231. Can The NHS Afford The UK-US Pharma Deal?

0:10Hello and welcome to The Rest is Money with me Robert Peston. and with me Steph McGovern but also with us today and we're really excited about this interview because there's so much to talk about we've got Lord Patrick Vallance with us you will of course remember him from all the amazing tv things he did during the pandemic when he was the chief scientific advisor kind of telling us what was going on and keeping us right on all of that he is by trade a physician scientist clinical pharmacologist he's worked in academia He's led research and development at the pharmaceutical giant GSK. He was, of course, chief scientific advisor during the pandemic and is now minister of state for science, innovation, research and nuclear.

0:53So he's got a big job, but he's clearly used to big jobs, isn't he, Robert? He's had an incredible career, hasn't he? He has. And he's, I think, one of the most important members of the government because this is a government that claims that its mission is to get the growth rate of the economy up. And I would argue that what he is doing in helping to translate our incredible science base in this country into commerce, into businesses, into, you know, great British enterprises. I don't think there's a mission within the government or a project more in government more important than that. So let's bring in Patrick Vallance.

1:30Patrick, it's great to have you here. I mean, we've got so many things we want to talk to you about. But I guess the big thing we wanted to start with is this announcement this week about the trade deal with America. Obviously, it's been a big year of trade deals for lots of reasons. And we've been waiting, haven't we, to see what's going to happen with pharmaceuticals. So can you just explain it for us in kind of layman terms then what this deal means for us? Maybe I'll take a step back and say, if I think about the time since I qualified as a doctor, nearly all of the really big changes have been through new medicines.

2:05New medicines made HIV a chronic disease rather than a death sentence. Medicines have made cancer a chronic disease, reduced heart disease, cured HCV. So medicines are fundamental to a modern, innovative health service. We're in a position where there was a risk that we wouldn't be able to get those medicines, the new medicines, and apply them right the way across the UK in an equitable way because of the prices that we were paying and because of the potential of a trade barrier. So it's really great news that we've ended up with a zero-tariff system. We've got an increase in prices for new medicines, which means we can get more of the innovative new medicines directly in.

2:46And it means that we can get those out and used right the way across the NHS in an equitable way. So it's good news for patients. It's good news for the industry as well. And that means we'll get more investment back into the UK from industry. And we are the biggest life sciences sector in Europe. So it's important we keep that going. So I think this is a very good news deal for us and for patients. And just to be absolutely clear so people understand, President Trump was threatening tariffs on our exports to the US of pharmaceuticals. He is now guaranteed there will be no tariffs on UK exports of pharmaceuticals to America.

3:23But the other side of it, which is not something that is necessarily common sense for most of our listeners, is one of the ways in which the NHS decides whether or not to purchase a new drug, a new treatment, is based on the number of additional years relative to the cost of sort of decent life that it conveys. What this deal does is it gives the NHS the ability, I think, but correct me if I'm wrong, to purchase drugs where the number of years of better life has been sort of shortened, as it were. And that is the other side of, in a sense, being prepared to pay more. Is that right? The way it works is there's something called a cost per quality.

4:11How much are you prepared to pay for what's called a quality adjusted life year? Yeah. Okay. and that threshold has been fixed since NICE was first formed over 20 years ago and so what this does is that increases that threshold that means more medicines could be made available that currently wouldn't get through the system and it means if we focus on the right innovative medicines we'll get them into the NHS quicker to patients and so that was also a good news. And do you happen to know because obviously there's been quite a lot of controversy around for example some Alzheimer's treatments? Do you know if it's also retrospective, whether if there are some drugs that are currently excluded, and ICE can now revisit whether or not to purchase those drugs on behalf of the NHS?

4:54It's a prospective thing for new medicines. But I mean, you know, companies will always come back and ask again as more evidence emerges. And what about the cost to the NHS? Because some people have been concerned this is going to be very expensive for the NHS. The NHS used to spend about 14 % of its total spend on medicines. And in more recent years, that came down to about 12%. But from 2015 onwards, it's gone down to 10%. So we spend a really low fraction compared to any other health service on our medicines. This will push it back up towards 12 % over time. So 12 % of the budget will be spent on medicines.

