Setback for UK pharma as government sets unexpectedly high VPAG payback rate in 2025 - Pharmaceutical Technology

When VPAG was launched in early 2024, the initial reported payback percentage for new medications was just 15.1% during the second to fourth quarters.

The UK Department of Health and Social Care (DHSC) has revealed the expected repayment rate for new drugs in 2025 under the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) for the years 2024 to 2028. VPAG serves as the existing method for the UK’s clawback system aimed at controlling costs related to the sales of branded prescription drugs within the National Health Service (NHS). However, the innovative pharmaceutical industry is likely to feel let down, as the repayment rate on NHS sales for new medications will be set at a surprisingly high 22.9% for 2025.

The program that preceded VPAG was called the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), and the previous five-year clawback initiative under VPAS ended in December 2023. VPAS became quite unpopular toward the end of its run due to its unexpectedly high repayment requirement of 26.5%, which many in the UK pharmaceutical industry viewed as excessively harsh. As a result, there were calls for adjustments in the new replacement scheme to create more sustainable practices. In the newly established VPAG scheme for the years 2024 to 2028, not all of the initial ideas, such as a fixed repayment rate, were implemented. Instead, the Department of Health and Social Care (DHSC) chose to set up two different repayment rates: one for newer medications and another for older ones, under a new structure referred to as the “affordability mechanism.” Additionally, the new program introduced a phased increase in the sales growth threshold, which had been previously fixed at a low rate of 2%. This threshold will start at 2% in 2024, increase to 3.75% in 2025-26, and reach 4% by 2027-28.

After the introduction of VPAG in early 2024, the initial payback rate for newer medicines was 15.1% for the last three quarters of the year, following a transition rate of 19.5% in the first quarter. This indicated a move towards a more balanced system, although it hadn’t yet reached the lower single-digit rates witnessed in previous years. However, this trend didn’t continue into 2025. The payback rate for newer medicines in the second year of VPAG's implementation surged unexpectedly to 22.9%. This increase was attributed to a surprising year-on-year rise in sales growth and the settlement of a £373 million ($473 million) shortfall from 2024.

The increase in sales was calculated using figures from the first three quarters of 2023 and 2024. For new drugs, the annual growth rate was 14.34% in 2024. In contrast, older medications saw a more modest rise of 4.56%, along with a decline in parallel imports, which fell by 6.28% in 2024. Overall, sales across all categories grew by 9.5% in 2024. These figures were also factored into the calculations for the payback rate for 2025, which included an underpayment of £373 million ($473 million).

Though the payback rate of 22.9% is lower than last year's punitive rate of 26.5%, the fact that it has climbed above 20% again is likely to upset developers and the innovative pharmaceutical industry. The negotiated changes that led to the formation of VPAG were designed to avoid a return to these high clawback rates. While this increase may be temporary, it raises concerns about the effectiveness of VPAG. Members may even push for adjustments to the new plan to ensure it remains sustainable while still meeting its original aim of reducing payback rates to more manageable levels.

Even though the high repayment rates are concerning for the UK’s innovative pharmaceutical industry, the sector for older medications seems to have gained an advantage. The new scheme's differentiation in repayment rates has shielded these older drugs from the steep repayment fees. In 2024, this sector experienced a slight growth of 4.64%. Unlike newer medications, these older drugs won't face the 22.9% repayment rate; instead, they'll have a basic rate of 10% in 2025, along with an additional “top-up” rate ranging from 0% to 25%, depending on how much their prices have decreased.

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Even though the payback rate under the innovative pharma VPAG program is not ideal, choosing not to participate may not be a better option. Companies that opt out of VPAG will instead have to enter the Statutory Scheme, which follows a similar approach but usually comes with higher fixed payback rates that are less advantageous. Although VPAG hasn't delivered the results that developers were anticipating for 2025, some concerns from developers might be eased by promising aspects of the program. For instance, its unique investment feature is already being leveraged to strengthen the UK pharmaceutical research and development sector. Nevertheless, GlobalData predicts that drug developers will want more reassurances that the VPAG program is viable and offers better rates, hoping that the high payback rate in 2025 is just an anomaly.

This article is part of GlobalData’s Price Intelligence (POLI) service, which is the top source for information on global pharmaceutical pricing, health technology assessment, and market access. It also incorporates important insights from GlobalData's expertise in epidemiology, diseases, clinical trials, and manufacturing. Our dedicated team of experts keeps a close watch on pricing and reimbursement policy changes, outcomes, and data analysis globally to equip our clients with valuable early insights and warnings. If you would like a demonstration or need more information, please reach out to us here.

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