Beyond the VPAG breakdown: Beyond VPAG to a NICE Overhaul

The relationship between the UK government and the pharmaceutical industry has entered a new phase. The high-profile breakdown of the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) negotiations this past summer, led by Health Secretary Wes Streeting, set a tense backdrop. That stalemate, driven by sky-high rebate rates and industry criticism, has now escalated.

We have seen a string of major companies, including Merck, Eli Lilly, and AstraZeneca, halt or threaten to scrap significant UK investments, forcing a fundamental rethink from the government.

Now, months after the initial breakdown, a new strategy is emerging. The government is reportedly preparing to overhaul the decades-old formula used by NICE to determine a medicine's value. As this new, complex negotiation unfolds, the immediate uncertainty continues. The ABPI and the government have just agreed to a further extension for the VPAG 2026 decision deadline, moving it to 14 November 2025.

These events have direct consequences for the UK’s ambition to be a science superpower. This article is a follow-up to our previous analysis, "UK Drug Rebate Rise and VPAG: A Perfect Storm for Pharma", providing a deeper look at why the talks stalled, the complex dynamics within government, and the new strategies emerging in response.

The VPAG scheme: a brief overview

The Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) is an agreement between the government, the NHS, and the pharmaceutical industry. Its purpose is to cap the growth of the NHS's spending on branded medicines. When spending exceeds the agreed cap, companies pay a percentage of their sales back to the government as a rebate. The scheme aims to provide fiscal predictability for the NHS while supporting patient access and the life sciences sector.

A shift from stability to strain

Voluntary pricing schemes historically offered a stable environment. However, the VPAG rebate rate has escalated from 15.1% at the start of 2019 to an unprecedented 23.5%. This final figure was more than 50% higher than the forecasts from both the Department of Health (15.3%) and the ABPI (15.8%), raising serious questions about the scheme's predictability.

The situation is compounded by a paradox at the heart of the scheme: because the rebate is linked to the growth of new medicine sales, the successful launch and adoption of innovative treatments paradoxically increases the rebate burden for all members. This dynamic, as global CEOs highlighted to UK officials, directly threatens future investment.

The stalemate: why negotiations broke down

The breakdown in the mid-term review was not sudden. Following a spending review, the government allocated £1 billion over three years in a fixed rebate and risk-share scheme. However, this structure conflicted with Most Favored Nation (MFN) pricing constraints tied to the US market, leading UK companies to be instructed not to accept it.

The ABPI board deferred votes on the offer through July and August 2023, until the government issued an ultimatum. The industry’s counter-requests included:

• A volunteer scheme with a single-digit rebate
• A phased end to the volunteer scheme
• An increase in NICE’s cost-effectiveness thresholds

The government rejected these requests, causing negotiations to stall on 22 August 2025.

From stalemate to a new front

The breakdown of talks in August 2025 was the culmination of mounting frustration. That impasse, however, appears to have shifted the debate and the government's new proposal adopts one of the suggestions from industry  to change the NICE cost-effectiveness threshold. This is the formula that determines if a drug is 'value for money'.

• The current system: In place since 1999, the formula approves medicines that cost less than £20,000-£30,000 for every 'quality-adjusted life year' (QALY) they provide.
• The problem: The ABPI has warned that if this threshold had risen with the cost of living, it would be closer to £56,000.
• The proposal: A new range of £25,000-£35,000 is reportedly under consideration, though the ABPI is calling for a figure closer to £50,000.

This move signals a recognition that price increases are necessary to stop the wave of investment leaving the UK, a point conceded by Science Minister Lord Vallance, who is negotiating the new deal.

New pressures and internal hurdles

• While a NICE overhaul is welcome news for the industry, it creates a new internal conflict for the government.
• The funding battle: The move threatens to put Chancellor Rachel Reeves on a collision course with Health Secretary Wes Streeting. The Treasury is insisting that the multibillion-pound cost of paying more for medicines must be funded from existing departmental budgets.
• External factors: The pressure is not just internal. The US administration, under Donald Trump, has escalated tensions by threatening 100% tariffs on the sector if it does not prioritise investment in America.

This leaves the pharmaceutical industry in a complex position. The government is finally addressing a core problem (NICE valuation), but the funding for this solution is far from secured. This uncertainty is reflected in the last-minute deadline extension for the VPAG scheme, giving companies just a few more days to decide whether to stay in the voluntary scheme or move to the even less predictable statutory scheme.

A practical way forward: the rise of subnational partnerships

While the national picture is fraught with challenges, a more optimistic and pragmatic approach is emerging at the subnational level. The UK pharmaceutical industry is a major economic contributor, adding £17.6 billion annually in Gross Value Added and supporting over 126,000 jobs.

To protect this value, some are focusing on building local partnerships. By working directly with regions like Manchester and North West London, companies are developing Memorandums of Understanding (MOUs) with local health systems. These agreements help align system readiness with upcoming innovations, forecast future needs, and share risks transparently. This grassroots approach improves the adoption of new medicines and delivers tangible patient benefits, even amid the broader sector challenges.

Conclusion

The failure of the summer's VPAG talks has forced a more fundamental discussion about how the UK values innovation. The breakdown was not simply a disagreement over a percentage point but the result of structural issues, competing governmental priorities, and a growing deficit of trust. The government's willingness to reform the 25-year-old NICE threshold is a significant development and a positive step toward protecting investment in the UK.

However, the new battlefield is in Whitehall, where the Treasury and the Department of Health must resolve how to pay for this new deal. The pharmaceutical, medtech, and NHS sectors are watching closely. The outcome will determine whether the UK government can repair its relationship with the industry and reclaim its status as a life sciences world leader.

Navigating this complex and rapidly changing landscape requires specialist expertise. At CHASE, we partner with pharmaceutical, medtech, and NHS professionals to build the teams that can meet these challenges. Our in-depth understanding of the sector allows us to connect talent with opportunity, helping to drive the life sciences industry forward.

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