Government policy threatens medicines resilience

Supply chains are already fragile – and the hefty increase to VPAS will make things more volatile still, writes Mark Samuels

Making sure the right medicine reaches the right patient at the right time is the goal for those of us who work in the pharmaceutical industry. This commitment is shared by the manufacturers at one end of the journey and pharmacists at the other.

However, that unifying objective is increasingly being challenged by the current operating environment. I have been involved in the life sciences sector for more than 25 years, and the headwinds facing those who work in medicines supply from a number of fronts are as acute as I have ever witnessed.

As a consequence, the resilience of manufacture and therefore supply – so often taken for granted in the UK generics and biosimilars market – is under threat. 

The evidence of this is already there to see. Medicines shortages currently are increasingly common for a number of reasons, not least because of the failure to heed the lessons of the pandemic and a continued lack of resilience in our supply chains.

Of course, more broadly, some of the challenges facing medicines manufacturers are the same that many industries are having to cope with, such as rising energy prices and inflation.

However, some are much more specific to the UK and are a direct result of Government policy. One of the most significant developments to come out of 2022 was yet another increase to the Voluntary Pricing and Access Scheme (VPAS) tax rate.

The scheme was designed with good intentions. It aims to limit annual growth in public spending on medicines to two per cent to help protect the NHS budget. Any variation above this threshold is clawed back by the VPAS rebate, which sees companies having to pay an additional levy on their UK revenues.

However, the 2023 rate (which was announced in December at 26.5 per cent) represents a five-fold increase on the 2021 level, which was just 5.1 per cent. The consequences are already being seen. 

Raising the VPAS tax to this level is damaging supply by making some products lossmaking and therefore not sustainable for manufacturers. No industry can cope with, or plan against, this unpredictable and exceptional fiscal volatility.

Let’s not forget that the NHS runs on generic and biosimilar medicines. They account for four in every five drugs used by the health service. Despite the UK’s competitive market already delivering the lowest prices in Europe for generic and biosimilar drugs, regulations mean that many are subsumed into the VPAS scheme. In fact, nearly half of the products in the current VPAS scheme are branded generics or biosimilars. 

This means manufacturers suffer a double whammy; competition typically reduces prices by up to 90 per cent, plus a now 26.5 per cent VPAS tax on top. This situation is not economically sustainable, forcing manufacturers to take very difficult decisions on which medicines they can supply and therefore decreasing resilience. More broadly, it brings into question the UK’s suitability as a destination for international investment. This does nothing to bring about the resilience that is needed. 

The high VPAS tax for 2023 risks more medicines shortages, rising prices for the NHS via reduced competition, and new medicine launches to the UK being deferred. I am gravely concerned about this situation. 

This year will be the last year of the present five-year scheme. The next scheme, starting in 2024, will be negotiated in the next few months. To support a sustainable long-term supply of medicines, it must recognise where competition is already working to provide the NHS with significant financial savings and better patient access.

Looking to the future, my hope is that generic and biosimilar medicines will remain accessible – without the shortages we have seen in HRT and antibiotics – for the NHS. 

We also want to see the MHRA become more efficient and able to approve medicines in a more timely manner. On a macro level, I hope that inflation and rising prices can be controlled, and that the UK Government can ensure that trade deals support the established medicines sector.

Ultimately, we want to help rebuild the resilience of medicines supply in the UK and ensure that the great collaborative work achieved during the pandemic – alongside our wholesale and pharmacy colleagues – is not lost to compromise or complacency.

Mark Samuels is chief executive of the British Generic Manufacturers Association (BGMA)