Hot topic: NHS drugs bill hike might just be a good thing

“Nothing for something” doesn’t sound like much of a deal.

But when that “nothing” is zero tariffs on UK pharmaceutical products being sold in the US, then that’s something to shout about – in today’s world anyway.

Topline details of the UK-US pharma deal were briefed earlier this week. In return for zero tariffs, the price the NHS pays for branded medicines will rise by as much as 25% – which is a big win for pharma firms, whether they are American or otherwise.

How will this work?

One mooted possibility is that the National Institute for Health and Care Excellence (Nice), the body determining which medicines can be used on the NHS in England and Wales, will raise its “value for money” cap determining how much can be spent on new drugs.

Another is that a rebate scheme which restricts how much firms get paid for branded medicines by the NHS, called the Voluntary Scheme for Branded Medicines Pricing and Access (VPAG), will be reworked in pharma’s favour.

Pharma firms have long complained that the Nice price cap means groundbreaking new medicines, such as AstraZeneca’s breast cancer ADC drug Enhertu, are denied to NHS patients – depriving companies of large sales opportunities.

They have also become increasingly frustrated by the VPAG scheme, which claws back revenues, saying it’s resulted in the NHS getting too good a deal on those medicines that are approved.

What’s interesting is the changing tone of Wes Streeting, the UK’s Health Secretary. Just a few months ago he was playing hardball, laying the blame for the lack of a deal on reforming VPAG at pharma’s feet.

Since then, he’s gone to privately lobbying the UK’s Treasury, headed by the Chancellor, Rachel Reeves, to put its hand in its pocket so the NHS can pay more for branded drugs.

What changed was the huge ramping up of pressure on two fronts. Firstly, pharma companies (including the UK’s AstraZeneca) started pulling out of UK investment in R&D and manufacturing facilities. Why should they invest in the UK, they argued, when they were getting such a paltry financial return?

Secondly, the Trump administration named its price for zero tariffs: that the NHS must pay more for (US made) medicines. When it comes to US tariffs, if you want nothing, you’re got to give something in return.

The changes are expected to increase the NHS bill for branded medicines by a not inconsiderable £3 billion a year, according to the UK’s Office for Budget Responsibility.

But every cloud has a silver lining – and in this case, it could be very significant.

Not only will UK pharma firms benefit from zero tariffs to the huge US market for at least three years, but it will also result in a more conducive climate here in the UK, which should encourage pharma firms to invest. That’s good news for the life science sector as a whole.

Odd as it sounds, this forced hike to the NHS drugs bill might end up being a good thing.