A Make-or-Break Moment for UK Life Sciences
Last week we called for a New National Purpose – in which the UK fully harnesses the power of science, innovation and technology to drive economic growth, improve the lives of people across the country and revolutionise public services, including our NHS.
But this sense of purpose appears to be sadly lacking in the UK life sciences. Despite the sector's historic strengths, many lofty government statements and several ambitious visions, sector trends continue to head in the wrong direction.
Our share of global R&D is falling, our pharmaceutical exports are declining, we are delivering fewer clinical trials across all phases, and our access to and uptake of new medicines is well behind comparator countries across Europe.
The impact of our inaction is now beginning to bite and industry is making its dissatisfaction clear – with the recent announcement from Britain’s own AstraZeneca that it will be moving a $400 million (around £330 million) investment to Ireland. Influential sector leaders, including British venture capitalist Kate Bingham, the ex-head of the UK’s Vaccine Taskforce and Advanced Research and Invention Agency (ARIA) board member, are also sounding alarm bells.
This is a tragic situation, because our country has all the ingredients it needs to succeed – from world-leading R&D infrastructure to cutting-edge expertise in genomics and artificial intelligence (AI). Indeed, Britain has proved itself a capable force in the life sciences, with the delivery of a landmark trial for early cancer-detection technology, and long-term investments from companies like BioNTech and Moderna.
Thanks to these historic strengths, many sector leaders retain a soft spot for our country. But this goodwill is evaporating. The burdens of Brexit, declining regulatory capacity and an uncompetitive commercial environment mean the UK is seen as an outlier in global boardrooms and as an increasingly hostile environment in which to do business.
The Voluntary Scheme for Branded Medicines Pricing and Access (VPAS)
These problems have been highlighted in recent discussions about the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), a multi-billion-pound deal that ensures the affordability and predictability of the branded-medicines bill. The scheme has existed in various guises since the 1950s, and since 2014 has required companies to pay back a portion of their annual revenue to government if sales exceed a pre-agreed level of growth.
While industry has never been thrilled by this arrangement, it provides predictable growth in spending on branded medicines and the rebate percentage has traditionally been around 8 per cent, in line with comparable European markets. But the growth in medicines spend during Covid-19 saw the rebate go through the roof, climbing to a whopping 26.5 per cent (approximately £3.3 billion) in 2023.
This is all happening alongside rapidly rising inflation, a sharp real-terms decline in investment in UK medicines and a growing tax burden for companies. For every £100 in GDP the UK spends 81 pence on pharmaceuticals, compared to £1.94 in Germany and £1.84 in Japan. And UK companies are having to absorb the 26.5 per cent VPAS rebate on top of existing high taxes, a 3 per cent apprenticeship levy and a steep climb in corporation tax.
At first glance, the UK’s strong commercial controls might seem like a good thing. After all, the pharmaceutical industry is still highly profitable, and, as a taxpayer-funded service, the NHS must deliver value for money. That is why the UK has robust commercial controls in place for new branded medicines:
- The National Institute for Health and Care Excellence (NICE) to ensure clinical and cost effectiveness of individual treatments, using a quality-adjusted life year (QALY) threshold that has remained unadjusted for inflation since 1999.
- A budget-impact test, which enables further confidential commercial arrangements for any new treatment forecast to exceed £20 million during the first three years.
- Control of overall spend on branded medicines through VPAS.
As a result, spending on medicines in the UK is significantly lower than in comparable high-income countries.
However, this is all about striking the right balance. While cost control is important, particularly in the face of rising financial pressures and NHS pay demands, so is support for innovation and inward investment. And it increasingly looks like the UK is getting this balance wrong. Both AbbVie and Eli Lilly recently exited VPAS, sending a clear message to the UK government that industry will not voluntarily accept ever more uncompetitive commercial terms.
We must remember that the sharp increase in life expectancy during the 20th century was directly supported by the growth of the pharmaceutical industry. And pharmaceutical innovation continues to save lives. This was hammered home during Covid-19, when industry’s investment in vaccine development prevented millions of additional deaths and further economic collapse. But R&D is resource intensive, and the development of new treatments depends on government incentivising and supporting innovation.