5:28That's what you're saying from this. Well, that's what the implications of this are, yeah. Yeah. And can I just, because I do think it is quite complicated to understand this kind of value for money rules you have. So is there a way of explaining it with like an example of a medicine or anything? So, for example, my daughter has got impetigo at the minute. So she's got this antibiotic cream to get rid of it. Let's say that costs two quid. And the value for money thing has worked out that that's a decent treatment to have. But what you're saying is there might be like a better treatment for it, which is a fiver.

6:03and the value for money analysis would normally not allow that to be used because it's too expensive. But now, because the threshold's higher, this better treatment, which might zap it away and solve it in an instant, could be used. Yeah, the principle of what you've described is essentially right, which is, if you can increase the threshold, then you could have a new treatment which has to be better than the old one. And the question is, how much better does it have to be? So, it needs to be better enough to be worth paying that money. And if it is, that will now be included. And the threshold for that has just gone up so we can get more medicines in that will improve the outlook for patients.

6:42So even though it's going to cost more, what you're saying is it will allow patients access to better treatment that will hopefully solve things faster or get rid of things or whatever else. Yeah. And that's why I started with, if we look at how medicines have radically changed the practice of medicine and healthcare, this allows us to get the very things which are going to be crucial for prevention, for treatment, and ultimately for cures. And we are now in an era where we are seeing cures. That may sound a bit odd, like haven't we always had cures? We haven't actually. We've often had long-term treatments.

7:15We're now seeing cures come through. So it's a great time to be doing this, to be able to say now we can make sure that we do that with the right cost per quality, so the right ability to pay a bit more for those ones that really we do need. Does this really principally, though, apply to life-threatening illnesses? Would it apply to... My daughter's impetigo, which is clearly not life-threatening and can be solved quite easily anyway. The question is how much benefit there is. So let's take an extreme example. Let's say the antibiotic took weeks and weeks and weeks to do it, and you had something that you gave once and it completely cured it, and it was a bit more expensive.

7:50That would probably get in.

7:55But if same two weeks, it's unlikely it would meet the threshold. The one bit though that the Americans focused on that I noticed, I don't even think it was in the government's press release, but the Americans in their release about all of this did focus on the fact that the rebate that drug companies are forced to pay to the government depending on their sales is also going to be reduced, which does mean that's another way of the cost of all pharmaceuticals becoming more expensive for the NHS. Can you just sort of talk us through how that works? Because obviously for the Americans, because if you're an American drug company, that means you effectively get more for your pharmaceuticals right now, anything you sell to the NHS.

8:42That looks like a good deal for them, doesn't it? There's a deal that was put together a few years ago, and it's a very complicated deal, which works out a rebate formula. And the rebate formula came in at 23 % for the last year, which is much higher than anyone expected. And that's caused a big problem. What the deal does is cap that at 15%. So that gets back to something which actually the original deal was supposed to end up around that. So it is, you're right, it's a lower rebate that we'll get. So that will cost the NHS money. That will cost money, yeah. Do you have any idea how much that'll cost the NHS per year?

9:17Well, I mean, the whole thing together, The whole deal together is what drives this up from roughly 10 % to roughly 12%. And what would 2 % be in billions of pounds in terms of cost to the NHS? Well, I mean, it is going to be billions, ultimately. It's going to ramp up over time. So this year it won't be because it's only new medicine. So it's an incremental thing as we go through the years. But it is. I mean, the drugs budget is billions of pounds. And the NHS budget is over 200 billion pounds. So it is a significant sum of money. So that would be about three to four billion quid on that basis.

9:51Ultimately, it could be up at that sort of level. And if you're an NHS user, as we all are, should you, I mean, on the one hand, it's great news and will be good for the NHS if currently conditions that are costing the NHS tons of money just in ongoing acute treatment become less acute because, you know, people are essentially getting better faster. So that'll save the NHS money. should patients be worried about other basic services needing to be cut to pay for this do you think the health service budget is it's always a series of trade-offs yeah i mean you're never going to be able to do absolutely everything you want to do so it's always a question of where the trade-offs are and here there is a very clear desire to say modern medicines that really make a difference and as i say some of them are going to be curative something can be preventative should be available because ultimately they benefit health they keep people out of hospital They improve the outlook.

