Branded Health Service Medicines (Costs) (Amendment) Regulations 2023

The UK is falling behind comparable countries as an early-launch market. Companies are making decisions to delay, or even not to launch, in the UK. These can be clinically important medicines that address many of the NHS’s priorities. Compared to leading countries in Europe—Italy, Spain, Germany and France—we have experienced the largest decline in our global share of new medicine launches between 2016 and 2021. This is the background to the statutory instrument that we are debating today.

I believe and hope this debate can influence the negotiations that have just started with the industry over the next phase of the voluntary scheme, otherwise known as VPAS—various noble Lords used to know it as PPRS. Under these regulations, companies in the statutory scheme will be required to pay to the Secretary of State 27.5% of their 2023 net sales income received for the supply of those medicines to the NHS.

The Government’s argument is that continued high sales growth in 2022 has led to an increase in the payment percentages in the VPAS scheme from 15% in 2022 to 26.5% in 2023, which is higher than was projected at the time of the 2022 statutory scheme consultation. As a result, the Government have ratcheted up the statutory scheme required payment rate. My argument is that both the voluntary and statutory schemes—companies have to be in one or the other, and can switch between them—are becoming a major impediment to future investment in the UK. The proposed rate of 27.5% will place the UK as a global outlier. In countries that operate similar clawback arrangements, current rates include 12% in Germany, 7.5% in Spain and 9% in Ireland, and all those countries spend more on medicines per head than we do. How on earth can the Government’s stated aim to grow the life sciences industry, as set out in the Life Sciences Vision and just recently articulated by the Chancellor, be delivered if industries expect to pay twice the level here that they do in Germany?

From my point of view, clearly this can be remedied with a VPAS next year which re-establishes, from the industry’s point of view, a more predictable level of rebate. I have to say that the VPAS, the statutory scheme, is based on a serious fallacy that there is such a thing within the healthcare industry of a fixed drugs budget. I know of no healthcare system that thinks that is a logical way of approaching it. The drugs budget must be part of a health budget. We have budgets in order to deliver health outcomes. We do not have a drugs budget in order to secure a health outcome, we have a total health budget. The idea that the Government should intervene in order specifically to confine and restrict the amount that we spend on medicines in the healthcare system is wrong.

We should try to get away from that. I am not saying that we should not try to ensure that we get the best possible value for money for the medicines that we buy. The NHS in this country is effectively a monopsony, so we have every possibility of having extremely competitive medicine prices, but frankly we are being, as my mother would have said, penny wise and pound foolish. If we save a bit on NHS purchasing and parade to the rest of the world that we have the lowest medicine prices, the inevitable result—which we have seen—is a doubling of the number of pharmaceutical companies withdrawing their products from NICE evaluations. That is not a place where we want to be. We want those evaluations to take place.

I am going to finish with this thought. Even at this stage, I hope they are looking at this not only in the pharmaceutical companies, not only in ABPI but inside the department and inside the Treasury. I think all of our experience is that at the end of the day these things were determined more in the Treasury and No. 10 than they were in the Department of Health. I did not actually see a PPRS negotiation completed in my time, but I know perfectly well that is what happens. When they read this, I hope they will say: “Why don’t we move away from this kind of system?” The idea of a rate of return regulation as a mechanism for industry control is so out of date, it is practically neolithic. We have the benefit in this country of the National Institute for Health and Care Excellence which has acknowledged expertise in health technology assessment. It should make assessments.

We have in NHS England an increased capacity and propensity to negotiate medicines prices regardless of what NICE says about evaluations anyway. Let us put those two together—we have argued this many times—and enter into negotiations on medicines pricing with the industry. Wherever we can, we should operate on the basis of a market. We have a market in generics and biosimilars. We are close to market on branded generics and biosimilars, but the branded medicines are inside this scheme. They should not be inside it; they should be the subject of negotiated pricing in what is effectively a market context. They should have to demonstrate where there is a benefit to a branded generic or a branded biosimilar relative to one which is not branded but is simply generic.

But for those where there is exclusivity, clearly there is going to be a negotiated price, and it is in our interests for that negotiation to take account not only of the incremental cost effectiveness, not only the quali-benefit, as it were, but also the societal benefits and the innovation benefit of new medicines. Let us say for the sake of argument that in the course of the next five years we were suddenly to find that we had a blockbuster new medicine that gave us immense advantages in terms of delaying the onset of dementia. It is not inconceivable that that could happen. As things stand, the scheme is designed for the pharmaceutical industry to derive no benefit from the fact that it has brought forward a new medicine of that scale and advantage. That cannot be right. If, in the context of healthcare, medicines occupy a stronger position, they should secure greater funding. If, relative to them, medicines do not do the job, they should have lesser funding, but this should be a healthcare and a health budget calculation, not a rate-of-return prior regulation. I hope that, even at this stage, the Government and the industry will think of whether there might be a better way of conducting negotiations on medicines pricing in this country.

That is almost a doubling of what the rate was a year or so ago.

When one looks at comparator countries, as has been mentioned, the UK rate is an extreme outlier within western Europe. Some countries do not even have comparable schemes, but in those that do, the rates are 12% in Germany and 7.5% in Spain and Ireland. The only comparable clawbacks to the UK’s are in Romania and Greece, two countries that, if I may say so, are hardly in the Premier League in terms of the life sciences. The ABPI brief goes on to state that

“the UK is already seeing worrying signs of decline in the UK life sciences industry including in R&D investment, access to clinical trials and medicines launches with companies making long-term decisions on the future of their UK footprint.”

The new proposed rate will accelerate this investment and jeopardise the availability of new medicines, which will lead to poorer NHS performance and patient outcomes. The ABPI contrasts the UK’s approach with incentives to new life sciences investments in France and Ireland, where Pfizer has recently announced big investments in both countries. AstraZeneca has followed suit in Ireland. The ABPI briefing is also supported by the briefing from AbbVie, a top-five, US-headquartered global biopharmaceutical company. It points out that the NHS already lags behind other countries in the take-up of new medicines. Branded medicines expenditure is reducing in the NHS, while the NHS budget is increasing. That is no mean achievement. I never got to that stage when I was the Pharmaceuticals Minister.

UK patient access to industry clinical trials is declining rapidly, and the average annual loss in the UK’s share of R&D spending is declining by about 3% a year. The briefing from Roche, another major company, is in a similar vein to that from AbbVie. This is not just the industry complaining about these regulations; these concerns are shared by patient groups. Gene People, which supports people with genetic conditions, has set out in its evidence the impact of these regulations for patients and on their access to the drugs that they will require over time.

I am genuinely puzzled by why the Department of Health and Social Care has simply ignored the evidence provided by the industry and patient groups on the damage that these regulations will do to UK life sciences and UK plc. The ABPI commissioned research which found that continued high payment rates in both the statutory and voluntary schemes would cost the UK £50 billion in GDP and £17.9 billion in tax revenue because of lost R&D investment of £5.7 billion by 2028. These are considerable losses to the UK economy. There is not a mention of them in the impact assessment. The ABPI company survey also suggests that repayment rates of around 24% across both the voluntary and statutory schemes

“would result in job losses in over 9 out of 10 companies”.

The savings to the NHS budget from these rebate schemes is modest compared to the economic damage that they do.

Despite all this evidence, Ministers from the Department of Health and Social Care are ploughing on with these regulations, seemingly unaware that the industry’s timescales for making R&D investment decisions are much closer than they realise. In the next year or so, these decisions will be taken in relation to 2030 onwards. Somewhat bizarrely, 2030 is the date the Prime Minister is talking about for cementing the UK’s place as a science and technology superpower.

It crossed my mind as I prepared for this debate whether the Prime Minister and No. 10 are aware of the contradictions between the Department of Health and Social Care and the Prime Minister’s aspirations for the UK economy. It is also strange that on the very day that we are debating this regret Motion on these regulations, the Chancellor is sitting with the industry at the Life Sciences Council, discussing the life sciences sector in this country. It seems an interesting coincidence.

I should like clarification from the Minister on one point and to ask him a question. The point of clarification is whether, as the usual convention requires, he is speaking fully on behalf of the Government in responding to the Motion tabled by the noble Lord, Lord Hunt. My question relates to the new discussions on the voluntary scheme, which are taking place or have begun. Can the Minister confirm that these discussions are indeed taking place? If so, what is the point of pursuing these regulations if, in these new discussions, there is the possibility of a more positive approach to rebates under both schemes, given the more sensible proposals put on the table by the ABPI—the Minister may be able to confirm this—which suggest that we should be talking about single-figure rebates if we want this country’s life sciences industry to be successful?