The withdrawal of a series of high-profile pharma R&D investments in the UK over the past few days, by AstraZeneca, Eli Lilly, Merck & Co (MSD), Sanofi, and others, has sent the strongest signal to the government that there are major problems in the current UK operating environment for pharma R&D.
The last straw has been the recent collapse of discussions between industry and government to resolve high-payback issues with the 2024–2028 Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG). On 22 August, health secretary Wes Streeting terminated a five-month consultation between the Association of the British Pharmaceutical Industry (ABPI) and the Department of Health and Social Care (DHSC) to amend the scheme, with no mutually favourable solution being found.
A revamped scheme in 2024 that began well but hit flaws in 2025
The 2024–28 VPAG is the UK’s main cost-containment mechanism on National Health Service (NHS) drug spending. It operates as a clawback model, similar to a series of five-year schemes going back several decades without issue, with problems only arising in 2023 and 2025. VPAG member companies pay back a mandatory levy on revenue from NHS sales of branded prescription medicines (innovative drugs, branded generics, biosimilars, and other biologics) at annually set rates, whenever annual NHS drug sales growth exceeds a specific “allowed growth rate” threshold.
The 2024–2028 scheme was adapted from its 2019–2023 predecessor to incorporate novel features such as differential payback rates for newer and older drugs and a new R&D investment contribution. The intention was to avoid unpredictable spikes in year-to-year payback levels for the industry. Such a spike happened to disastrous effect in 2023, when an ultra-high payback rate of 26.5% was triggered by an unexpected post-pandemic boost in drug sales. Before 2023, payback rates had generally been only around 5%–9%. The arrangement had been relatively popular compared to more punitive clawback rates encountered in Greece and Romania.
Initially, the 2024–2028 VPAG showed signs of being an improvement on its predecessor, with payback being a manageable 15.1% in 2024. However, this unexpectedly rocketed to 22.9% in 2025 (23.5% including the R&D investment component), prompting the ABPI to call on the DHSC to initiate urgent discussions to find a resolution.
Stalemate in August 2025 as Streeting walks out
The ABPI and the DHSC began a closed consultation in April 2025 to adjust the underlying mechanisms of VPAG and reduce the risk of further unexpected payback rate hikes. The DHSC recognised the urgency and pledged to draft a proposed solution by June 2025. Meanwhile, the ABPI conducted in-depth analyses confirming the risk of long-term losses to UK pharma R&D investment and market reputation, should the current punitive clawback rates continue unabated.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThe initial June 2025 deadline then passed with no announcement. While ominous, it was clear that dialogue was continuing behind the scenes. In July, when the government issued a relatively optimistic Life Sciences Sector Plan, the ABPI highlighted its one major omission: any discussion of the VPAG issue. Without a resolution, any positive outlook from the industry plan would be significantly tainted.
On 22 August, Streeting announced the DHSC’s withdrawal from the discussion process without an agreement acceptable to both parties. VPAG members would have to tolerate continuation of the scheme on its existing unamended terms, however punitive the annual payback rates would become, until its expiry in 2028.
So what went wrong? The DHSC claimed that it had formulated a “reasonable” proposal, which it had offered to the ABPI in June. The proposal reportedly included a guarantee of lower payback rates for all future years of the scheme, allowance for an average double-digit percentage rise in new drug prices to support patient access to a broader range of medicines, and a pledge to accelerate net NHS spending on novel medicines under 10-year targets. The government claimed that the new plan could raise net NHS drug spending by around £1bn ($1.3bn) over the next three years.
However, the ABPI considered this plan to be flawed, citing a lack of “crucial detail” on the focus and the timing of promised boosts in government spending, and identifying several ambiguities that needed clarification to ensure the scheme would operate effectively. Unfortunately, these points were not resolved by the August deadline.
Is there a way out?
The prospect of an unamended and punitive VPAG arrangement has already begun to show a damaging impact on the UK pharma market, compounding existing challenges from reduced commercial clinical trial recruitment, post-Brexit distancing from EU regulatory processes, restrictive UK cost-effectiveness appraisals, and external pressures from US tariffs and the Most Favored Nation scheme. Cancelling VPAG membership is an unfavourable option for member companies, since the backup Statutory Scheme carries even more punitive payback rates. Instead, companies have already started to vote with their feet—by scaling back their UK investments and launch plans.
There has been one glimmer of hope. On September 16, the UK parliamentary science committee held an emergency meeting with MSD and AstraZeneca representatives to address the challenges threatening the UK market, sending signals that a constructive dialogue might be resumed. Also, ABPI recently issued a “call to action” for companies to rally in support for the restoration of UK market competitiveness, recognising the country’s strong R&D legacy and potential, but labelling the VPAG issue as a “contagion risk.” A resolution is clearly not an option, but an imperative—and the sooner, the better.
This article is produced as part of GlobalData’s Price Intelligence (POLI) service, the world’s leading resource for global pharmaceutical pricing, HTA and market access intelligence integrated with the broader epidemiology, disease, clinical trials and manufacturing expertise of GlobalData’s Pharmaceutical Intelligence Center. Our unparalleled team of in-house experts monitors P&R policy developments, outcomes and data analytics around the world every day to give our clients the edge by providing critical early warning signals and insights. For a demo or further information, please contact us here.