There is a therefore a very real risk that in a desperate attempt to control costs, the UK will undermine pharmaceutical innovation – which will have severe consequences for our life-sciences sector, for UK patients and for our future health security. We will see:
- Fewer medicines launched in UK – meaning lower standards of care, poorer outcomes for patients and lost productivity.
- A reduction in inward investment, undermining a sector that contributes over £89 billion of annual turnover and employs over 260,000 people across the country. Indeed, a new report by the ABPI, suggests that these excessive rebate rates will cost the UK economy a whopping £50bn in the coming decades.
- The destruction of key parts of the UK life-science ecosystem. In particular, the steep rise in VPAS rebates could prove fatal for generics companies operating with small profit margins. This would be terrible for patients, given four out of every five medicines prescribed by the NHS are produced by generics companies, and their production and manufacturing capacity is critical for the UK’s ability to respond to future pandemic threats.
So What Next?
The good news is that there is still time to address commercial concerns and show the UK can remain an attractive life-sciences destination.
The negotiations for the successor scheme to VPAS begin in April, and the deal looks set to be one of the biggest ever struck by government. Capitalising on this opportunity will require collaboration and a willingness to think differently from all those involved.
The industry is signalling it is ready, and the government needs to show it is too.
This could include:
- Fixing the rebate and reducing risk: The current rebate percentage cannot continue, and government should commit to a percentage closer to the 10–12 per cent seen in comparator countries alongside controls to prevent another astronomical rise. This would provide predictability and send a positive signal to global pharmaceutical boards. In return, government should ask industry for commitments to invest in critical areas, including infrastructure to support clinical research and R&D – mirroring the recent Moderna deal.
- Supporting the UK’s eight priority health missions: The eight health-care missions in the Life Sciences Vision include obesity, dementia, cancer and cardiovascular disease, for which many treatments exist or are in development. The government should use VPAS to create incentives for companies to bring these treatments to our shores first. This could include exemptions from rebate payments for all treatments that target these conditions.
- Capitalise on regulatory freedoms: The UK’s pharmaceutical-manufacturing footprint has declined dramatically in recent decades, with production volumes down 29 per cent and 7,000 jobs lost since 2009. Post-Brexit, there is a genuine opportunity to use our new regulatory freedoms and the removal of any State Aid restrictions to introduce direct incentives for companies making R&D and manufacturing investments in the UK.
- Incentivise research and adoption: The UK’s historical strengths in clinical research are under threat and many proven innovations still take too long to spread across the health-care system. We have seen this most starkly in recent years with the botched rollout of inclisiran. Once again, VPAS should be part of the solution. Funds returned to the Treasury through the rebate should be used to invest in our R&D capacity and to reward the NHS for adopting proven and cost-effective new treatments. To avoid any undue influence on individual clinicians or prescribing practices, these incentives can be provided at the level of new integrated care systems (ICSs) and aligned to the appropriate level of use based on NICE assessments. ICSs that are at, or close to, the appropriate levels of usage would then receive a greater share of the rebate payments. To ensure this doesn’t further polarise variations in regional performance, a portion of the rebate funds could be held in reserve, and ICSs that are struggling could bid into this pot to receive targeted support to increase uptake – building on the successes of the Rapid Uptake Products. As a quid pro quo, ICSs should be publicly held to account for delivery – with league tables showing the relative amount of clinical research supported and any unwarranted variation in the uptake of proven innovation.
The bottom line is simple – either the UK is committed to being a life-science superpower and believes in the sector’s potential to improve lives, bolster growth and drive innovation … or it doesn’t.
We hear lots of grand visions from government, but little in the way of meaningful improvements. The upcoming VPAS negotiations are a vital opportunity to show we can walk-the-walk and send a clear signal to global boardrooms.
Because, if nothing changes, the worried voices we have heard in recent weeks will become a deafening chorus, with more companies looking elsewhere for future investments.
The UK needs to seize this opportunity, support innovation and align life sciences behind our new national purpose – otherwise our sector, our country and our people will suffer.