Drugmakers demand big cut in Britain’s medicines levy

Pharmaceutical companies have fired the opening shots in a battle with the UK’s NHS over a de facto drugs tax they pay the government, warning that Britain could miss out on £6bn of research and development.

The Association of the British Pharmaceutical Industry, the trade body for leading drugmakers, said the “excessive” UK medicines levy paid by drugmakers meant that Britain stood to lose £5.7bn in R&D investment over the next five years.

Under the voluntary scheme for branded medicines pricing and access in the UK, an agreement between the Department of Health and the pharmaceutical industry, companies must pay a percentage of their British revenues to the government if the NHS drugs bill rises by more than 2 per cent annually.

Drugmakers strongly object to how this year they will be paying 26.5 per cent of their UK sales to the government, saying that the UK has one of the most punitive “clawback” regimes in the world.

In research commissioned by the ABPI, consultancy WPI Economics said that if the payment rate was maintained at between 20 per cent and 30 per cent, £5.7bn of R&D investment would be foregone between 2024 and 2028.

That would in turn translate into foregone UK gross domestic product of more than £50bn by 2058, added WPI.

Richard Torbett, ABPI chief executive, said the WPI research “shows the false economy of excessive rebate taxes placed on pharmaceutical companies”.

The current voluntary scheme between the health department and drugmakers is due to expire at the end of 2023, and negotiations about the next agreement are due to start at Easter, with the pharma industry pushing for a clawback rate of less than 10 per cent of revenues.

Torbett said “we’re urging the government to agree an ambitious, new deal with industry that . . . puts us on a par with our global competitors”.

The UK has been negotiating voluntary agreements with pharma companies since 1957, trying to keep NHS drug costs under control while also encouraging investment in future medicines.

Drugmakers signed the latest deal in 2019, agreeing to limit the total NHS drug bill to a 2 per cent increase each year, and to pay back revenues above this level.

For the first three years, drugmakers had to pay back 5 to 10 per cent of UK sales to the health department, but in 2022 the clawback rate rose to 15 per cent, and then 26.5 per cent this year.

US drugmakers AbbVie and Eli Lilly in January became the first pharma companies to pull out of the voluntary scheme with the UK government in protest at the sharp rise in clawback payments.

However, their move means that from April they come within the ambit of a statutory British scheme under which they must pay 27.5 per cent of revenues to the government.

Meanwhile, Germany’s Bayer in January said it was cutting jobs in Britain because of the UK medicines levy.

While none of the large pharma companies focused on patented medicines has claimed that their drugs are unprofitable under the voluntary agreement with the UK government, about four out of 10 drugs covered by the scheme are off patent.

This section of the industry is pushing for its medicines to be excluded from the scheme.

Mark Samuels, chief executive of the British Generic Manufacturers Association, said his members were being hit with a “double whammy”: paying the clawback on top of prices that are 70 to 90 per cent lower than the original drugs.

Celltrion Healthcare, a South Korean maker of generic versions of biologic drugs, is preparing to pull a breast cancer treatment from the UK, claiming that the clawback regime wipes out its profit on the drug.

Matt Eddleston, Celltrion’s commercial and operations director, warned that the company could even pull out of the UK. “All the options are on the table,” he said.

Fiona Thomas, chief medical officer at KPMG, who consults for pharma companies, said the UK was “out of kilter” with other countries, with its clawback regime taking 26.5 per cent of annual revenues for the government.

“Across the rest of Europe, it is generally less than 10 per cent, many in the low single digits,” she added.

Drugmakers complain that they are wrongly carrying the cost of expensive Covid-19 drugs through the voluntary scheme with the government.

But Rob Kettell, director of commercial medicines negotiation at NHS England, said this was wrong because the scheme exempted central government procurements for pandemic preparedness, including vaccines.

The increase in the clawback rate appears to partly reflect faster adoption of new, higher priced medicines.

Kettell said the NHS had sped up access to new drugs, with more creative commercial arrangements. “This is something that has benefited companies as well as patients. It means faster access to new patients and earlier revenues,” he added.

He also said that the voluntary scheme’s payment rates were in line with forecasts that the government had communicated “very, very clearly” to the pharma industry to help it plan.

Having been involved in negotiating the current voluntary scheme while at the health department, Kettell said the government was trying to create a “win, win, win”: ensuring rapid access to new medicines for patients, supporting the UK life sciences industry, and ensuring value for money for the taxpayer.

Olivier Wouters, an assistant professor of health policy at the London School of Economics, said the timing of the drugmakers’ pushback against the UK medicines levy was “suspicious”, and perhaps even “fear mongering”. 

“It looks like a strategy going into renegotiations, because if they just pull out of the voluntary scheme, they will be in the statutory [scheme], and paying more,” he added.

The health department said the WPI report for the ABPI was “not credible”, and relied on the opinion of companies that had an interest in the UK spending more on medicines.

“Spending on medicines accounts for the second-biggest proportion of the overall NHS budget, after staff costs,” it added. “By controlling growth in the cost of medicines, we ensure value for money for the taxpayer and enable the NHS to continue investing in access to new medicines and other NHS services.”