The British Generic Manufacturers Association (BGMA) has questioned the detail of the newly agreed voluntary scheme for branded medicines pricing, access and growth (VPAG), warning that price erosion calculations could damage competition and lead to drug shortages.

The government hailed the new VPAG agreement with NHS England and the Association of the British Pharmaceutical Industry (ABPI) as a ‘landmark deal’ that is ‘set to save the NHS £14bn in medicine costs over the next five years’.

The agreement introduces a new affordability mechanism for older medicines. Those that have not seen price reductions will carry a top-up rebate rate of up to 25% in addition to the older medicines base rate of 10%. The top-up tapers down for older medicines that have already seen significant price reductions.

Mark Samuels, BGMA chief executive, expressed concern over the structure of the price erosion mechanism (PEM) in the agreement.

He said: ’Earlier this year, we published plans for a PEM as we believed it was the simplest way to safeguard the supply to the NHS of off-patent medicines, which represent the vast majority of prescriptions used by UK patients.

‘While we are pleased this principle is at the heart of the new deal, we are very disappointed that the PEM appears to damage competition because of how the reference price is calculated.’

According to Mr Samuels, the effect will be a reduction in ‘plurality of medicine suppliers for the NHS’, which will ‘increase the drug shortage risk’.

He added: ‘We were not made aware of this reference price calculation despite requests for more information from all parties.

‘If apparent in the final agreement, the reference price calculation is a high hurdle for the generic and biosimilar sector, hampering the supply of these medicines to the NHS.’

The BGMA had previously attempted to win a place at the negotiating table for the VPAG deal to argue its case regarding off-patent medicines but failed in a High Court challenge to do so.

According to the government, the new VPAG deal – which will run until 31 December 2028 – will help keep the price of vital branded medicines affordable for the NHS.

Victoria Atkins, health and social care secretary, said: ‘Millions of NHS patients will benefit from this momentous, UK-wide agreement. Not only will it save the health service billions of pounds every year, but it will also allow more patients to quickly access the latest life-saving medicines and treatments.’

Medicines represent the second highest proportion of NHS spend, worth £19.2bn in England in the 2022/23 financial year. Some £14bn of this was for branded medicines, with the industry paying the NHS back £2bn in rebates that year.

The new agreement, however, sets a yearly cap on the total allowed sales value of branded medicines to the NHS each year. Sales above the cap are paid back to the government via a levy.

The level of annual allowed growth in sales of branded medicines will double from 2% in 2024 to 4% by 2027.

Under the agreement, which comes into force in 2024, the pharmaceutical industry will also invest £400m over five years through the Life Sciences Investment Programme. The aim of the funding is to accelerate work on clinical trials and manufacturing, and assist health technology assessment agencies.

Commenting on the new agreement, Richard Torbett, chief executive at the ABPI, said: ‘This is a tough deal which underlines the essential role innovative medicines and vaccines will play in addressing the health challenges of the future.’

‘The industry supports this agreement, despite its restrictions, as it provides important support for patients and the NHS and commits to giving them access to the transformative treatments they need,’ he added.