10:46It's the dramatic change in the outlook for cancer and so on. Those are the things we need in order to have an effective, modern and efficient health service. So might it be that, for example, prescription costs might go up? No, no, that's completely unrelated to this. And of course, the vast majority of medicines we're talking about don't fall into the category we're talking about. We're talking about the new medicines, the things that are coming along now. And part of the way the system works is that NICE and the procurement system for the NHS works to make sure that as drugs become older and they go off patent, we get the cheapest possible version of that drug.

11:22So we're not spending money unnecessarily on things that actually don't need to. So this is about focusing the resources really clearly on those new medicines that, if adopted quickly, will have an immediate healthcare benefit. Now, you're somebody who did spend quite a lot of your career in the pharmaceutical industry. And as science minister, you will be talking to the people who run our world class pharmaceuticals companies. I mean, we have, you know, one of the strengths of the British economy is our so-called life sciences, pharmaceuticals businesses. Was there a risk before you struck this tariff-free deal with America that they would have relocated more of their operations to America to avoid the tariffs?

12:09And do you think that risk has now gone away? That is a risk. And I think that the UK is an extraordinarily good place to be able to do research and clinical trials and all the things that matter to companies. So companies really like the UK for the science and the opportunity to develop and discover medicines here. But the commercial environment was one that was becoming increasingly unattractive to them. And that was because of the threat of tariffs. It was tariffs plus it was pricing. Oh, I see. So they themselves didn't like what they were being paid by the NHS for their drugs. Correct. And the fact that you've shifted this up is not only good for a sort of, in a sense, American based pharmaceutical companies, but it's also something that is more likely to keep essentially our drug companies located here.

12:55Yeah, but that's part of the sort of broad economic picture here. I mean, this is a really important part of our economy. Yeah. And we are the third largest for pharmaceuticals, and we have a very important part of the work going on in the UK. We want to keep that. We want to grow that. And you can see how attractive the UK is actually by new companies, many of which are sort of not as established with their old products as the ones we're talking about that are coming here now. So Moderna has been a billion, billion pound site here. BioNTech has done a billion pound. Convotech, 500 million. So the people who are coming in here at an earlier stage, what we need to do is grow those, keep them, and make sure we have this thriving range of big, small and medium sized companies.

13:35And do you think that there are therefore areas in science and tech where we as the UK have a genuine competitive advantage, but we're under investing in it? Are there areas where we should be investing more because we are the leaders in it to get that commercial growth as well? It's pretty interesting. I got a note actually from a well-known venture capitalist in the UK called Saul Klein. He put out a series of things to me saying, a lot of this is very clear. This is evidence, not optimism was his words. He sent me the same note. I think he sent it everywhere. It cheered me up. And I agree with him.

14:12I mean, you look at it, we've got four out of the top 10 universities in the world. There was a European spin-out report recently that showed of the top 10 universities for spin-outs in Europe, five were in the UK. You know, we've got an extraordinary base there. We've got the most venture capital coming in from anywhere else in Europe. And the HBSC report that came, Deal Room report a few weeks ago that came out, showed that Q3 was the highest that it's been for some time. And it's on the way back up again. This is inward investment. Inward venture capital investment. So we've got a lot of startup companies, a lot of growth companies, and some very big companies.

14:53And those areas where we've got big companies, which is with life sciences, one of those, help the other ones. And then there's some other areas where AI, we've got a lot going on. We can definitely do more there. We've got very strong emerging sector in quantum sciences, including quantum computing. We've got very good materials science. We've got very good, actually, some aspects of agri-science are pretty good, like the John Innes Center is really world-class. So we've got a series of areas where we really are world-class, where we now need to move from startups to scale-ups. If I could just ask on universities, whenever I'm feeling gloomy, one of the things I do think about is how incredibly strong science base is in our universities.

