Pharmaceutical companies have fired open shots in the war with the British NHS over the de facto drug tax they pay the government, warning that Britain could miss £6bn of research and development.
The British Pharmaceutical Industry Association, the trade body for leading drugmakers, said the “exorbitant” UK drug levy paid by drugmakers meant Britain would lose £5.7 billion in R&D investment over the next five years.
Under the voluntary scheme for the price and access of branded medicines in the UK, an agreement between the Department of Health and the pharmaceutical industry, companies must pay a percentage of their UK profits to the government if NHS drug bills rise by more than 2 per cent. annual.
Drugmakers strongly protested how this year they will pay 26.5 percent of 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, the WPI Economics consultancy said that if payment rates were kept between 20 percent and 30 percent, R&D investment of £5.7bn would be eliminated between 2024 and 2028.
This would translate to a UK gross domestic product of more than £50bn by 2058, the WPI added.
Richard Torbett, chief executive of the ABPI, said the WPI research “shows the false economy of excessive tax rebates placed on pharmaceutical companies”.
The current voluntary scheme between the health department and drug makers is due to expire at the end of 2023, and negotiations on the next agreement will begin at Easter, with the pharmaceutical industry pushing for a clawback rate of less than 10 percent of profits. .
Torbett said “we are urging the government to agree to an ambitious, new deal with the industry that . . . puts us on par with our global competitors”.
The UK has been negotiating voluntary agreements with pharmaceutical companies since 1957, trying to keep NHS drug costs under control and also encourage investment in future medicines.
Drugmakers signed the latest deal in 2019, agreeing to limit the NHS’s total drug bill to 2 per cent a year, and to reimburse profits above this level.
For the first three years, drugmakers must pay back 5 to 10 percent of UK sales to the health department, but in 2022 the clawback rate rises to 15 percent, then 26.5 percent this year.
US drugmakers AbbVie and Eli Lilly in January became the first pharmaceutical companies to withdraw from a voluntary scheme with the UK government in protest over increased clawback payments.
However, the move means that from April they are included in the statutory UK scheme which must pay 27.5 per cent of profits to the government.
Meanwhile, Germany’s Bayer said in January it was cutting jobs in the UK because of the UK drug levy.
While none of the big pharmaceutical companies that focus on patented drugs claim that their drugs are unprofitable under a voluntary agreement with the UK government, around four out of 10 drugs covered by the scheme are off-patent.
This section of the industry is pushing for drugs to be excluded from the scheme.
Mark Samuels, chief executive of the UK Generic Manufacturers Association, said his members were being hit “double”: paying clawbacks on top of prices that were 70 to 90 per cent lower than the original drug.
Celltrion Healthcare, the South Korean maker of a generic version of a biologic drug, is preparing to withdraw its breast cancer treatment from the UK, claiming that the clawback regime is removing profits from the drug.
Matt Eddleston, Celltrion’s commercial and operations director, warned that the company could be out of the UK. “All options are on the table,” he said.
Fiona Thomas, chief medical officer at KPMG, which consults pharmaceutical companies, said the UK was “out of kilter” with other countries, with the clawback regime taking 26.5 per cent of annual profits for the government.
“In the rest of Europe, it’s generally less than 10 percent, many in the low single digits,” he added.
Drug manufacturers are complaining about wrongly passing on the cost of expensive Covid-19 drugs through a voluntary scheme with the government.
But Rob Kettell, director of commercial medicines consultation at NHS England, said this was wrong because the scheme freed up central government procurement for pandemic preparations, including vaccines.
The increase in clawback rates appears to partly reflect the faster adoption of higher-priced new drugs.
Kettell said the NHS had been speeding up access to new medicines, with more creative commercial arrangements. “This is something that benefits the company as well as the patient. This means faster access to new patients and previous profits,” he said.
He also said the voluntary scheme’s payment rates were in line with forecasts that the government had told “very, very clearly” to the pharmaceutical industry to help 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’s life sciences industry, and ensuring value for money for taxpayers.
Olivier Wouters, assistant professor of health policy at the London School of Economics, said the timing of drugmakers’ pushback against the UK drug levy was “suspicious”, and perhaps “fear-mongering”.
“It seems like a strategy to renegotiate, because if they just withdraw from the voluntary scheme, they will be in the law. [scheme]and pay more,” he added.
The Department of Health said the WPI report to the ABPI was “unreliable”, and relied on the opinion of companies with interests in the UK spending more on medicines.
“Spending on medicines is the second largest proportion of the overall NHS budget, after staff costs,” he added. “By controlling the growth in the cost of medicines, we ensure value for money for the taxpayer and allow the NHS to continue to invest in access to new medicines and other NHS services.”