Talks between pharma and successive U.K. governments have failed to deliver the market access terms that the industry wants, contributing to a pullback in investment.
The U.K. life sciences sector was rocked by a series of major blows in September. In a matter of days, Merck pulled out of a $1.3 billion project and AstraZeneca—a U.K.-based firm—paused plans to invest around $270 million in an R&D site. Sanofi and Eli Lilly similarly pulled back on investment plans for the country. The quadruple whammy brought long-festering tensions between pharma and the government into the open and raised doubts about the U.K.’s place in the global life sciences industry.
AstraZeneca and Merck revealed the changes to their U.K. spending plans weeks after drug pricing talks between the pharma industry and government collapsed. A Parliament committee held in response to the changes shed light on the situation. Tom Keith-Roach, U.K. president at AstraZeneca, said problems have been “building and accumulating over the last 20 years” as the country has become an increasingly challenging place to launch drugs. Those problems are now influencing where companies invest.
“What we are increasingly seeing is discretionary investment and new investment in R&D and in capital manufacturing is flowing into countries who are seen to value innovation and seem motivated to pull that through into patients,” Keith-Roach said at the hearing.
Pharma no longer sees the U.K. as such a viable option. The question now is whether the U.K. government can change the narrative and save an industry that it recently called “one of our greatest national assets.”
Why the UK Lost Credibility
The recently collapsed talks between the U.K. government and pharma focused on the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG). Through VPAG, drugmakers provide rebates to cover government spending on branded medicines above a certain threshold. The current rate is higher than expected, leading the industry and government to pull forward a mid-scheme review.
Keith-Roach and Richard Torbett, CEO of the Association of the British Pharmaceutical Industry (ABPI), both used the Parliament committee meeting to warn the government that the industry wants more than just a resolution to the VPAG impasse. To Keith-Roach, VPAG is “a symptom of the problem rather than the cause.”
“We can negotiate about VPAG, but in the long term, this needs to be a country that is committed to investing in innovation, to making innovation available to patients and to providing a front door to the NHS through which innovative medicines can pass,” Keith-Roach said.
Torbett said the government needs to fix VPAG, change the threshold the U.K. uses for cost-effectiveness and provide a sustained commitment to bringing investment up to the level of comparable countries. At the committee, Lord Patrick Vallance, the former GSK executive who now serves as Minister for Science, Innovation, Research and Nuclear, showed that the government knows the problem goes beyond VPAG. “The real crunch issue is the appropriate uptake, access and payment on medicines,” Vallance said.
As part of its attempt to fix the issue, the government proposed putting £1 billion (roughly $1.35 billion) into the market over three years. However, with the industry calculating it would still need to pay back £13.5 billion (more than $18 billion), talks collapsed without an agreement being reached.
The collapse of the drug pricing negotiations came months after U.K. Prime Minister Keir Starmer reportedly said he would “sort the VPAG” in a meeting with pharma CEOs. Starmer’s failure so far to follow through on that commitment has added to doubts about the government’s capacity to back up talk with action.
“I might categorize it as a credibility challenge,” Ben Lucas, managing director for the U.K. and Ireland at Merck, told the committee. “We have been having this continued conversation with successive governments about the potential of the U.K. to be able to pull down and realize—in an economic growth way—the talent that it has. But we failed, and that has been a collective failure across the board.”
The failures have colored how overseas pharma executives see the U.K. Lucas, who works with Merck’s U.S.-based executive team, said, “The challenge I continually get is, ‘Well, we’ve heard that plan before, Ben, but it hasn’t necessarily delivered.’”
Where Investment Is Going
Other countries are capitalizing on the U.K.’s failure to deliver change. Torbett said the U.K. is losing out to a variety of countries, including the U.S., Belgium, Ireland, Singapore and Germany. ABPI has “lots of examples of decisions that have been in the balance, and those are the sorts of countries that we have lost out to,” Torbett said.
The losses are adding up. Sanofi, which recently froze investment in the U.K., has reduced its headcount in the country from more than 2,000 in 2013 to below 600 today. Over a similar period, the headcount at Sanofi’s Genzyme Ireland unit has grown from 477 to 905. The shifts have added to the pressure on the government to retain AstraZeneca and GSK, the other U.K.-based multinational. Each of these two pharma powerhouses employ close to 10,000 people in the U.K.
“We cannot afford to lose this industry from the U.K.,” Vallance said. “It is very important that we have two global companies; it matters that it is two. It is very important that we have a very thriving startup and SME sector here as well, and that is not only important for the economy; it is important for health. We must come to an agreement on the right way forward.”
