The Association of the British Pharmaceutical Industry has agreed the terms of the 2019 Pharmaceutical Price Regulation Scheme (PPRS) with the government, which is expected to come into effect from January.

The voluntary scheme – which is designed to keep growth in the branded medicine bill “predictable and affordable” – will place a 2% cap on the growth in sales of branded medicines to the NHS.

This means that any growth in sales of branded medicines above 2% will be underwritten by the pharma industry, which is expected to save the NHS £930 million next year.

Other measures to keep the cost of medicines to the NHS affordable are included in the plan, such as simplifying price controls, and faster and more flexible commercial discussions between the NHS and pharmaceutical companies, according to the Department of Health and Social Care.

“Cutting-edge and best value medicines will be fast-tracked and we will cut our medicines bill by £930 million next year following tough but constructive negotiations with the pharmaceutical industry – money we can reinvest into better NHS services, alongside the NHS long-term plan,” said health and social care secretary Matt Hancock.

“The deal will also ensure the UK remains an attractive hub for research and investment so the next generation of ground-breaking treatments can be developed here with patients benefiting earlier.”

“This agreement is a commitment by the government and the NHS to work with us to support innovation for the benefit of patients. This means that people across the UK should see better and faster access to the most effective new medicines and vaccines,” added ABPI chief executive Mike Thompson.

Leslie Galloway, chairman of the Ethical Industry Medicines Group (EMIG), has also broadly welcomed the terms of the deal. His take on the deal is as follows:

“The deal is done. After undoubtedly tense negotiations, the PPRS heads of terms have just been published, and although some amongst our sector may grumble I for one am not a critic. In my mind, the industry negotiating team has achieved what once looked to be impossible. They have achieved a 2% annual growth rate in the 2019 PPRS: a rate better than in each and every year of the 2014 PPRS. They moved what I know for a fact was intended to be an absolute government red line which would have set the growth rate even lower than this. And for my members, they brought back the taper which grants relief to smaller companies. That is all welcome news.

Yes, of course when the negotiations started we hoped for more. We wanted the budget impact test and highly specialised technologies thresholds to be abolished. We hoped that it might be possible for new assessment pathways, based not on NICE’s approach but something more sophisticated, to be introduced. We called for the rebates from industry to be recycled back into spending on the latest treatments.

But these lofty ambitions were always that: just ambitions. These negotiations took place in an environment of immense economic uncertainty, clouded by the prospect of a no deal Brexit. And they were undoubtedly a shotgun negotiation: the publication, during the process, of a consultation on a punitive statutory scheme put paid to the belief this was in any way a negotiation between genuine equals. And that is why I think the industry negotiating team should be congratulated on the job they have done today.

Amidst the plaudits, nonetheless, we must reflect on the lessons that can be learned, so that we do all that we can to maximise our advantage heading into the next negotiation. And to me, there are three.

The first is that the Government has threatened the industry during every recent PPRS negotiation with a reduction in the standard NICE cost-effectiveness threshold. This is an entirely empty threat, and in the future the industry must treat it as such. There is no conceivable scenario in which any government would accept the political risk of reducing the threshold: every patient denied access to a drug as a result would be a vivid demonstration of the direct impact of government cuts. Opposition parties, whatever their colour, would reject the change. Threatening to reduce the threshold is therefore a bluff, and we should call it out as such. Without doing so, we will never be able to achieve through negotiation the more generous thresholds the industry needs to continue to invest in innovation.

The second lesson for industry is to resist the urge to develop its own, detailed policy solutions to challenges that it sees, when policymakers do not perceive that these challenges exist. Policymakers do not, after all, welcome solutions to problems they do not have. Much time has been spent by industry over the last few years developing alternatives to the NICE appraisal process, or by considering ways in which the HST process can be reformed, without first convincing policymakers that this work is even needed. We now have perhaps just a few months before the already-announced reviews of the NICE process commence. Unless we work constructively with parliamentarians, policymakers and charities to persuade them that there are genuine problems that need to be solved, these reviews will simply conclude that the existing systems are fit-for-purpose, and they will reject any need for change.

The final lesson relates to a more existential threat. It is abundantly clear after this year’s negotiation, if it was not before, that the statutory scheme is used by the Government as a weapon to force the industry to acquiesce to its demands during negotiations on the voluntary scheme. Having done so on multiple occasions in the past, we know they will not hesitate to proceed in the same way in the future. Industry must find a way of escaping this trap. My own view is that the Government’s threat to the industry of either having to accept a voluntary outcome on terms the Government dictates, or forcing all companies into a statutory scheme, is as false as the threat to reduce the cost-effectiveness threshold. I do not believe the Government wants to be trapped in a situation where it is directly regulating the prices of drugs, and where every drug denied to a patient is therefore a problem which lies at the minister’s door. When the Government launches a consultation on the statutory scheme during the next PPRS negotiation – as they will surely do – my counsel to industry negotiators will therefore be to walk away, challenge the Government to force all companies into the statutory scheme, and negotiate on equal terms when the Government returns to the negotiations after its bluff is called.

Talk is cheap, of course, and I know it is easier to comment on the negotiations than to participate in them. Ultimately, the PPRS deal announced today is a good outcome for industry. If we reflect candidly on the lessons learnt from this negotiation, we can do better for industry, the NHS and patients in the future.”