VPAS: Achievement so far on objectives for the economy and innovation

In the third part of this series taking stock of the 2019 Voluntary Scheme for Branded Medicines Pricing and Access objectives, Leela Barham looks at the third VPAS objective that relates to the economy and innovation.

The objectives for the economy and innovation are to:

  • deliver a net benefit to the UK economy overall; and
  • support the life sciences industry across the UK and future innovation.

You need to do some reading between the lines to spot how the VPAS can meet these aims. They are not separate to the aims on access and affordability (covered in VPAS: Achievement so far on objectives for patients but in summary, not much progress has been made on access). Access and affordability activities will influence just how attractive the UK is to a global industry as well as how the UK supports life sciences; buying their products is part of the overall equation. Pricing matters too and the VPAS covers this in Chapter 5.

Pricing of new medicines

Companies can potentially set a price for the NHS that they determine, but as ever with the agreements reached in the past and in VPAS, there’s some paperwork and some nuances to be aware of. Not least of which is the requirement for the company to confirm their intention to price at a level consistent with securing a positive NICE appraisal. That’s probably not what most people think of when you say free pricing.

Companies also have to be careful to ensure that they won’t exceed a profit allowance that is also part of the VPAS, albeit no longer a core requirement, as requests for data to help determine this are ad hoc and no longer routine.

“It’s probably of marginal comfort to companies to know that their R&D spend will help them to not breach a profit margin that isn’t routinely assessed”

It’s hard to know if the VPAS provisions really offer support to the life sciences industry and future innovation when it comes to pricing. What is clear is that companies are choosing not to bring some New Active Substances (NAS) to the UK market (at least two in 2019 and 2020 based upon Department of Health and Social Care (DHSC) data reporting on metrics for the scheme); the reasons why aren’t clear, but they aren’t likely to be because of a sense of support.

Raising prices

There are provisions for allowing for price increases, but these must only be done with the DHSC’s prior approval and that, again, involves paperwork. Here too companies need to assure the DHSC that they won’t breach allowable profit margins. They also can’t receive a price increase if they’ve already had an approved price increase on that treatment in the last year.

New medicines sales exempt from company payments for the first 36 months

Plus, it’s worth remembering that the VPAS exempts sales of NAS from payments for the first 36 months post launch. This means that companies that bring new treatments to the UK pay less and those that don’t pay more, since the scheme redistributes those sales across all members. This is, on paper at least, a pro-innovation signal for what might be argued to be breakthrough innovations reflecting the focus on NAS, from the VPAS. An even more pro-innovation signal for incremental innovation could be allowing for the same exemption for each new indication brought to market which the current scheme doesn’t allow.

Encouragement of R&D

The VPAS includes an allowance for research and development (R&D) spend as part of assessment of profit margins. Yet this is diluted because where this would come into play is only where the DHSC requests a company provides an Annual Financial Report (AFR). It’s probably of marginal comfort to companies to know that their R&D spend will help them to not breach a profit margin that isn’t routinely assessed.

That said, there is good news on the R&D front. The ABPI has used data from the Disclosure UK database that industry investment in R&D in the UK was up in 2019. But not by much; it went from £377.3 million in 2018 to £381.2 million in 2019. In these post-Brexit and COVID-19 days it seems even such a small increase in R&D is good news.

The need to take a wider view and bring in measures outside of the VPAS

It’s very difficult to know how best to approach calculating whether the VPAS delivers a net benefit to the UK economy overall, and if the VPAS offers support for the life sciences industry and future innovation.

It most certainly needs a wider view than the metrics that fall naturally out of the scheme; for example, it’s relevant to know the scale of employment that the life sciences brings to the UK and trends in investment into the UK. That necessitates taking in measures from other sources, for example, the Office of Life Sciences (OLS) life sciences competitiveness indicators. This should be part of the reporting of the progress of the scheme and could be reported on in regular operational review meetings and the meeting minutes that are published as a result.

To view the rest of the articles in this series assessing the progress of the VPAS, click here.

About the author

leela barhamLeela Barham is researcher and writer who has worked with all stakeholders across the health care system, both in the UK and internationally, on the economics of the pharmaceutical industry. Leela worked as an advisor to the Department of Health and Social Care on the 2019 Voluntary Scheme for Branded Medicines Pricing and Access (VPAS).