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Key stages from medicine development to availability 

A new medicine must go through several steps (see Figure 1) if it is to move from development to being available for people to use. 

Figure 1

We explore what each of these stages involve in the following sections. 

Determining cost-effectiveness and availability on the NHS 

After the licensing authorities assess a medicine’s safety, quality and efficacy, its price and its benefits must be considered in comparison with existing treatments and a decision made about whether it should be funded by the NHS. 

The price of new medicines 

Pharmaceutical companies set prices for new medicines at the level they think reflects the value that new medicines bring to patients, and the substantial costs of research and development, and which will allow them to support future product development and generate profits. These prices are not always the final price paid by the NHS; they must be evaluated by NICE and NHS England (NHSE), and pharmaceutical companies will often negotiate lower prices through confidential agreements (see section on ‘National price negotiations’). Prices for new medicines can sometimes appear high. Companies point to prices being driven by the development process being complex, costly and having a low probability of success, with only 3% of medicines estimated to make it all the way from identification through to approval. 

To protect companies’ investments, governments grant patents, giving them the exclusive right to make and sell their new medicine, typically for 20 years (although often the medicine will still be going through research, development and regulatory approval for some of this period). If other companies launch effective new treatments while a medicine is in patent, a medicine’s price will usually fall as competitors with similar products compete for market share. Only when the patent expires and when the company no longer has market exclusivity can other companies sell generic versions of the medicine (medicines with the same active pharmaceutical ingredient as the originator) or a biosimilar version for biological medicines (a medicine that does not have any clinically meaningful differences from the originator). When generics or biosimilars enter the market, prices are usually driven down by competition, as shown in Figure 2. 

Figure 2

Determining whether new medicines will be funded on the NHS 

In the UK in the 1990s, significant variability in clinical practice, outcomes and efficiency from one service to another led to an emerging consensus about the need for another step in the new medicines assessment process. As a result, in 1999, NICE (originally the National Institute for Clinical Excellence and later renamed the National Institute for Health and Care Excellence) was established. 

NICE was tasked with making rigorous, independent, national-level decisions on whether the NHS should pay for new medicines. It carries out independent assessments to ensure that new medicines are both clinically effective and cost-effective, and thus provide good value for money for the NHS. 

When it was established, NICE offered recommendations that the NHS could choose to accept or ignore. However, since 2005, it has made statutory decisions, meaning that the NHS must generally make available medicines that NICE recommends within three months of its decision, as also reflected in patients’ rights under the NHS Constitution. 

NICE’s assessment process 

Pharmaceutical companies must provide advance information about medicines in their pipeline. NICE typically starts the assessment process before the pharmaceutical company has launched the medicine in the UK, with the aim of publishing its recommendations at around the same time it becomes available. NICE has sometimes been criticised for the time it takes to complete assessments and provide recommendations. To address this, NICE introduced a ‘light touch’ approach for low-risk treatments in 2022 and is taking steps to speed up its evaluations and increase the number of appraisals it conducts. 

Determining cost-effectiveness

If cost was not a consideration, all clinically effective new medicines would ideally be approved for NHS use. However, the NHS has a limited budget that must be prioritised to provide greatest overall benefit to the whole population. Introducing a new, more expensive medicine means that other treatments or services may be displaced to accommodate it. Considering this ‘opportunity cost’ is why, when assessing new medicines, NICE seeks to determine if the new medicine provides better health benefits compared with other treatments, to justify its cost. This approach maximises health spending benefits by ensuring that the NHS delivers the greatest overall health improvement with its available budget and resources. 

To identify which medicines offer the greatest benefits given their costs, NICE has developed a detailed methodology. Health benefits of a new treatment are measured in ‘quality-adjusted life years’ (QALYs), which reflect both the number of extra years of life that the medicine offers and improvements in quality of life, such as reduced pain or greater ability to perform basic activities of daily living. However, QALYs do not account for wider impacts such as reducing lost days of work and education, or the impact on caregivers. 

With this measure of the health benefits and the price of the new medicine and associated treatment costs in comparison with existing therapies, NICE can evaluate an incremental cost-effectiveness ratio (ICER) for the new medicine. An ICER expresses how much the NHS would have to spend per QALY generated using the new medicine, as shown in Figure 4. In general, the lower the ICER, the more cost-effective the medicine is calculated to be. 

Figure 4 

This method allows NICE to make consistent decisions about whether to pay for interventions across different technologies, clinical areas and patient groups. NICE typically treats QALYs equally in its cost-benefit analysis, valuing an additional life year for any patient group the same. However, as explored below, there are some specific cases where NICE’s methodology makes adjustments to this for specific groups where that is deemed to be ethically justified (explained in NICE’s note on decision-making principles). Having made these calculations, the next challenge is where to draw the line between medicines that the NHS should pay for and those that are too expensive given the benefits they offer. 

