The agreement to merge in January 2000 of the UK industry leader Glaxo Wellcome with SmithKline Beecham, to form Glaxo SmithKline in a $76bn mega-merger, will have an enormous impact on the UK market, not least on industry employment as the company rationalises operations. Almost all the other major pharmaceutical companies operating in the UK have undergone or are in the process of undergoing mergers and acquisitions, including AstraZeneca, Pfizer and Warner Lambert, Shire and Roberts, and Celltech with Chiroscience and Medeva.
The market is divided into two sectors: prescription-only medicines (POMs) and over-the-counter (OTC) medicines. POMs are obtained only with a prescription from a qualified medical professional and dispensed only by a registered pharmacist in a licensed pharmacy outlet. Promotion of prescribed pharmaceuticals is extremely limited, being confined to advertising in professional journals. The vast majority of prescribed pharmaceuticals in the UK are prescribed through the National Health Service (NHS).
According to the ABPI, UK expenditure per person on prescription medicines, at around £88 per year, is low in comparison to other major European countries -- only around half that of France or Germany. However, the proportion of expenditure on drugs in the NHS is rising, in spite attempts to contain costs. It rose from 8.7% of the total NHS budget in 1980 to 12.7% in 1997. The proportion of people exempt from NHS prescription charges has also risen steadily, from 60% of all prescriptions in the 1970s to more than 85% in 1998.
In recent years, the NHS has been in an almost constant state of financial crisis, which has led to severe budgeting problems. There has been widespread reporting of so-called 'rationing' of certain drugs, leading to a 'lottery of care' where the availability of treatment can be dependent on the patients' health authority. The Government is committed to standardising and improving care across the UK and in the March 2000 Budget authorised an immediate extra £2bn for the NHS from April 2000, followed by an average 6.1% annual real terms growth for the next 4 years.
The UK is reported to be the highest user of cheaper generic drugs in Europe, as well as being the lowest user of new drugs -- with the proportion of generic drug prescribing having risen from 41% in 1991 to more than 60% in 1997.
In contrast, the market for OTC pharmaceuticals is consumer orientated. Certain products, designated pharmacy-only products, do not require a prescription but can only be sold at a licensed pharmacy under the supervision of a registered pharmacist. Other products, designated general sales list (GSL), can be obtained at a wide variety of retail outlets with no requirement for a pharmacy or pharmacist. Multimedia promotion of GSL products is widely permitted. Main media advertising expenditure for OTC pharmaceuticals (excluding vitamins and supplements and medical goods), rose from £97m in 1998 to £116.8m in 1999, an increase of 20.3%.
In recent years, the numbers of drugs being delisted has been increasing. Successive governments are keen to encourage people to buy their own
self-medication on economic grounds, while drug companies are keen to exploit the OTC market to extend the lifecycle of their products and capitalise on the brand recognition and loyalty built up over years of prescription. As the competition in the OTC market increases, it is will become increasingly price sensitive, in spite of industry efforts to retain resale price maintenance (RPM). Price cutting for own-brand products, particularly in supermarkets, is already occurring.
The most commonly used OTC pharmaceutical products are headache remedies and analgesics. According to BMRB International's 1999 Target Group Index (TGI) survey, 83.9% of the adults questioned had used this type of medication in the 12 months prior to the survey, with 15.3% of adults classified as heavy users (taking headache remedies or analgesics twice a week or more often). A significant proportion of the adults surveyed (57.9%) had used cold or influenza remedies in the last 12 months; 48.9% had used throat lozenges or pastilles; and 40.9% had used indigestion and stomach remedies.
The total market for pharmaceuticals in the UK was estimated to be worth £9.05bn in the year 2000, with a growth of 8.3% from 1999. Of this, the market for POMs constituted 82.3% and the OTC market 17.7%.
Distribution of pharmaceuticals is highly complex and diffuse, as retail outlets are polarised between the enormous High Street retailers such as Boots the Chemists Ltd and small, community-based pharmacies. Pharmaceuticals are generally distributed via specialist wholesalers such as Alliance UniChem or AAH Pharmaceuticals. With increasing harmonisation of regulations and markets within the EU and the increasing adoption of mutual recognition agreements throughout the world, the global market is opening up. In 1998, pharmaceutical exports to other EU countries rose by 38%.
In the UK, parallel importing is on the increase, with 730 new product licence approvals in the first 6 months of 1999, compared to 665 for the whole of 1998.
The UK market for pharmaceuticals is highly regulated under the Medicines Act of 1966 and 1971, which established a working foundation. Under the Act, licensing arrangements extend to the manufacture and wholesaling of all medicines. In the UK, the licensing authority is the Medicines Control Agency (MCA); there is also a European-wide organisation, the EMEA.
Consumer research, commissioned exclusively by Key Note and carried out by The Gallup Organization, indicated that people were concerned over a number of issues involving the pharmaceutical market. A large majority (80%) of adults questioned were concerned over the side effects of prescribed drugs, compared with 55% of respondents who expressed concern over the side effects of natural remedies. Around 75% of those questioned were concerned about the high prices of prescription charges but an even higher proportion (77%) were concerned over the costs of OTC medications. The research also indicated that 91% of respondents treated themselves for minor complaints when ill, indicating the popularity of self-medication, while 69% agreed that they would consult a general practitioner (GP) if ill. The majority of those questioned (79%) were willing to modify their lifestyles for health benefits when ill.
The NHS will continue to be under pressure for the foreseeable future, with the demands of an increasingly ageing population on one hand and the introduction of new therapies on the other. The OTC market will be fuelled by the increasing numbers of drugs (often well known) entering the OTC marketplace. The total market for pharmaceuticals is forecast to grow by 39.2% between 2001 and 2005, from £9.72bn to £13.54bn. Of this, the OTC market is predicted to constitute 16.9% of the total market in 2005.