The Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) agreed in December last year between the UK government and the Association of the British Pharmaceutical Industry (ABPI), representing private-sector makers of branded medicines, is the latest in a series of five-year pacts on pricing that date back to 1957.
Its noticeable achievement is a government commitment to boost patient access to new innovative medicines, addressing the most distinctive feature of the UK drugs market: slow uptake of the latest therapies, at five years on average compared with other industrialized countries, especially the US. So far, companies representing 87% of the value of the branded medicines market have signed up to the voluntary scheme, a slightly better response rate than under the previous agreement that expired last year.
So what? A predictable, rules-based VPAS in place for the next five years may help mitigate some of the domestic industry uncertainty associated with Brexit. It also counters the destabilizing tendency of European country competitors to change at will their own rules on P&R in reaction to the roiling pace of annual health funding shortfalls.
Richard Torbett, the ABPI’s executive director for UK and international commercial policy, handled day-to-day representation with a small group of company managers during the year-long negotiation, which benefited from the initiative of both sides to bring a greater diversity of players to the table, including the powerful England wing of the National Health Service (NHS).
In Vivo: On the premise that the past is prologue, what was different about the new Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) that entered into force in January, compared with the 2014 negotiations? What does this say about the overall state of the relationship between the branded biopharma industry and the government?
Torbett: A distinguishing feature of the UK biopharma landscape is the desirability of maintaining a structured and predicable approach to managing the cost of medicines. There has been a voluntary arrangement to secure this objective since 1957, renewable every five years. The original premise was to cap branded industry profits, based on the idea that individual companies could offset their investments in the UK against the liabilities incurred by the cap. However, as globalization of supply chains and trade liberalization took hold, such an explicit connection between pricing and profits became harder to implement.
The result has been a subtle shift in emphasis by the government away from a straightforward profit cap to a conversation with the industry about structuring expenditures on branded medicines, as well as how to manage the price setting process for new products. Up until the 2009 Pharmaceutical Price Regulation Scheme (PPRS), we had list price reductions across the portfolio of branded medicines available through the National Health Service (NHS). The way it worked is that once these reductions were agreed, companies could “modulate” or apportion the cuts across their full product portfolio. The 2014 scheme was agreed at an unusual period of economic austerity in the UK, which led to a move away from list price reductions to a cap in the growth of branded medicine sales.
The 2018 negotiations, which set the rules for branded medicines in the NHS to 2023, was distinctive from these earlier pacts, in several ways. First, the circle of players was larger this time. In the past, our sole negotiating partner was the UK government in Westminster. Although the health department’s role was critical in securing the financial provisions of the former PPRS, from a practical sense it has for some time been the NHS in England, Wales, Scotland and Northern Ireland that determine the actual conditions by which medicines are reimbursed on the market. It was a breakthrough in the latest round to have NHS England fully engaged alongside the Department of Health and Social Care in Westminster, with officials from these devolved parts of the UK providing input at key points in the negotiations. It was a first that what we now call the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) has a separate chapter covering implementation of the scheme in England, the largest market for medicines in the UK, drafted in collaboration with the NHS.
Second, the negotiations accomplished a central goal of industry in putting the larger question of market access on the table, for the first time. Access joins pricing in the title of the new agreement. Reflecting this, industry was able to initiate a dialogue on conditions at ground level, especially regarding the experience of providers and patients in obtaining medicines for the right condition, at the right time. We were able to establish a consensus in identifying solutions to barriers to market access and to prioritize the role that medicines play in securing better health outcomes in the NHS. This includes a review of ways to make decisions taken by the public cost-effectiveness arbiter, the National Institute for Health and Care Excellence (NICE), more timely and transparent.
How was industry organized for representation during the VPAS negotiations?