15:38And as you say, depending on how you measure it, you know, somewhere between four and six of the world's absolutely top universities on all league tables, whether they're coming out of America or China, you know, our universities are great. So I suppose two questions. One is when so many other British institutions have, I'm afraid, somewhat crumbled over the last 20 odd years, why do you think we have succeeded in retaining universities as formidably? But secondly, given that it is government policy to reduce the number of foreign students coming here, and that was an enormously important source of income for so many universities, how worried are you that some of that competitive advantage may be lost?

16:22I certainly don't think we should rest on our laurels on any of this. We have a very long heritage of having a university system which is actually quite different from many other countries. We have a much more integrated teaching and research system. So in many countries, universities are teaching and research is done somewhere else. Ours are done in the same place, and that matters. And I think that means that many people who come to a UK university end up being exposed to leaders in their field. They get exposed to the concept of research. They get exposed to the concept of an inquiring mind that doesn't accept the current truth as being necessarily the truth forever.

16:59And I think that's been a really key part of our system and one that we need to nurture and value. Second point is that we have continued to fund what I call basic curiosity-driven research. Things that aren't going to give an economic benefit in the next five years, but are the foundation of things that happen in 10, 20, 30 years. Is that why we're strong in quantum in your view? I think that's exactly why we're strong in quantum. We have supported that for years before it became something, which it is now, which is a potentially commercial proposition. where we've let ourselves down over the past 40 years or so, is taking enough of that through to form companies.

17:36So that's what we've really got to focus on. Can I ask, how does it work then, if you are in a university and you're working on some research, and then there is some type of commercial value to it? Does someone tell you? Does it, you know, one of the professors go, I think there's something to be done here? Or is it like when you have people studying arts, they will have like a graduate fair and then I don't know Sarchi will rock up and buy loads and suddenly make them a top artist how does it work with setting up a science business in a university and you know how easy is it to do that I mean Robert you said earlier on I spent most of my career in industry I spent 11 years in industry I spent 20 years in the university and NHS and I can tell you what it's like 20 years ago if you said you had an idea that you thought might have commercial value you'd be told no no no no no no we don't do that sort of thing and and And literally, that would have been the answer.

18:27But now, if you go around to any universities and you meet people in laboratories, loads of them are saying, I'm going to set up a company. And so the whole culture's changed. And there's much more entrepreneurism to do that. There's money available to get started. Universities are encouraging it. They've also moved away from a situation that we had where the university would want to retain a lot of the value. So there was a bit of a sort of, I'd like to retain 100 % of nothing. whereas we're now in a sort of I'm prepared to retain a very small percentage of something that could be big so it's much easier to form companies now and we're doing really well on startups and spin outs that's not our problem any longer and they're everywhere aren't they it's not just Oxford Cambridge Sheffield Imperial it's Newcastle it's everywhere it's everywhere Newcastle as you as you were that's really exciting but as you say the thing that I mean we talk a lot about this on this podcast that does worry us is we've got this great research that then gets translated into startup companies.

19:25But too often, these startup companies either sell themselves completely, you know, obviously the famous one was deep mind to alphabet, but, you know, there are endless examples of essentially foreign businesses buying these great British companies and therefore not enough of the benefits staying in the UK. But even when it comes just to the finance. We've got Chad Edwards, who founded Cusp AI. You were talking earlier about our leadership in material science and AI. That's a business that combines both. They are still broadly based in the UK. But when they were looking for tens of millions of pounds to expand, all the money came from abroad rather than from British investors.

20:07And that, again, feels like a missed opportunity for the UK. How do we provide a financial infrastructure that means that the maximum returns as these companies grow flow to the UK in terms of revenue, taxes, jobs, and the rest? Yeah, it's a great point. It's really a key area for the government that we focus on. Just a couple of things before that. I mean, DeepMind, of course, got sold to Google, but actually it's established in King's Cross an extraordinary system of companies building up around there. So I think that is a big, actually, domestic success story, ultimately. But I wish, nonetheless, the half a trillion or whatever it's worth went to British investors.

