UK medicines revenue clawback rockets to 26.5% putting Life Sciences Vision at risk, says ABPI

UK medicines revenue clawback rockets to 26.5% putting Life Sciences Vision at risk, says ABPI

Next year manufacturers of branded medicines will be required to return almost £3.3bn in sales revenue to the government (26.5% of sales), up from around £0.6bn in 2021 and £1.8bn in 2022 [1].

Company reaction quotes follow at the end of this release from: AbbVie, Amgen, Bayer, Bristol Myers Squibb, CSL Behring, Daiichi Sankyo, Eisai, Gilead, Jazz Pharmaceuticals, Merck, MSD, Novo Nordisk, and Sanofi.

The ABPI is today warning Ministers that such an extreme revenue clawback is actively harming the UK’s life sciences ecosystem, long held up as a key growth opportunity by successive governments.

The rocketing charges are forcing pharmaceutical companies to reduce their footprint, R&D and manufacturing investments in the UK.

The UK revenue clawback comes on top of other rising business taxes and the costs of doing business in the UK. The rate announced for 2023 is more than double that of any comparable country, taking UK clawbacks to levels normally associated with Romania and Greece. If the UK cannot address this issue in future years, the industry does not believe the government’s Life Sciences Vision will be deliverable.

The 26.5% rate results from a mechanism originally agreed as part of a 2019 agreement between the UK government and the pharmaceutical industry called the ‘Voluntary scheme for branded medicines pricing and access’ (VPAS). Despite objectives to support the industry, clawback rates have soared in the wake of increased NHS demand following the pandemic. The industry now regards the current approach, due to end in 2023, as broken.

The ABPI is seeking early and open talks with the government in the new year to set out a completely new future settlement which captures the huge potential of the life sciences sector to drive improvements in the health and wealth of everyone in the UK.

Richard Torbett, Chief Executive at the ABPI said: “For over 65 years the pharmaceutical industry has partnered with the government to deliver predictability in how much the NHS spends on medicines, while making sure UK patients are at the front of the queue for new innovative treatments. Yet, following the pandemic, the existing system has been forced beyond breaking point and is now well outside anything seen elsewhere in the developed world. The life sciences industry has the potential to be the wind in the sails of a UK innovation-led recovery, but in the face of this storm risks blowing us backwards.

“Next year we must start again with a clean sheet of paper to agree on what an internationally competitive scheme looks like. We have received important assurances from the Government that we will come together in partnership to agree on a mutually beneficial approach. We need a new settlement which focuses on improving the health and productivity of the whole country, ensures rapid UK launch and adoption of new medicines, and supports clinical research, all while continuing our enduring commitment to ensuring value for money for the NHS.”

The UK spends considerably less on medicines per person than similar counties. For every £100 in GDP, the UK spends 81p on pharmaceuticals. This compares to £1.94 spent by Germany and £1.84 spent by Japan. The UK also spends a lower proportion of its total health budget on medicines than similar countries (UK 9%, Australia 14%, France 15%, Germany 17%) [2].

The existing VPAS scheme is the latest in a long line of such agreements that are intended to both help manage the affordability of medicines while supporting the Life Sciences sector so that it can continue to deliver innovations now and in the future. The current scheme is due to end in December 2023.

The 2019 VPAS deal caps the level of NHS medicine spending, with the cap growing at a nominal 2% a year, with the industry returning any overspend. This means that despite demand for branded medicines rising sharply, driven by clinical decisions and patient need, the money spent on them has declined by 14% in real terms over the last decade. There are some exclusions such as unbranded generic medicines, smaller company sales and centrally procured vaccines or pandemic-related medicines.

Due to increased UK health needs, including to address the backlog following the pandemic, NHS demand and use of new medicines to treat patients have grown much faster than industry pre-pandemic projections – driving up the repayment rates far beyond sustainable levels.

 Historic and projected payments [1]

Further reaction to the 26.5% VPAS repayment rate from the industry:

Todd Manning, General Manager UK, AbbVie, said: “This unsustainable high levy on our revenue means that companies like AbbVie are having to make incredibly difficult decisions on our investment in the UK in terms of R&D, highly skilled workforce and our partnerships with the NHS. Unless we receive a clear signal from Government that we can bring these payment rates down to reasonable levels, we face the very real risk of locking in downward investment into future years which will be incredibly difficult to reverse.”

Russell Abberley, General Manager, UK and Ireland, Amgen, said, “Amgen shares the Government’s ambition to be a life science superpower and are truly excited by the opportunity to leverage accelerated regulatory routes to market such as Project Orbis. Our excitement, however, is clouded with deep concern when we view the entire ecosystem. For example the decline of clinical trials, coupled with the publication of an untenable VPAS rate in the region of 26.5% for 2023 means we must recalibrate. The UK is now an outlier to other comparable markets which negatively impacts the attractiveness of the UK as a place to invest. It is critical that the Government meets with the ABPI urgently and with a shared desire to fix a rapidly declining ecosystem. This will put the UK back on a level playing field and ensure we can collectively deliver on our shared purpose of a thriving life sciences sector making a real difference to the lives of UK patients.”

Antonio Payano, Chief Executive Officer, Bayer UK & Ireland; Country Division Head for Pharmaceuticals UK & Ireland, said: “Increasingly high rebates demonstrate that the current VPAS scheme is not working. Such an unpredictable and rising tax on revenues has created unprecedented uncertainty and pressures for many companies, including Bayer, resulting in less investment into the UK. The schemes for managing medicine spending need to be stable, internationally competitive and fairly reward innovation. Failure to address this issue puts the ambitions to establish the UK as a global leader in life sciences, attract inward investment and improve patient outcomes at significant risk.”