The Association of the British Pharmaceutical Industry (ABPI), where I serve as executive director for commercial policy for the UK and international, has a membership of 70 companies active in the R&D space who supply more than 80% of the value of medicines used by the NHS. The ABPI has a special designation under the Health and Social Care Act to represent all companies that sell branded medicines in any statutory-based consultation with the government. What this means in practice is the ABPI devotes an enormous amount of time on industry-wide representation to the government – if we are not actually at the negotiating table, we are preparing for it in one way or another. On the positive side, it allows us to engage in the life sciences space on multiple fronts, from the small biotech to the global big pharma companies based in the US, Europe and Japan; each has diverse product portfolios at different stages of R&D. It’s a thriving community, one that we survey constantly to test ideas and priorities that should be topmost in the continuing dialogue with government. A tactic we pursued with some success during the VPAS negotiations was to convene regular “town hall” meetings that mixed ABPI members with other companies outside our circle. It was a way for us to interact with them and to give and receive feedback. This put me and my team in a better position to negotiate on their behalf with the government.
Can you provide some detail on the scope and pace of the 2018 negotiations?
The formal negotiation took up nearly the entire year. We spent the first quarter in a number of preparatory workshops, which can best be described as negotiating about negotiating – testing our preferences, drawing boundaries and setting objectives. After that, we were in line-by-line negotiations right up to December. Both sides worked to keep the actual negotiating team small. For the ABPI it was myself, and a few general managers from the member companies selected for a mix of company size, product portfolios and geography as well as individual expertise and experience. Our lead was Louise Houson, managing director of Merck Sharp & Dohme (MSD) UK. The government team consisted of a lead from the Department of Health and Social Care as well as representatives of NHS England.
As the talks progressed, we brought in civil servants representing the different nations of the UK as well as industry people, all with specific expertise relevant to issues being debated. This is the venue where most of the details in the agreement were hammered out, with the lead negotiating team providing strategic guidance and resolving problems as they arose. Both parties benefited from choosing a more diverse group of negotiators than in the past, while keeping it small enough to be decisive when needed.
Were patients or other external stakeholders outside government and industry engaged in the negotiations?
The patient perspective on VPAS was very important to both industry and the government. We both had a good dialogue at key points in the negotiations with patient organizations through the Patient Organization Forum, which comprises around 40 UK patient advocacy groups. The success of this scheme will ultimately be judged on whether we do a better job over the next five years of ensuring patients get access to the medicines they need.
Working on international advocacy for the R&D-based industry is part of your remit at ABPI. When you face audiences outside the UK, how do you describe the UK industry’s place in the global biopharma ecosystem? Does the market stand out as a source of best practices or is it better seen as a lesson in avoidance?
The UK presents a mixed picture for the industry. Compared with other developed economies, the UK simply doesn’t invest as much in health care – we rank sixth among the G-7 largest advanced economies, just above Italy. Of the 34 rich country members of the Organization for Economic Cooperation and Development (OECD), the UK spends a little more than 9% of its national health care budget on medicines, well below the 11% average for similarly sized countries in the group. The UK is also noted for its therapeutic conservatism, resulting in a slower than normal uptake of novel innovative medicines compared with the US, even after cases where NICE has evidenced these as cost-effective.
It’s particularly slow in the early years after launch. In fact, the UK government’s Office for Life Sciences publishes something called the Competitiveness Indicators, which compares the UK uptake rate against a basket of other countries like the US, Japan and the other major European markets. What we find is that in the UK it takes about five years for UK patients to receive new cost-effective medicines at the same rates as in other countries; overall, for every 100 patients who gain access to a new drug in the other markets in the first year after launch, only 21 receive it in the UK. This “innovation gap” in access at launch is a serious festering issue for the UK industry. It makes securing new investments by foreign drugmakers here quite problematic.
"I think access is now firmly on the agenda of health policy in the UK, which is a trend that is advantageous to the innovative drug industry."
Along with therapeutic conservatism, the UK has a perspective different from the US and many other markets in accepting that rationing of care is sometimes necessary to preserve the principle of equity of access overall. Doesn’t that create problems in justifying the drugs bill when so many other aspects of care delivery are vying for the same limited resources in a single-payer system?
