The U.K.'s National Institute for Health and Clinical Excellence (NICE), the group that advises Britain's National Health System (NHS) on drug coverage, has recommended that the NHS not pay for Genentech's Avastin or ImClone's Erbitux as treatments for colorectal cancer. NICE has set a tentative payment ceiling of 30,000 pounds (about $57,000) per quality-adjusted life years (QALY), a measure of the duration and quality of life a particular treatment provides. Based on the group's calculations, both Avastin and Erbitux, two of the newest and most innovative cancer drugs, exceed this ceiling.
It's a surprising move that could have major implications for the biotech sector. Consider that Great Britain is one of the largest drug markets in the world, and one of the world's richest countries, with a Gross Domestic Product per capita of $30,300 on a purchasing-power parity basis. The NHS certainly could pay for the drugs, but has decided that they are simply not worth it. It's possible that insurers in other industrialized countries, including the U.S., will begin to tinker with this type of analysis.
Granted, at $41,800 per capita, the U.S. is richer than Great Britain. In addition, the U.S. government is not nearly as involved in health care as the British government. But with Medicare's new prescription drug coverage, the government's importance in the drug market has grown significantly. At the moment, the government is highly unlikely to deny coverage for any new cancer treatment. But with biotech drugs making up a greater portion of the country's drug bill, and no end to deficits in sight, cutbacks may be on the agenda in the future -- and where the government leads, private insurers may be inclined to follow.
Admittedly, for now, this all conjecture. But even so, biotech investors would be wise to keep a close watch on Great Britain's decisions on drug coverage.
We've prescribed further Foolishness:
Stay up-to-date on the latest biotech developments with a free 30-day trial subscription to David Gardner's Motley Fool Rule Breakers.
Fool contributor Brian Gorman does not own shares in any of the companies mentioned.