Scott Cooke, General Manager, Bristol Myers Squibb, UK & Ireland, said: “The UK is operating in a highly competitive international landscape for investment in life sciences. As the result of this clawback, our global HQ is seeing the UK as a less attractive place to invest in science and innovation and to launch new medicines. Faltering competitiveness undermines a great opportunity in the UK, which has a strong heritage in life sciences, leading universities, and a pool of nationwide talent.”

Christian Wieszner, General Manager, UK and Ireland, CSL Behring said: “Plasma-derived medicines, such as those CSL Behring produces, are unique because the raw material is obtained from human blood plasma. It can take up to 12 months from collecting the plasma to treating a patient with the finished product.

“The short term market volatility caused by the VPAS scheme can therefore pose a significant risk to continuity of supply of plasma-based products.

“Payments at this 26.5% level, when combined with plasma supply constraints and rising fixed costs, will create an unsustainable operating environment within the UK and uncertainty over supply for UK patients for many months and possibly years.

“The increase could result in fewer suppliers of plasma derived medicines in the UK market, leading to less competition and reducing the ability of the NHS to achieve best prices and protect against medicine shortages.”

Sid Pointon, Interim Head of Specialty Business Unit & General Manager, Daiichi Sankyo UK, said: “Daiichi Sankyo is committed to growing its UK footprint with a focus on accelerating patient access to innovative medicines in the areas of cancer and cardiovascular disease. Whilst we aim to expand investment in terms of R&D, personnel, and collaboration initiatives with the NHS, a sustainable commercial environment is fundamental to this. The latest estimated VPAS rebate level of 26.5% in 2023 creates significant challenges in developing successful business cases for future inward investment. Any successor financial mechanism agreed between Government and industry for 2024 onward has to be more stable, predictable, and help foster patient access to innovation.”

Nick Burgin, President and Chief Operating Officer Eisai Europe Ltd, said: “It is disappointing that the Government has ignored the Pharmaceutical Industry’s concerns around an unsustainable VPAS rebate rate by setting this revenue tax at 26.5% which is in addition to the many discounts that the NHS demands. Eisai has been a significant inward investor in the UK and was very excited by the Government’s Life Science Vision but this rebate level will hinder our ability to attract further inward investment from Tokyo. We hope the Government will enter discussions on a sensible VPAS that can allow the Life Science Vision to get back on track.”

Dr Véronique Walsh, Vice President and General Manager, Gilead Sciences UK & Ireland: “From COVID-19 to cancer, the pharmaceutical industry is leading in tackling some of the most pressing health issues of our time. The UK has a strong science base, the universities and the skills to be central to these efforts. Yet, the value that a local commercial environment places on innovation is a critical factor when global boardrooms consider their future investments. A repayment rate of 26.5% is unsustainable and risks the UK losing its place as a leading life sciences superpower, and UK patients missing out on the latest advances.”

Simon Newton, General Manager, UK & Ireland, Jazz Pharmaceuticals, said: “This escalated payment rate is a further challenge to the already significant obstacles companies are facing to deliver new medicines in the UK. Additional barriers such as a separate regulatory submission now required to the MHRA post-Brexit, brings into question the viability of introducing innovative medicines and investing in R&D and manufacturing in the UK in the long term. For Jazz, the 2023 VPAS rate risks further impacting our ability to hire new people into highly-skilled, well-paid jobs in the UK economy.

“We believe industry and Government must work together to address the immediate challenges with the scheme, in order to not undermine the significant progress being made by Government, the NHS and industry as part of the Life Sciences Vision.”

Doina Ionescu, General Manager, Merck UK and Ireland, said: “The VPAS rate of 26.5% will have an enormous impact on the resilience and outlook of medium sized companies such as Merck Serono. Our industry was vital in responding to COVID-19 and enabling the UK to return to normal but in doing so the VPAS payment rates over the last two years have become unaffordable. The current rate will likely have a lasting impact on the way Merck Serono can operate in the UK. Whilst we remain committed to UK patients and to discovering the most innovative treatments, the 2024 Voluntary Scheme must foster an environment of investment and growth which protects small and mid-sized companies and enables the Government to realise the Life Sciences Vision.”

Ben Lucas, VP Managing Director, MSD UK & Ireland: “A repayment rate of 26.5% on all branded medicines sold in the UK creates an unsustainable and punitive commercial environment which risks hindering the NHS' ability to adopt new treatments for the benefit of UK patients.

“This decision undermines the ambitions of the Life Sciences Vision and will put the UK at a significant disadvantage by making the UK a less attractive place to launch new medicines and conduct clinical trials.

“The Government must urgently work with industry to reform the VPAS to ensure the UK maintains its global leadership in life sciences, enabling patients to access the best medicines for them.”

Pinder Sahota, President of the ABPI and General Manager and Corporate Vice President of Novo Nordisk UK, said: “We are disappointed with this outcome, which is completely out of kilter with the Government’s stated ambitions to attract investment, and grow the life sciences sector to help drive UK economic growth.

“For international companies such as Novo Nordisk, it makes the UK a much less attractive location for investment versus other countries where the equivalent tax on industry is significantly lower, and it will unnerve Boardrooms about the future scheme as we enter into those negotiations.”

Jessamy Baird, Country Lead Sanofi UK & Ireland, Sanofi: “The life sciences industry has tremendous untapped potential to drive growth and transform health outcomes for UK patients. Unfortunately, this high VPAS rate is reflective of the deteriorating commercial environment in the UK, which is likely to cause disinvestment, slow growth and productivity.  With clinical trials already in decline, this will have further impacts on patient access to medicines. It is vital that Government work with industry to create a new VPAS scheme that restores UK competitiveness in the world, unleashes growth and improves patient outcomes.