The pharmaceutical sector’s difficult week
Last week proved to be a politically turbulent week, and, whilst it wasn’t the biggest story of the week, the pharmaceutical sector was certainly in the news.
In truth, the storm clouds have been gathering for a little while now. Clawback rates on pharmaceutical sales have been a topic of contention this year and the problem grew in July when talks regarding medicine prices broke down between the Department of Health and Social Care (DHSC) and the Association of the British Pharmaceutical Industry (ABPI).
Last week, the temperature rose considerably with twinned pieces of bad news for the UK. First Merck decided to bin its £1bn expansion into the UK and shift its life sciences research to the US. To compound that, AstraZeneca then announced that it was pausing its proposed investment in Cambridge. The latter doubles down on AZ’s decision earlier this year to cancel its proposed plan to expand its vaccine manufacturing plant in Merseyside. All in all, the pharmaceutical industry is sending a pretty clear message that it’s finding it challenging in the UK right now.
The decisions from Merck and AZ come against a backdrop of Donald Trump putting pressure on pharmaceutical businesses to invest more in the US. However, it also would be wrong to discount factors such as the rise in National Insurance contributions, as well as the generally negative headlines regarding the current state of the UK economy.
The truth is that the UK government has some unenviable fiscal choices presently and diverting money to increase the budget for buying medicines would probably mean that other areas of health spending get hit.
Nevertheless, it does feel like some of these problems need to be addressed because the UK is becoming an outlier against other economies. According to a report published by the ABPI last week, the UK invests 9% of its health spending on medicines, as opposed to 13% in France, 14% in Germany and 15% in the USA. In addition, the UK has a minimum clawback rate of 23.5% on pharmaceutical companies’ revenues which dwarfs 7% in Germany and 5.7% in France.
The UK government and the DHSC has been clear that it values the life sciences sector and has said that it wants the UK to be the leading life sciences economy in Europe by 2030. Plans to shorten waiting times surrounding clinical trials and to invest up to £600 million to develop a data health platform which is fit for the modern age are very welcome. However, those targets and plans are in danger of getting lost if other issues surrounding attractiveness for investment in the UK aren’t tackled.
The good news is that there seems to be a desire for negotiations regarding VPAG and medicine pricing to start up again. Given the blows which the pharmaceutical sector took on last week, a sensible and balanced agreement between the DHSC and the ABPI would be a balm to the industry and bring back some much-needed optimism.
