Tough talk from Streeting – but he still needs a deal with big pharma
Wes Streeting gets top marks for fighting talk in his battle with the pharmaceutical companies over the price of prescription medicines,After the health secretary walked away from talks with the Association of the British Pharmaceutical Industry (ABPI) on Friday, he stuck the boot in,The “shortsighted” pharma industry had rejected “a serious and generous” offer, he said,It should be more “collaborative” instead of making “unaffordable” demands,The government could not allow British patients and taxpayers to be ripped off.
Yet Streeting surely also knows this standoff cannot be allowed to last indefinitely.Portraying the pharma companies as greedy may be good political theatre – and, since we are talking about some of the world’s biggest and richest corporations, the sentiment is hardly controversial.But at the end of this process the government still needs a deal.If not, its boasts about making the UK a life sciences “superpower” will ring hollow.And the cold reality, unfortunately, is that Streeting is negotiating with global companies that also have reasons to play hard.
The new ingredient in the mix is the Trump factor.The US president’s demand that global pharma companies reduce their US drug prices to European levels has turned the spotlight on the UK like never before.The companies do not want the UK, a mere 2.5% of the global market, to be used as a price reference point for the more important (for them) US market.As life looks from the boardrooms of big pharma, there is a danger in allowing the UK to continue to enjoy better terms on drug prices than much of the rest of rich Europe.
In the old days there was an inbuilt acceptance that the UK would get decent terms, relatively speaking.The NHS carried the pricing muscle of being a single buyer, and the UK could offer soft “ecosystem” benefits, such as excellent research facilities, links with universities and the ability to run clinical trials on development drugs at scale.For 70-odd years, deals were done under “voluntary” price schemes that were not really voluntary because the non-volunteered terms were worse.The pure Trumpian focus on price has changed the dynamic – and, critically, it has landed as relations between the UK and the industry have been deteriorating for about a decade.The companies’ longstanding grumble is that the voluntary price scheme, designed to promote innovation while protecting the NHS budget, has spat out bigger and bigger clawback payments to the NHS on prescription medicines.
Last year’s tally was 23%, compared with single-digit levels under comparable schemes in the rest of Europe.The other complaint is about the willingness to buy new medicines in the first place.The “value for money” criteria applied to new drugs by Nice, the National Institute for Health and Care Excellence, have not changed since 2001.Add it all up and the key statistic, as the ABPI and its members point out loudly, is that the UK spends only 9% of its healthcare budget on prescription medicines, versus 17% in Germany and Italy and 15% in France.A clash looked inevitable at some point; the Trump factor has probably accelerated events.
In Streeting’s shoes, his offer probably did feel serious – net spending on medicines would increase by about £1bn over the next three years with billions more promised over the next decade.For a government as cash-strapped as the UK’s, that does count as generous.But you also see why for, say, the average chief executive of a big US pharma company who lives in fear of Trump’s demands on prices, it didn’t move the dial.The £1bn sum is in the context of projected clawback payments, according to the industry, of £13.5bn over the next three years.
And the promise to raise UK spending on medicines from 0.3% of GDP to 0.6% is a good intention rather than a solid commitment.It is hard to know where this quarrel goes next.In theory, the current voluntary agreement can run unaltered all the way to 2028, but if that were to happen it would be a disaster for the government’s life sciences strategy.
While there is posturing on all sides, the companies clearly are not making it up entirely when they say investment tends to go to where innovation is rewarded, as they see it.AstraZeneca’s recent $50bn (£37bn) investment in the US is a case in point; in one sense, it was political.Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionOne can sympathise with Streeting’s predicament.He is obliged to take a UK-centric view of budgets but is dealing with a global industry.He has also inherited tensions that have been a decade in the making and were made worse by the Covid pandemic.
And it may be that no deal is possible until it is clearer what Trump has in store for US prescription drug prices and tariffs on imported medicines.But the bottom line is still that the UK cannot afford to have dysfunctional relations with an industry it regards, rightly, as crucial to its growth strategy.Sooner or later, negotiations will have to resume.
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Tough talk from Streeting – but he still needs a deal with big pharma