I think access is now firmly on the agenda of health policy in the UK, which is a trend that is advantageous to the innovative drug industry. There is growing awareness that medicines can drive efficiency improvements by keeping patients with chronic conditions outside hospitals and emergency rooms. I see a willingness to change the old way of thinking of budgets as a zero-sum game. The National Institute for Care and Health Excellence (NICE) is still very much part of the landscape. There is a constant need to evolve NICE’s methods and processes, particularly to cope with rare diseases and new advanced therapies. But at the end of the day setting clear common standards for cost-effectiveness is seen as important for industry – especially within a budget-capped market – as it is for the government. NHS England is now a key player too and will increasingly take a central role in negotiating commercial arrangements with drug companies.
All of this is reinforced by the VPAS emphasis on incorporating market access as a priority equal to pricing.
Underlying and not often noticed is a series of initiatives to define a coherent national industrial policy for the life sciences, one where biopharmaceutical competitiveness becomes integral to the UK’s economic future. Ironically, Brexit is helping drive the effort because it necessitates reinforcing that the UK remains one of the world’s leading locations for drug R&D. We still have more R&D taking place here in Britain than in the other 27 members of the EU.
The UK is also mobilizing government as funder of “mission oriented” research, through broad public interest projects that try to stimulate thinking on how technology can solve health challenges of the future. The inspiration is around precedents in the US, like the Department of Defense Advanced Research Projects Agency (DARPA), which, among other things, supports the life sciences industry through cutting-edge technologies designed to address latent threats like drug-resistant pandemics. In the UK, work is progressing to see how industry, academia and government can coalesce around big topics like aging or digital transformation in health services.
I think there is a real opportunity here, particularly given the NHS has access to enormous quantities of patient data and is committed to making better use of it to manage costs, enhance the patient experience with care and improve outcomes. If we can join the dots and create data sets that link genomic information to EHR records, and combine that with the aggregating power of a single-payer system, then you have the knowledge and scale to highlight the cost-effectiveness of different interventions like drugs – and increase access to health overall. To me, this kind of creativity and innovation offers a brighter future for the UK market than our current challenges might suggest.
What specific aspects of the VPAS best positions the industry to secure this brighter future?
If you consider the iterations of these voluntary schemes over the years, we have gone from a rigid cap on the profits the industry derives from the demands of providers and patients for our products to the current situation where we have an allowable growth rate on total sales of branded medicines across the UK. It’s a more flexible arrangement for individual companies. The agreed growth rate of 2% each year for the next five years on net sales is actually double the rate allowed under the 2014 scheme. While the government expects the VPAS to yield approximately £1bn in savings on the drugs bill over five years, overall we think it’s a positive by giving more room for the innovative market to grow while also ensuring predictability as to what this country will spend on branded medicines going forward. This is in marked contrast to the frequent surprises the industry experiences elsewhere in Europe when it is targeted for cuts or “give backs” during the annual factional struggles over health spending.
There are many other provisions that the ABPI considers as markers of progress for the UK branded industry. One is the joint commitment of both parties – government and industry – to support “best” innovation in therapeutic classes and to aid the growth of small biotech. One practical step to accomplish this is an exemption for new active substances from payment to the NHS during the first 36 months after receiving licensing approval. In effect, this is an incentive for branded companies to focus on introducing new products to meet unmet medical needs. A concession to small companies is elimination of the growth-limiting £5 million annual ceiling on sales revenues, below which a company remains exempt from the voluntary agreement’s payment mechanism – simply put, it meant that any company that sold even a penny more than £5 million was in for the fix for the full 100% of its sales. That’s now replaced with a generous tapering mechanism giving more wriggle room for growing companies to manage their exposure to VPAS pricing provisions.
