Pharmaceutical industry close to deal with UK on drug pricing, says Novartis

The pharmaceutical industry is close to agreeing a deal with the UK government over drug pricing, according to the chief financial officer of Swiss drugmaker Novartis.

Harry Kirsch said companies in the industry appeared to be close to an agreement over the voluntary scheme for branded medicines pricing and access, known as VPAS, which tries to limit the NHS drugs bill.

“It looks like we get to an agreement. But it is done when it is done,” he said during a media call after the company’s third-quarter earnings announcement on Tuesday.

The last voluntary scheme, which ran for five years, limited the NHS drugs bill to a rise of 2 per cent a year, no matter how many drugs were bought or which drugs they were. If the total rose above this limit, drugmakers had to pay back money in the form of a tax.

The industry strongly criticised the UK government after the clawback tax rose from about 5 per cent of a drugmaker’s total UK revenues a couple of years ago to about 26.5 per cent this year. Some said it was leading them to rethink investing in the UK, while two US groups left in protest, even though it meant they would face an even higher clawback rate under the statutory scheme.

Negotiations on the new agreement began after Easter and are due to conclude by the end of the year. The Department of Health and Social Care did not immediately respond to a request for comment.

Kirsch criticised the UK and other European governments for saying they supported innovation while “potentially announcing drastic price cuts”. “It doesn’t go hand-in-hand,” he said. “We need attractive, appropriate pricing levels according to what our medicines bring as a benefit.”

Chancellor Jeremy Hunt this year said the government had no “magic wand” to deal with financial pressures and was unlikely to give into industry demands to pay a significantly higher price for medicines.

Novartis beat expectations on earnings and revenue in the third quarter. Core earnings per share increased 29 per cent year on year to $1.74, higher than the average analyst estimate of $1.70.

The company reported a 12 per cent year-on-year increase in net sales to $11.8bn, above the consensus forecast of $11.4bn.

Novartis also raised its full-year guidance for core operating income, which is now expected to grow by a percentage in the mid-to-high teens. It still expects 2023 net sales to grow in the high single digits year on year.

The results focus on the remaining business, focused on innovative drugs, after Novartis spun out its generics division Sandoz this month.