US drugmakers withdraw from NHS pricing agreement as costs soar

US drugmakers AbbVie and Eli Lilly have become the first pharmaceutical groups to pull out of a pricing agreement with the UK government as they take a stance against a sharp rise in the levy on branded medicines.

Eli Lilly, known for its diabetes drugs, said the levy, which now amounts to more than a quarter of UK sales, had a “punishing” impact on innovation, leading to the UK falling behind other major countries. AbbVie, which makes one of the world’s best-selling drugs, Humira, warned the scheme was having an impact on its ability to operate in the UK.

The levy is part of a voluntary scheme that evolved from deals made near the start of the NHS. In 2019, the industry agreed to a cap that ensured the NHS would not have to pay more than a 2 per cent increase each year for branded drugs, however much it buys.

When the NHS’s total branded drug bill exceeds the 2 per cent rise, drugmakers have to pay back the extra revenue. During the pandemic, the health service spent significantly more, so the industry had to pay back £3.3bn to the government, about 26.5 per cent of UK sales. This was a significant jump from a payment of about 15 per cent last year when the industry agreed to defer some of its payments to 2023, and 5 per cent in 2021. The scheme excludes the most innovative drugs and some sales from small- and medium-sized companies.

Richard Torbett, chief executive of the Association of the British Pharmaceutical Industry, said it remained committed to the principle of a collaborative voluntary agreement. But he urged the government to consider UK medicines policy in the light of its wider economic policy, where it has set an ambition to become a life sciences superpower.

Their decision to withdraw from the scheme will not mean AbbVie and Eli Lilly have to pay back less to the NHS. Drugmakers that are not members of the voluntary agreement are legally required to make payments under a statutory scheme. The statutory rate is at present 24.4 per cent of revenue, with the government proposing an increase to 27.5 per cent from April.

Instead, the move is a warning shot to the government, ahead of the expiry of the voluntary agreement at the end of this year. The industry association is lobbying for early talks for a “more internationally competitive scheme”. 

AbbVie and Eli Lilly have withdrawn from the deal after the German conglomerate Bayer’s pharmaceutical chief executive told the Financial Times on Monday that it was reducing its UK footprint and cutting jobs as a result of the cuts to prices, coming at a time of high inflation.

Last year, US drugmaker Bristol Myers Squibb said it could divert investment away from the UK because of the expansion of the levy.

The Department of Health and Social Care said the NHS had delivered a record number of access agreements since the voluntary scheme was signed, including many deals that were world or European firsts.

“We are open to ideas about how the next scheme should operate, after the current agreement runs out at the end of 2023, and will continue to engage with industry to understand the impact on companies,” it said.