The other aspect is non-financial and entails a set of commitments to improve collaboration between industry and government on issues like providing more clarity on the interactions between NICE, NHS England and other government entities that often complicate the terms of commercial access for the industry in launching new products. And there is a return to joint activity with the government on “horizon scanning” to identify emerging technologies that might impact the NHS drugs bill in the future.
In essence, what we’ve been promised through VPAS is a clearer path to commercial access – to have an easier, sensible conversation with decision-makers so that the right deal can be secured for the best product and under the right circumstances for the patient and the health budget. NICE, as the guardian on access, and NHS England, as the payer, are now under watch to replace the interminable back and forth that has slowed commercial access with a more flexible approach to structuring deals that meet these criteria. One aspect related to the VPAS negotiations is an upcoming review of NICE methodologies to ensure maximum transparency and more clarity in how it measures cost-effectiveness. The VPAS document endorses the review as a confidence-building priority for the UK industry. We look forward to that.
How do you think foreign-based big pharma and biotech should evaluate the VPAS? As a major breakthrough or half of a loaf?
ABPI members include all the major big pharma firms as well as leading biotechs based in the US. Our new president is from Novartis AG and our vice president represents Sanofi. There is a consensus among the foreign-based and domestic companies that VPAS will finally address the longstanding lag in uptake of new medicines in the early years after launch. Everyone agrees this is distinctive about the UK commercial environment and stands out as a major disincentive to innovation.
To make this commitment tangible, there is a provision in the VPAS requiring the government to identify the five classes of drugs that are likely to drive the most health gain to patients and to ensure the uptake of those products reaches the “upper quartile” of comparable countries. Discussions on these priorities are underway and the ABPI will do its best to hold the government to account for results. In addition, our foreign-based members continue to have problems in figuring out how to navigate those opaque and complex ties between the NHS, NICE, the Department of Health and Social Care and local authorities. The fact that NHS England, in a separate chapter of the VPAS, pledges to work with the ABPI to improve the decision-making process is seen by all as meaningful and most likely to yield results.
Building on that, what lessons from your leadership on the industry side of the VPAS negotiations can you point to as precedent in negotiating with government and regulators to achieve change?
Following on what I just said, I’d cite five points on the cultural predeterminants of successful negotiating. First, success is set even before you enter the room – it all depends on how well you prepare in advance. It’s about investing in the right analytical tools, including forecasting based on input from a diverse range of human sources. It’s spending time on formulating policy to drive consensus, choosing aptly among a small set of goals that are realistic for the target audience and can foster alignment going forward. This means in turn that a negotiator must be good at identifying common ground, as quickly as possible.
Second, I remind people that negotiation with powerful governments is not like buying or selling a car – the relationship, like it or not, is long term – you might call it permanent – and for that reason there is a premium on making both parties feel they are consistently obtaining value from the process. The real danger lies in failing to read the audience, pushing hard for too much too soon, and ending up in an adversarial dead end too early in the negotiations. If that happens there is no winner; everyone fails.
Third, the best counter to this outcome is to be highly disciplined in deciding at the beginning what the group needs to achieve – integrating the perspectives of both government and industry. Objectives have to be clear. Red lines have to be explained, leaving room for context. In addition, as a negotiating partner, you need a few early “wins,” again from both sides, which can maintain confidence further down the line in negotiations, when silo-thinking recurs and difficult trade-offs have to be made.
Next, you need clarity and candor about how the group will handle the tensions that inevitably occur over something as large as regulating an entire industry. It is critical to be set up to avoid a situation where the negotiations start being conducted in the newspaper – or on social media. It follows that the parties must decide what the process should be if negotiations stall or reach a stalemate. Is there a trigger to escalate the resolution of disagreements to decision-makers further up the food chain – if so, how should that be managed? Accounting for such a prospect in advance creates a “safe space” that either side can use when talks get out of hand. But that option should be used sparingly because if it becomes the norm it’s that much harder to go back to the table. You’ve lost trust. Disagreements get personal and from there relationships will founder.
Finally, while inclusion and engagement are prerequisites for an effective negotiating process, at the end of the day you have to empower your negotiating team with the authority to initiate and decide. The fact is it’s unproductive – virtually impossible – to go back to as many as 130 different life sciences companies in the UK and obtain their permission to pursue a specific course of action. The teams have to be given the leeway to act.
How were these strategy lessons reflected in the VPAS negotiation?
We spent a good deal of time at the beginning coming up with a straightforwardly simple statement of purpose, where we achieved an optimal balance around three things. First, everyone at the table agreed that maximizing patient outcomes and patient access to the best medicines would help the government control its budgetary exposure and raise industry incentives to innovate – a “win-win” proposition. The second common thread was to keep the UK innovating as a global center for biopharmaceutical investment in treatments for unmet medical needs, with government and industry contributing their fair share in making that happen. The third was to reiterate that pursuit of the other two goals should be consistent with a realistic view of the financial constraints on the NHS.
The focus on ensuring a sustainable industry was evident in addressing the problems of smaller companies in striving to innovate while confronting regulations that inhibit their growth. All of us agreed that this was something that required resolution through the VPAS – and we brought forward some special pro-growth provisions that ended up in the final text. But the debate within the industry got more challenging when the discussion moved on to the overall state of competition in the UK drugs market, and whether it made sense to introduce exemptions to the VPAS payment mechanism, such as when branded products are subject to very aggressive local tendering and procurement rules.
Now, some of our members thought this was a strong argument. The challenge was that, with so much of the branded market now being subject to a high degree of competition, if those parts had been excluded, the only segment left would have been the very medicines the industry agreed to protect the most – innovation! VPAS had to be inclusive in referencing innovation and to work for every one of our members – if it was to work at all. The ability to coalesce around this principle kept us on course toward an agreement whose simple takeaway message is to prioritize drug innovation in the health system. The lesson is you don’t succeed as a negotiating team unless your principles and your objectives are seamlessly aligned.
How important was evidence backed by data in bringing the talks to a successful conclusion? Or did the negotiations continue to be largely driven by politics?
Evidence counts today, perhaps more than it ever has. No evidence means some conversations with potential partners never even start. It was certainly a critical factor in the VPAS. The industry put a big effort in creating a drug forecast tool for the medicines budget through the next five years at the level of net spend. The government also had its own forecast, so debate about the relative merits of each other’s analytics proved a critical part of the negotiations. Beyond forecasting, I personally believe the industry is not investing enough in the generation of evidence that proves medicines create value at every stage of the patient journey. Of course, there is no doubt the industry is exposed to politics and often has to play with a weak hand. Not all conversations with stakeholders can be won with compelling charts or a detailed regression analysis. But it certainly helps.
"In my view, Brexit might actually reinforce the importance of VPAS in offering stability on pricing, better access and a visible public commitment to making Britain’s life sciences sector globally competitive."
It would be remiss to end without mentioning Brexit. Perhaps the best way to frame the question is: does VPAS carry the legal weight to remain in force through what appears to be an indefinite period of instability in British politics and institutions?
I cannot offer guidance on what Brexit will look like for UK biopharma, assuming it happens. Per your question, VPAS is a voluntary agreement, not a contract. Looking back 60 years, these five-year agreements were signed and implemented by Labor and Conservative governments – regardless of party, the provisions have stayed in place. Thus, it would be seen as a serious breach if a new Labor government renounced or revised the agreement negotiated by the current Conservative regime.
In my view, Brexit might actually reinforce the importance of VPAS in offering stability on pricing, better access and a visible public commitment to making Britain’s life sciences sector globally competitive. However, it is equally true that under VPAS companies are required to make a major financial contribution to defray the national drugs bill, at a time when Brexit is adding to the risk of making local investments that, even in the best circumstances, take years to play out. In the end, I believe VPAS will be viewed as the one measure that provides a little certainty against the roiling populism that affects all the major markets today. It would be truly extraordinary if VPAS was scrapped.