20:49Yeah. And CuspAI, which is a great company, has just got access to the new Isambard AI compute facility, sort of thing that really matters to companies like that. So coming back to the finance, we see that at the beginning of the process, there's a reasonable amount of UK investment goes in at the startup phase. As you get to the scale up phase, UK investment as a percentage drops off dramatically. And we're in a situation where pension funds now are obviously being encouraged through the Mansion House Compact, which is a deal to try and get them to put money into this, to put money into these scale ups.

21:24And the reason it's important is A, it's going to make the scaling up in the UK possible. Secondly, and I think this is worth saying, is Canadian pension funds have been doing this for years. And as somebody said to me recently, haven't Canadian pensioners done incredibly well from UK science? And the answer is yes, they have. And why on earth wouldn't we do the same here? So we're really determined. And if you see in the budget, actually, there are a series of measures all geared towards trying to get more capital flowing into scale-ups to get the opportunities better for people in scale-ups to get shareholding and so on so that more people benefit from this growth as we go through.

22:01So I think that that scale-up point is very well understood, big pressure to try and get the release of capital. And for me, it's sort of weird that we're not doing it. It's there as an opportunity. US and other investors are benefiting from it. I think it's a failure of some of our finance industry to realise what we're sitting on. We've got to go to a quick break. There's a lot more that we need to ask Patrick Vallance. We'll be back with him in just a few minutes. Yes. And also after the break, we're going to be talking about business travel, but more on that in a more.

22:37This episode was brought to you by the Teach and Further Education campaign. Now, from bridges to train lines to wind turbines, Britain's infrastructure didn't just appear overnight. It was built by engineers and those engineers were taught by someone. That someone could be you. If you're an engineering professional, your real world industry experience could be more valuable than you realise. And that's what further education is all about for learners aged 16 and over who aren't in school or studying for a degree. So take Donna, for example, who became a computer aided designer at an electrical engineering company in her 30s.

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23:57Visit gov.uk slash teaching further education to find out more. Welcome back to The Rest Is Money. We're going to carry on our chat with Patrick Vallance in a minute. But this bit of the show has been brought to you by Blacklyn, the global show for service, because it wasn't that long ago. We were all talking about business travel being dead. We wouldn't need to go into the office for meetings and things because we could do them all virtually. We're going to look at why business travel is back on the agenda, why it's so important and the value of being in the workplace. Obviously, we're talking a bit about the importance of face to face in a work sense.

24:34But I also think in a personal sense, I hate the idea of just broadly hate the idea of living in a mainly virtual world. It's interesting as well, because I've talked to loads of business people about this, actually, over the last couple of years. And it is about those moments that you don't have meetings for. So it's those moments where suddenly an idea comes to your head and you're, you know, you see someone when you get in a cuppa or whatever. and you go, actually, oh, while I remember having seen you, this is what I meant to say to you. It's those moments. But also on top of that, there's another thing which I think is really important.

25:10And it's what you learn from being in the office from other people. Like I remember when I was starting out as a journalist and just hearing other people on the phone helped me be better at that. You know, like how do you ring someone and convince them to come on TV and, you know, talk about whatever's going on in their lives? And I would listen to how other people did those calls. And I think that's another thing, too. If you've got, you know, particularly if it's younger or newer members of your team, yes, OK, you want the flexibility of being able to do stuff from home. But you also need them to just be able to see how like social cues or how people handle phone calls or how they handle meetings or whatever it is to learn from them as well.

25:51That's such an important point. And just to be clear, the thing that worries me is we went through this period of saying, well, nobody needs to travel anymore, that you can do everything by Zoom or its equivalents. And that seems to me to be now, you know, crackers, don't you think? Yeah, yeah, yeah. And actually, there's interesting statistics and analysis that's been done behind all this, because actually, deals often close faster when they're handled in person rather than virtually. And you can see that, you know, if you're a salesperson, you're way more likely to get something over the line if you're physically in front of someone.