The new pricing deal agreed between the Department of Health (DH) and the Association of the British Pharmaceutical Industry (ABPI) sets, and for the first time caps, the size of the expected market for branded prescription drugs in the NHS (which is in effect the only market for drugs in the UK) for the next five years. Whatever the benefits to the NHS and HM Treasury, it is this cap that the global pharmaceutical market and investors will see from abroad.

It does this despite the fact that the branded medicine bill in the UK is already under control. Indeed, as a percentage of NHS spend the drugs bill has been in steady decline, down from 10 per cent of NHS spend in 2003 to 8 per cent in 2011. This is despite the fact that UK prices for medicines are amongst the lowest in Europe, and are far lower than in the USA.

In the last year, although prescribing volumes have risen 3.9 per cent, the cost of medicines on prescription has fallen by 0.4 per cent. And the speedy genericisation of older drugs is set to yield over £3.4 billion of savings between 2012 and 2015.

This is set to adversely affect investment in the UK. For the first time the size of the UK market – and flat growth – has been explicitly and publicly stated. I am seriously concerned that this will send a signal around the globe about how attractive the UK is as a market to do bioscience in.

Although the attractiveness of the home market is one of a series of complex factors considered when globally mobile companies make their investment decisions, it is a factor, and I was incensed to see the government response document deny this – the Department of Health stating “there is no reason to expect that changes in UK prices would significantly affect the UK’s attractiveness as a location for R&D”.

The government are ready to accept the argument that the Patent Box (which is really a sales issue) has an effect on the location of R&D in the UK at the earlier stages of development, yet they are not willing to accept the very same argument, based on the very same logic, for pricing. This is simply because it doesn’t suit them to do so.

I believe that buying new medicines is not only an investment in NHS patient care but also in the UK’s future economic prosperity, as the life science sector is a key part of the our future rebalanced economy. Decisions which affect the commercial environment for medicines have a significant impact on the UK’s attractiveness for direct global R&D investment and on our biotech ecosystem.

The announcement shows a worrying lack of joined-up thinking in government about a sector it has identified as being key for the UK’s future economic growth.

We at the BIA have repeatedly warned that the government’s pricing proposals for pharmaceuticals put at risk future investment in the UK R&D base, as the perception of the UK as a market for innovative products does have an important bearing on the global investment decisions of multinational biopharmaceutical companies.

I think this deal makes it harder for the UK-based managements of global organisations to get their companies to invest in our ecosystem. With global predictions of growth coming from other markets this will mean the UK – as a flat 3 per cent of the global market – runs the risk of falling in importance as a launch market, with the consequential impact for R&D investment.

So now we need to stress other reasons to invest here – the other key factors still in our favour:

  • The excellent fiscal environment for companies – including R&D tax credits, Biomedical Catalyst funding and the Patent Box
  •  The UK’s first class science and talent pool
  • The strength of expert providers of all the things needed to take a discovery in the lab and turn it into a world leading product
  • The core UK advantages of English language, rule of (IP) law, timezone

This deal makes the need for a funded earlier access scheme all the greater too, in order to encourage companies to launch new therapies for patients here first.

Full details of the PPRS scheme were published on 3 December 2013.