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Call for overhaul of drug industry business model

By Ben Hirschler

LONDON (Reuters) - Pharmaceutical companies need to boost the benefits of drug research by working with regulators and healthcare providers to overhaul the way medicines are approved and paid for, a thinktank backed by investors says.

After years of disappointing research and development (R&D) productivity, a new report backed by leading institutional investors sees "early indications of a recovery", with U.S. approvals of new drugs last year the highest since 1996.

The PharmaFutures thinktank said on Wednesday that getting the most out of an improving flow of novel - and costly - drugs in areas such as oncology will require a more flexible approach to developing, licensing, using and paying for medicines.

This would allow investors in drug companies to benefit from earlier cash flows, reduced regulatory risk and less uncertainties over whether drugs will be paid for.

The thinktank has the backing of investors such as Fidelity Worldwide Investment, JPMorgan Asset Management, Robeco and Universities Superannuation Scheme Investment Management, as well as drugmakers like GlaxoSmithKline and Johnson & Johnson.

PharmaFutures director Sophia Tickell saw scope for change as governments seek to overhaul healthcare and get better value, sometimes prompted by austerity.

"Today's binary decision-making at the point of regulatory approval and price setting will need to be replaced by iterative, dynamic decision-making that adapts as evidence is accrued, and value determined over time," the new report said.

In particular, regulators should have more flexibility to take into account evidence about a drug's effectiveness as it is rolled out and used.

At the same time, the industry needs to move away from ideas of a fixed price point for medicines to a system where prices are adapted according to changing perceptions of the value of a medicine, based on how it works in clinical practice.

On both fronts, there are signs that industry and regulators are starting to change.

The U.S. Food and Drug Administration, for example, recently launched a programme to accelerate life-saving therapies designated as a "breakthrough," opening to door to earlier approval based on quicker studies, where clinical data is compelling.

The European Medicines Agency also has a scheme to allow conditional approval based on good interim clinical trial results, while Britain currently plans to introduce a system of value-based pricing for new drugs in 2014, although details of this measure are still awaited.

(Editing by Ruth Pitchford)

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