NICE’s cost–effectiveness threshold 

NICE uses a cost-effectiveness threshold to guide its decisions about whether a new medicine should be funded by the NHS. Generally, NICE will approve new treatments with ICERs of less than £20,000 per QALY. In other words, if a new medicine costs less than £20,000 per QALY gained, NICE generally considers it to be cost-effective. There is flexibility for medicines with ICERs higher than £20,000 but below £30,000, but the case for supporting the technology on these factors has to be increasingly strong and would need to take account of the level of certainty in the evidence or whether there are benefits not captured in the analysis. 

Over the years, there has been debate around where NICE’s threshold should lie. A recent study suggested that current thresholds may be too high and fail to reflect the wider opportunity costs of spending on new medicines – that is, that spending on higher-cost new medicines may displace more health than could be created if the same funds were allocated elsewhere in the NHS to other treatments and services. Conversely, others argue that the threshold should be increased – for example, to account for rising costs of developing new medicines and inflation, and to enable more medicines to be approved to ensure that patients can access new effective treatments. 

Since NICE was established, many countries around the world have established independent bodies using similar methods to decide whether their health systems should pay for new medicines. Countries set their own ICER threshold and decision-making frameworks, which can lead to situations where NICE rejects a new medicine that another country has approved. 

Special cases 

Although NICE generally applies this threshold, there are situations where it may approve higher-cost medicines to recognise their critical importance for patients. 

Medicines for severe conditions: In 2022, NICE introduced a ‘severity modifier’, which weights the health benefits for medicines that treat severe conditions by a factor of 1.2, or 1.7 for the most severe conditions. The severity modifier replaced the end-of-life criteria that valued medicines for patients at the end of life more highly. 

Medicines for rare diseases: NICE has a separate evaluation programme and committee for highly specialised technologies (HST) for medicines treating very rare diseases and that meet several other criteria. For HST, the ICER threshold ranges from £100,000 to £300,000 per QALY. These are typically ‘ultra-orphan drugs’ (meaning there is no available alternative therapy) for diseases that affect fewer than 1 in 50,000 people. The prices of these medicines are often extremely high, reflecting the high development costs for companies, the relatively small volumes that the company is likely to be able to sell, and lack of competition to constrain prices once a medicine is developed. The approval of these high-cost treatments may also have a less significant financial impact for the NHS since only a small number of patients will receive them. The HST programme differs from NICE’s standard methods and policies because of the exceptional ethical considerations that are involved in evaluating these medicines – for example, in some cases, these are the only medicines for rare and fatal diseases in children. The HST programme has strict criteria as it needs to strike a balance between the need for treatments for very rare diseases and the opportunity costs for other areas of NHS care. 

National price negotiations  

In instances where medicines are not able to satisfy cost-effectiveness requirements based on their list price, commercial arrangements made before the medicine has completed NICE’s appraisal process may enable a positive NICE recommendation. This may involve pharmaceutical companies offering a discount or some form of commercial agreement – known as a patient access scheme. These agreements take different forms: most involve simple price discounts, but some may include more complex reimbursement mechanisms and agreements. Prices agreed often remain confidential on the basis of commercial sensitivity. 

Even when a medicine is deemed cost-effective and recommended for use, an additional hurdle can arise in cases where the overall impact for the NHS budget is significant. For example, in early 2015, NICE approved NHS provision of the hepatitis C treatment Sovaldi. But in the following months, NHSE delayed consistent provision of Sovaldi given the impact this would have had for the NHS budget. Instead, it prioritised prescription of Sovaldi to patients with the most severe need, while it attempted to renegotiate prices with Gilead Sciences, the manufacturer. NHSE eventually reached a deal with Gilead and other companies to bring down the price of hepatitis C treatments and provide access to a larger group of patients.

The Budget Impact Test  

Following these and other examples, in 2017 NICE agreed to introduce a new step in its appraisal of new medicines, the Budget Impact Test (BIT). This is where NICE assesses the financial impact for the NHS of providing the medicine in its first three years. If the financial impact is projected to exceed £20 million in any of its first three years (including the cost of the medicine plus any additional services needed to provide it), this can trigger NHSE to engage in commercial negotiations with the company on the price of the medicine or other commercial issues before it is made available. As of January 2025, the BIT threshold was raised to £40 million. If an agreement is not reached, NHSE may request a ‘funding variation’, asking NICE to vary the standard 90-day funding mandate and recommend how the treatment should be phased in to reduce the budget impact. A recent example can be found in the case of the weight loss treatment Mounjaro. It was approved and recommended for use by NICE, which subsequently agreed a funding variation with NHSE to allow for a staged implementation period of up to 12 years given the anticipated budget impact and service changes required. 

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