Profitability Comparison of Concession and Non-Concession Products

Are products which have received concessions (NCSOs) from the department of health and social care (DHSC) less profitable than non-concession receiving products?  After Viatris’ round table on branded generics at the Palace of Westminster earlier this month we decided to investigate this, in the expectation of seeing a lower profitability for concession products.

So we divided all the generics we have market prices for into two groups, those which had received concessions and those which had not, and compared the profitability of each. We used the English drug tariff and the average market price rather than the concession price to calculate the normal monthly profit, as we wanted to see if the drug tariff was at fault in some way. We expected to see a graph showing that non-concession products were more profitable than the concession products, and supposed that the graph of profit over time would feature two lines. The higher would be the non-concession products with a higher profit, and the lower would be the concession NCSO products with less profit. This might have told us that the drug tariff pricing for concession products was too aggressive and should be relaxed.

The resulting 10 year graph did show this, sort of, but included much more variability in the concession products profitability than we had expected. These showed an average profit of 2%, with maximum at 35% and a minimum at -128%. Those products which did not receive a concession were much more stable, producing a line with an average profit of 31%, maximum at 39% and a minimum at 25%. There were also very noticeable downward profitability spikes which may indicate that a longer term pattern is at play. The tree spikes peaked in Sept 2017, December 2018 and Sept 2022. The gap between the first and the last is exactly 5 years, which may tie in with other political, economic or production factors.

So the question is, why do the concession products have such variable profitabilities? Either they could be a self-selecting group, created by force of circumstance, or they could be a group where the tariff is too close to the market average.  When we analysed the frequency with which concession products are granted these concessions we found that 65% of products had concessions in 10 months or less over the last 10 years.  Only 6% of products were repeat offenders with concessions applied in more than 20 months.  So it does look as if the majority of products are occasional visitors rather than repeat offenders.

Then we looked at the individual products and their monthly profitability, and saw that the most unprofitable products had been granted concessions in 2022. These were followed by products which received concession between 2012 and 2021, and lastly products which have never received concession

Therefore we isolated a top 20 list of unprofitable products so far in 2022 which might receive have received concessions in 2022 or might receive concessions in the coming months: