Branded Medicines Voluntary Scheme and the Life Sciences Vision

Before we start, I remind hon. Members that the debate can last until 6.13 pm. There will be five minutes for the SNP to wind up, five minutes for the official Opposition and 10 minutes for the Minister.

I beg to move,

That this House has considered the voluntary scheme for branded medicines and the Life Sciences Vision.

It is an honour to serve under your chairmanship, Mr Sharma. The “Life Sciences Vision”, which was agreed and published in 2021, was a very ambitious document of which the Government should be rightly proud. It looks at further investment and development in neurodegenerative disease, kick-starting diagnostics, treatments and novel vaccines, more investment in cardiovascular disease and obesity, morbidity or mortality from respiratory disease, the biology of ageing and mental health conditions. That is an ambitious and worthwhile list. However, its delivery can only be a joint endeavour; it has to be a partnership between Government and industry. Both parts need to do what they can to drive this forward.

If industry is to play its part, it needs from Government good research facilities, first-class universities and academics who are attracted to this country. It needs efficient an effective systems for clinical trials, phases 1 to 3. I am aware that the Government are currently looking at how that might be improved and that James O’Shaughnessy is spearheading a report that will hopefully be out shortly. I sincerely hope that its findings will be implemented.

Industry also needs a regulatory regime that is fit for purpose across both the Medicines and Healthcare products Regulatory Agency, which evaluates whether a medicine is fit for purpose and safe, and the National Institute for Health and Care Excellence, which looks at whether a medicine is value for money. Industry also needs to ensure that whatever medicines finally come through the regulatory system are used—that there is an uptake among patients and that they are prescribed. There is clearly a moral imperative for that, but there is also clearly a financial one.

From the Government’s perspective, if they are to invest in ensuring that we are most attractive and efficient place to launch a medicine, they need to ensure that UK patients have quick access to both old and new innovative medicines. They need to ensure that industry is there, ready and waiting, with the new initiatives and ideas absolutely raring to go. That said, the Government need to manage the overall cost of the medicines budget, and they need a commitment from industry to invest. Fundamentally, it is a contract—an agreement—and both benefit if the deal is right.

One of the mechanisms that sets out the terms of that arrangement in practice is the voluntary scheme for branded medicines pricing and access. Most of us refer to it in shorthand as VPAS, as I shall for the purposes of this debate. So what is VPAS? Effectively, in this agreement the Government set out what they will do for the industry. In the last iteration of VPAS, commitments were made about reforms to NICE, some of which have been met and some of which have not. At the same time, industry agrees that it will cap the growth of Government medicine spending. The consequence is that all over-prescribing beyond the agreed and expected rate of growth is at the risk of the pharmaceutical industry. It is a very complicated formula.

The current scheme was devised in 2019. It replaced the PPRS—the pharmaceutical price regulation scheme—and was originally conceived such that the medicines budget could grow by 1.7%. That figure is now 2%. Any prescribing over that figure would effectively be paid for by the pharmaceutical companies by way of a reimbursement to Government of a percentage of their turnover, but it is a very complex and uncertain calculation.

One of the reasons for that is that the figure is anchored at a 2013 growth point, and it is not re-based each year. The consequence is that there is great uncertainty for any investing company about what the rebate will be year on year, which makes it difficult to budget. The compounding effect of the lack of re-basing is that the effective rebate is currently 26%, and left unaltered it would go to 30% for the next iteration, which is currently being negotiated to start in 2024.

We need to get that pricing in context. Effectively, when pharmaceutical companies go to NHS England and the regulators, there is a process of price-gouging. The first gouge, effectively, is by NICE. It looks at the market price and discounts it by an average of 55% to 65% under the patient access scheme. After that, NHS England may require a further cut to meet the affordability criterion of £20 million. The VPAS slice is after that, and, as a consequence, many pharmaceutical companies are saying, “Frankly, the pips are being squeezed too hard, and we simply cannot afford to invest in the research and launch our medicines here.” The current rate is uncompetitive internationally, and unless we change our approach to rebasing and to the growth cap, I fear we will lose much-needed investment here.

Pharmaceutical companies have a choice, and they can research and launch anywhere in the world. We are now a single-country regulator, rather than part of a European system, and that makes us, from the start, much less attractive. Industry is already voting with its feet. Indeed, in this morning’s Science, Innovation and Technology questions, a number of questions were about disinvestment decisions by pharmaceutical giants in this country. It is clear that many are simply no longer investing in research here or in UK regulatory approvals. That is a loss not just to the economy but to patients, because every drug prescribed to patients has to go through that regulatory approval process. Indeed, the Association of the British Pharmaceutical Industry has done some analysis and believes, based on the evidence, that our global share of research and development declined from 4.9% in 2012 to 3.3% in 2020. It advises that the number of initiated industry clinical trials fell by 41% between 2017 and 2021. Across leading European countries, the UK saw the largest decline in new medicine launches between 2010 and 2021.

However, it does not have to be like that. The ABPI and PricewaterhouseCoopers confirmed in a report that the life sciences sector is one of the most valuable for the UK: it creates £36.9 billion in gross value added, 584,000 jobs and 18% of all the UK’s R&D. They say that if the life sciences strategy was implemented in full, there would be £68 billion of additional GDP over 30 years from R&D investment, 85,000 additional jobs and a 40% decrease in disease burden. So VPAS could and should be part of a solution, not a problem.

The approach needs fundamentally to change; it cannot continue to be a question of who blinks first on what the pricing figure and the size of the reimbursement will be. This has to be looked at holistically in the context of what is in the best interests of UK plc and our health outcomes. The approach needs to be a collaborative one in which risk is shared. The solution proposed by the ABPI is a cut in the rebate to 6.88% and the creation of a two-pot system under which one pot continues to go the Treasury while the other—a separate 1.5% premium, if you like—goes specifically towards clinical research, genomics and so on.

The challenge with the second pot is, first, that it is quite small in terms of making significant changes; secondly, that it is a bidding pot, so there will be winners and losers; and thirdly, that although the ambition is to use it to level up, that will create all sorts of problems in relation to the Barnett formula. So although the system is well intentioned, I am not sure it would actually work in practice. It has had much support from patient groups and others, and I understand why, because delivering a fairer relationship is the direction of travel.

However, we have to bear in mind the political and economic reality of where we are, and we must not lose the prize of providing a much stronger link to, and a driver of, the life sciences vision, which seems largely to have been orphaned. That agreement needs some tangible benefits and obligations. There need to be key performance indicators for both sides—industry and Government—and there need to be deliverables for both sides.

The all-party parliamentary group on access to medicines and medical devices, which I chair, set out an alternative proposal to try to find a more collaborative approach. I believe in the free market and that, ideally, there should be no cap; sheer market growth through investment would result in our growing the economy and the Government tax take funding new medicines and producing money for the NHS. However, I am clear that I have to be grounded in reality, and if we are to find a way forward, there needs to be a risk-sharing solution, because no cap is the inverse of where we are now—it puts all the risk on Government rather than on industry.

How can we find this risk-sharing solution? First, we can increase the cap. It is currently at 2%; 4% would allow quite a lot of headroom. We could ensure that, each year, the system is rebased, so that we do not end up with a complex way of compounding what the rebate figure will be year on year.

One of industry’s real concerns is that a big chunk of money goes straight into Treasury coffers, and there is no evidence of how it is recycled to benefit pharma or health. In its paper, the APPG suggests that we ringfence a large part of that rebate, though probably not all. Part of it would probably still have to go back to the Treasury, but a significant enough amount would enable those seven life science missions to be driven forward, and industry, academia and clinicians could look at what we can do to drive this vision forward with a sensible amount of money.

The current scheme could also be simplified by excluding some of the six categories of medicines included in the VPAS scheme. Biosimilars and branded generics, where the branding is mandated by the regulator rather than choice, could sensibly be excluded. I appreciate that that increases the cost, but given that those products represent such a large chunk of medicines used in the NHS, that must be a no-brainer. Some of those are older products that are of great benefit to the NHS.

There has also been concern that the negotiation needs to be across all Government Departments, whether the Department of Health and Social Care, NHS England, the Treasury, the Department for Business and Trade or the new Department for Science, Innovation and Technology. Similarly, although the Association of the British Pharmaceutical Industry represents all the sectors, some very specific interests groups, such as the Ethical Medicines Industry Group and the British Generic Manufacturers Association, believe they need the opportunity to put their case forward. What is the downside of listening? Surely, think-tanks, academia and those groups all have something to say. If we want the right answer, that is the right way forward. We need a two-way commitment and two-way investment.

What could the Government do to help themselves manage their medicine budget cost? First, they could streamline regulatory activity. Currently, we have the Medicines and Healthcare products Regulatory Agency and the National Institute for Health and Care Excellence. That is a sequential system, which means we have to go through different sets of appraisal to satisfy both regulators. Much of the data and many of the questions, while not the same, are similar. Other jurisdictions are looking at running the two processes in parallel. Why do we not steal a march on others and integrate them? We could do that and have a state-of-the-art regulatory body. To do that, we would need to take out the budget impact test and put it back into NHS England, where it started. That strikes me as the right place for it to sit.

How could we monetise that regulator? First, as the Government already recognised in the last Budget, we should look at mutual recognition of approvals in the USA, Japan and the EU. That will not be easy, and I suspect it will be possible only in some limited areas of medicine. None the less, that is the way to go. Many developing countries would be delighted to have a quality regulator such as the MHRA and NICE. Why can we not charge to be their regulator?

The real call from industry, however, is to make uptake real. Although the theory is that any drug approved by NICE will automatically be taken up in the integrated care system budgeting system, the reality is that that is not the case, because there is no enforcement mechanism. That is very important for financial and moral reasons, and uptake is an issue that the Government could sensibly agree to look at. It is about implementing many of the new suggestions coming forward and, hopefully, the clinical trials and recommendations from James O’Shaughnessy. Because we would have a large pot for life sciences, we could create a long-term working partnership through the VPAS to deliver the life sciences vision.

If this is going to work, the industry needs to identify, in principle, investments that it would make in the UK. I know that such discussions take place, but what can the industry bring to the table to generate growth in the economy, increase skilled jobs and attract research academics and practising physicians? How can it identify ways in which it can support the Government in other parts of the life sciences vision delivery pipeline? Ultimately, much of this is going to be based on trust and good will. Sadly, that is not there at the moment, so the most important thing is to get it back.

For the VPAS 2024 to work, we need something that is fair to the industry and the Government and that will deliver what we absolutely need: the most innovative medicines for individuals living in this country, which they want and deserve. It can be done, and I am absolutely confident the Minister and his team will do their level best to try to achieve that. I am conscious that he is limited in what he can say, because of ongoing consultations, but I would welcome some reassurance that he agrees we should move to something that is more of a partnership—where there is true commitment and collaboration, and where there is a true link between the VPAS payment by industry and its use for life sciences development—so that we can actually see the life sciences vision live.

It is a pleasure to serve with you in the Chair, Mr Sharma. I congratulate the hon. Member for Newton Abbot (Anne Marie Morris) not only on securing the debate, but on setting out in such detail and so effectively the complicated range of issues we face. I agree with much of her analysis of the problem, and although I am not sure I agree with all her proposed solutions, it is important that they are brought forward and discussed.

I represent an area of the country where life sciences, particularly research and innovation, are absolutely central to our economic prosperity. Thousands and thousands of jobs, and major investments, are at stake. Partly as a consequence of that, I have chaired the all-party parliamentary group for life sciences for a number of years, and I am grateful to a number of key players in the sector, including Steve Bates of the Bioindustry Association and Leslie Galloway of the Ethical Medicines Industry Group, for their advice in advance of the debate.

Over many months in my part of the world, I have been hearing from a range of people in the sector about their growing concern about the effect that the rebate level is having on a whole range of organisations and the threat that it poses to future investment and jobs. Indeed, the chief executive officer of the BIA has said that the clawback rate has

“gone down like a lead balloon in key global pharma boardrooms”,

and some have consequently withdrawn from the scheme.

I appreciate that this is a negotiation, but in my time talking to people in my part of the world, I have not heard this many concerns raised. Obviously, one always treats some of them with caution, but there are enough to make me think that this is a serious threat. We all agree that we want the NHS to have rapid access to, and the most consistent supply of, the most modern medicines it needs at affordable prices, and in achieving that, we can secure those vital jobs and investment. Frankly, in a complex world where medicines pricing is far from transparent and huge sums are now needed to develop new medicines, that is much easier said than done, not least because, as our knowledge and computational power and our understanding of genetics increase, making much more possible—particularly in terms of personalised treatments—the challenge of costs will only grow.

It is a pleasure to serve under your chairmanship, Mr Sharma. I am grateful to the hon. Member for Newton Abbot (Anne Marie Morris) for securing today’s debate on the voluntary scheme for branded medicines and the life sciences vision.

The UK Government’s current voluntary scheme for pharmaceutical companies has come under criticism for its unsustainable payment rates, which are well above both historical and international norms. As we have heard, companies are required to pay a revenue tax of 26.5% to the UK Government, in addition to all other taxes, which is significantly higher than that in other countries. That has led to two large US-based drug companies, AbbVie and Eli Lilly, exiting the VPAS, citing the punitive system of revenue clawbacks. Other companies, such as Bayer and Bristol-Myers Squibb, have also threatened to reduce their UK footprint in response to the increasing clawbacks.

The pharmaceutical trade body has called for the UK Government to scrap their plans to raise the repayment rates for drug makers, so as to avoid possible setbacks for the sector. The high payment rates are seen as a global outlier and are undermining the UK’s ability to attract investment and become a global leader post Brexit. I sincerely hope that the UK Government are successful in their efforts to address these concerns. Sir Hugh Taylor has been appointed as chief adviser for VPAS negotiations. He will oversee the negotiations for the Government and the NHS on a successor to the 2019 VPAS, which will expire at the end of 2023.

Medicines are crucial for healthcare and are the second largest expense for NHS Scotland. They prevent, control, palliate or cure many diseases. The Scottish Government are committed to improving patient access to safe and effective new medicines. The regulation of medicine pricing is the responsibility of the UK Government, but the Scottish Government are involved in the UK-wide voluntary VPAS agreement between the four UK nations and the pharmaceutical industry that caps NHS spending on branded medicines. Companies exceeding the VPAS revenue cap pay rebates to the Scottish Government and the three other UK Administrations. The cap grows by 2% annually and the sales above it are paid back to the Department of Health and Social Care via the levy. As we know, the scheme has been active since 2019 and will end later this year.

It is a pleasure to serve under your chairmanship, Mr Sharma. I understand that Parliament is technically in recess, but here we are working hard to the last on this very important debate. I am grateful to the hon. Member for Newton Abbot (Anne Marie Morris) for securing it. I agree with my hon. Friend the Member for Cambridge (Daniel Zeichner) that she used her expert knowledge to provide a detailed outline of the issues.

As the hon. Lady said, the scheme has a number of objectives, including improving patient access to medicines, getting the best value and most effective medicines introduced more quickly, and supporting innovation in a successful life sciences industry here in the UK. It is a complex area, balancing what often seem to be competing priorities around keeping costs low and getting a fair return for the industry. Ultimately, we need to remember that this debate is about people: our constituents, ourselves and families. People expect to be treated with the best medication available and for the NHS to provide good value to the taxpayer.

Last week the Minister outlined that

“we are seeking a mutually beneficial voluntary scheme that supports patient outcomes, a strong life sciences industry and a financially sustainable NHS.”—[Official Report, 25 April 2023; Vol. 731, c. 584.]

I hope he will today update us on where that work has got to, and on whether the Government are any closer to a solution. That would be most welcome, as other Members have outlined.

I will take the objectives that the Minister outlined one by one. Supporting patient outcomes is vital; we all want the best for our constituents. There are a number of heartbreaking cases where people have not been able to get the drugs they need. Many colleagues have raised those cases in this place and have become experts on behalf of their constituents. It is a devastating issue for many people. I think that people do understand that this is complex and difficult, particularly for rare diseases. Although we recognise the need for commercial confidentiality, people need greater empowerment. The taxpayers who fund our system need to understand the transparency and accountability associated with those agreements.

It is a pleasure to serve under your chairmanship, Mr Sharma. I thank my hon. Friend the Member for Newton Abbot (Anne Marie Morris) for securing this important and timely debate—I will come on to why it is so timely in a moment. I thank Members from across the House who have contributed to what has been a highly informed discussion, especially as the House is now technically in recess, as the hon. Member for Bristol South (Karin Smyth) has said.

Members will know that the current VPAS scheme is the latest in a long line of such agreements, which date back to 1957. For many years, those agreements have been at the heart of a collaborative relationship between the Government and industry. As my hon. Friend the Member for Newton Abbot says, the partnership helps to manage the affordability of medicines while, vitally, supporting our life sciences sector to deliver for UK patients and provide them with access to the most innovative and cutting-edge medicines both now and in the future.

VPAS has proven to be a powerful tool in both improving patient outcomes and supporting economic growth. Hon. Members will be aware that a key goal of VPAS, as my hon. Friend pointed out, is to ensure the sustainability of NHS finances by limiting total growth in spending on medicines. Since its inception in 2019, VPAS has driven significant improvements in patient access to cost-effective medicines. It has also ensured predictable spending growth, which is key for the NHS during a period of economic uncertainty.

I can absolutely assure hon. Members that the Government remain firmly committed to the scheme and to continuing to work with the pharmaceutical industry to create a strong, innovation-friendly environment for the development of medicines here in the United Kingdom. We set that out in our life sciences vision, as my hon. Friend said. As she also pointed out, there is only so much I can say, because it is commercially sensitive and negotiations start tomorrow, which is why this debate is so timely.

The Minister is giving a very thorough reply. I wonder whether he will acknowledge—I have not heard him concede this point—that the 26.7% factor is a real problem that needs to be addressed.

I thank the hon. Gentleman; I am going to come to that exact point. I want to respond to as many of the issues as possible, and—rarely for a Westminster Hall debate—we actually have a little time.

We are committed to agreeing a deal that supports a strong UK life sciences sector and drives economic growth through investment, but I recognise what my hon. Friend the Member for Newton Abbot says: we have to do far more in many other areas—clinical trials, regulation, the life sciences missions and the investment therein. There is also the ongoing work around uptake.

The hon. Member for Cambridge talked specifically about the higher VPAS percentage rates, so let me move on to those directly. Of course I understand the industry concerns about higher payment rates, but it is important to stress that those were projected when the scheme was agreed—they were agreed with industry and negotiated by the ABPI on behalf of industry. They reflect the scheme working as intended: to limit to 2% the annual growth in the sale of branded medicines within the NHS.

We are firmly committed to VPAS and to continued working with the pharmaceutical industry to create an environment that facilitates innovation and maintains the UK’s world-leading position in the life sciences sector. I remain hugely grateful to industry for its continued participation in VPAS, which has offered much-needed financial security to our NHS during a period of significant economic uncertainty.

Let me conclude the point, as I may well answer the hon. Gentleman. He has pushed me on the negotiation that we are about to start—on our mandate and where we would aim to get to. The scheme ends at the end of this year and the negotiations for the successor scheme start tomorrow. As I have mentioned, what I can say today is limited by commercial sensitivity. The negotiations will be overseen by Sir Hugh Taylor, which is hugely welcome—he brings a wealth of experience and expertise that will be of immense benefit and, I genuinely believe, will ensure that we continue to get the best outcomes for patients, the UK life sciences sector and the taxpayer.

But in response to the hon. Gentleman’s question, I should say that we are very much open to ideas about how a successor voluntary scheme should operate from 2024 onwards. I look forward to working with industry, as I know Sir Hugh does, to agree a mutually beneficial scheme that supports the sustainability of the NHS spend on branded medicines, which is critical, and also improves patient outcomes and facilitates a stronger UK life sciences industry.

This is my final intervention, I promise —I am grateful. I think I heard the Minister say that the scheme was working as intended. There is not much transparency in this process, for reasons that are perhaps understandable, but my understanding was that the current situation was not really anticipated when the scheme was drawn up and that a range of things in between have led to it. Will he clarify that point?

I am happy to. I will answer by making two points. The first is that the situation was entirely predicted. Forecasts and projections were given; whether industry believed them to be possible is another matter, but my understanding—the scheme was negotiated several years ago, prior to my time as a Minister in the Department —is that it was projected that we could have got to this point through growth. Growth has been significant, which is why it is important that we negotiate a new scheme that takes on board industry’s concerns. More broadly, we have talked a bit about medicine pricing and it is important to stress international comparisons.

I apologise for interrupting the Minister’s flow. He is right that there was a forecast, but my understanding is that it was wrong and that there was an under-growth in all those years bar one. The consequence was that it was not possible for industry to have the predictability that he outlines. Forecasting will clearly always be a challenge, but, as I understand it, in this case it did not give industry what it needed.