Firm in NHS row over costly cystic fibrosis drug paid no UK tax | Business

A drug company that has been in dispute with the NHS for two years over the high price it wants for a cystic fibrosis medicine has paid virtually no UK corporation tax, the Guardian can reveal.

Vertex Pharmaceuticals (Europe), based in London and Oxford, had a turnover of £5.3bn in the five years to the end of 2017, largely from sales of its cystic fibrosis drugs Orkambi and Kalydeco.

The company declared an operating loss in 2017 after paying its profitable US parent company to manufacture the drugs. It received £7m in tax credits from the UK government for investing in research and development.

The NHS does not offer patients Orkambi, which was put on the market at £105,000 per patient per year. Vertex and NHS England are in stalemate over the drug, which is one of the first to treat the underlying genetic causes of cystic fibrosis, a disease that kills half of those who have it before the age of 31.

NHS England says Orkambi is not cost-effective and the bill to provide it would be unaffordable. There are 10,400 cystic fibrosis patients in England, of whom 40% are thought to be suitable for the drug.

Vertex has said it has offered “the best price in the world” to NHS England and has rejected a counter-proposal of £500m over five years for access to Orkambi and other drugs in the pipeline.

Patients and families are distraught. Robert Finlay, whose seven-year-old daughter is suitable for Orkambi, said: “I’m sure what they are doing must be legally acceptable under the tax rules, but it seems to me it is completely ethically unacceptable. It seems to me it is more proof, if it is needed, that this company’s moral compass has fallen off.

“If it was down to me personally, I’d have the entire NHS budget spent on my daughter until she is cured, but I know it is not fair and I know it’s not right.”

Finlay, who preferred not to use his real name, was speaking a day before his daughter was due to go to hospital to begin a further course of a lifetime treatment that will deal only with the symptoms of the disease.

“It’s an extra burden on a girl who just wants to be a seven-year-old. She just wants to play,” he said. “She is eligible for Orkambi. She could have been on it almost three years already.”

Cystic fibrosis patients lose an estimated 2% of their lung function each year. Orkambi is available from Vertex only on compassionate grounds to those who have deteriorated so far that they may need to join the lung transplant waiting list.

Emily Birchall, whose two-year-old son has cystic fibrosis, said: “They are clearly a company driven by excess profiteering and that’s the only motivation I can see.”

She said one of the main arguments Vertex made to patients and their families was that the appraisal process used by Nice (the National Institute for Health and Care Excellence) in deciding the cost-effectiveness of drugs did not work in rare diseases, where companies could not make much money because there were relatively few patients.

“They are incentivised in other ways. They have got tax breaks for developing drugs for rare diseases,” she said.

Vertex Pharmaceuticals (Europe) is responsible for the global sale of Vertex products and employs 300 people. It has reported total sales of $7bn (£5.3bn) over the past five years but did not pay any UK corporation tax over the period, instead receiving £7m in tax credits.

A spokesperson said the company had not paid corporation tax because the business had been running at a loss. Accounts filed with Companies House for 2017 show the company lost $237m on revenues of $2.45bn.

Its outgoings included nearly $1.9bn on “cost of inventory”. This usually refers to producing and storing products, which one pharmaceuticals expert told the Guardian would more typically cost between 10% and 30% of revenues.

Asked about the size of the figure it reported for cost of inventory, Vertex said the sum was paid to its parent company Vertex Pharmaceuticals Inc, based in Boston. The company said it applied OECD guidelines and all relevant legislation to transactions between companies within the same group. The US firm made a net profit of $263m for 2017, which it described as an “outstanding year”.

A spokesperson said: “We have invested heavily in the US and the UK and expect the majority of our income to be recorded in these countries. We anticipate being a significant taxpayer in both these locations over time. We anticipate increased taxes being paid in the UK starting 2021, assuming continued growth of our non-US operations and future reimbursement.”

While Vertex’s UK-based European business is ultimately owned by the US-based Vertex group, its immediate parent company is registered in the Cayman Islands, a notorious tax haven.

Vertex said the Cayman Islands entity did not receive any income or revenues and was instead used to house the intellectual property of some of its drugs.

Vertex Inc has previously been criticised for a $78.5m remuneration package awarded to its chief executive, Jeff Leiden, in 2017. He was the third highest-remunerated healthcare CEO in the US S&P 500.

Leiden and NHS England will give evidence on Thursday to the health and social care select committee, which is investigating the impasse over the cystic fibrosis drugs.

Last month the Guardian revealed that two UK directors of Vertex received £15m worth of share options in 2017.

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