Drug prices to the National Health Service are to be cut 5% from next January, and there could be a further, one-off reduction of 2% in 2010 or 2011 if the nation’s drugs bill grows faster than 6.7% in either 2008 or 2009, the government and industry have announced.

The deal forms one of the “heads of agreement” confirmed so far in the re-negotiation of the Pharmaceutical Price Regulation Scheme, which is still ongoing. In a joint statement yesterday, the Department of Health and the Association of the British Pharmaceutical Industry said that the talks are “making good progress on agreeing arrangements that include measures that better reflect the concept of value.”

“Further negotiations on the detail is required over the next few weeks, including on making sure that access to medicines reflects their value to patients, before the new scheme can be finalised and implemented,” the statement went on. ABPI director-general Richard Barker, speaking to journalists, added that the discussions have been “long and tough, and they’re not over yet.”

Nevertheless, the 5% agreed drug price cut can be seen as a victory for the industry, as government ministers had reportedly been seeking a reduction of around 10%.

3.9% not 2% cut to branded drugs
The cut will be made up of a 3.9% base reduction in the prices of all branded medicines in the first 12-month period from January 2009 when the new Scheme is expected to commence - not the widely reported 2%. In fact the 2% is an average calculated over a five-year period, allowing for the fact that many blockbusters will be classified as off-patent branded and therefore liable to a different pricing mechanism. The price reduction on branded medicines will be combined with measures to reduce the cost of patent-expired medicines - where generic equivalents exist - plus additional reductions that will vary year-by-year to ensure the 5% saving. There will be a price freeze from the end of August although companies will retain pricing freedom for any new products introduced to the market during this period.

The Department has also launched a consultation on statutory proposals to control the price of branded drugs from September 1, which would apply to any companies which choose not to sign up to any agreement under the new scheme. In these cases, prices could be subject to annual revision.

Beyond simply pricing
The new PPRS will however go far beyond simply pricing issues. The confirmed “heads of agreement” also include measures to address the major collapse in the industry confidence in the UK as a place to do business which was revealed in a joint ABPI/Confederation of British Industry survey of drugmakers in March. Earlier that month, the government had stunned the industry by tearing up the existing PPRS even though it was only halfway through its term and had included a 7% across-the-board price cut, and the subsequent survey revealed that three-quarters of UK-based drugmakers had little confidence in the domestic market environment, with 83% believing it would get even worse over the next 12 months.

However, the new, non-contractual voluntary scheme will provide the industry with stability and predictability in pricing for the next five years, says the government. The deal will include an independent resolution mechanism, and companies will continue to be able to price their new products freely and to modulate prices. The mid-term review, which has been a feature of previous Schemes, will be dropped.

Moreover, for companies with sales of £25 million or less in 2007, the first £5 million will be exempt from the price cuts. This development was warmly welcomed by The Ethical Medicines Industry Group, which represents small and medium-sized companies in the UK and says its members have felt “unfairly treated” in previous PPRS negotiations. This is “a large win for our membership,” said EMIG’s chairman, Leslie Galloway.

There will also be action to support innovation, aimed at ensuring patients have faster access to new medicines that are clinically and cost-effective. These include: - the establishment of a single horizon-scanning process for new drugs in development, flowing through the NHS and with more systematic industry involvement, to support better forward planning;

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Drug prices to the National Health Service are to be cut 5% from next January, and there could be a further, one-off reduction of 2% in 2010 or 2011 if the nation’s drugs bill grows faster than 6.7% in either 2008 or 2009, the government and industry have announced.

The deal forms one of the “heads of agreement” confirmed so far in the re-negotiation of the Pharmaceutical Price Regulation Scheme, which is still ongoing. In a joint statement yesterday, the Department of Health and the Association of the British Pharmaceutical Industry said that the talks are “making good progress on agreeing arrangements that include measures that better reflect the concept of value.”

“Further negotiations on the detail is required over the next few weeks, including on making sure that access to medicines reflects their value to patients, before the new scheme can be finalised and implemented,” the statement went on. ABPI director-general Richard Barker, speaking to journalists, added that the discussions have been “long and tough, and they’re not over yet.”

Nevertheless, the 5% agreed drug price cut can be seen as a victory for the industry, as government ministers had reportedly been seeking a reduction of around 10%.

3.9% not 2% cut to branded drugs
The cut will be made up of a 3.9% base reduction in the prices of all branded medicines in the first 12-month period from January 2009 when the new Scheme is expected to commence - not the widely reported 2%. In fact the 2% is an average calculated over a five-year period, allowing for the fact that many blockbusters will be classified as off-patent branded and therefore liable to a different pricing mechanism. The price reduction on branded medicines will be combined with measures to reduce the cost of patent-expired medicines - where generic equivalents exist - plus additional reductions that will vary year-by-year to ensure the 5% saving. There will be a price freeze from the end of August although companies will retain pricing freedom for any new products introduced to the market during this period.

The Department has also launched a consultation on statutory proposals to control the price of branded drugs from September 1, which would apply to any companies which choose not to sign up to any agreement under the new scheme. In these cases, prices could be subject to annual revision.

Beyond simply pricing
The new PPRS will however go far beyond simply pricing issues. The confirmed “heads of agreement” also include measures to address the major collapse in the industry confidence in the UK as a place to do business which was revealed in a joint ABPI/Confederation of British Industry survey of drugmakers in March. Earlier that month, the government had stunned the industry by tearing up the existing PPRS even though it was only halfway through its term and had included a 7% across-the-board price cut, and the subsequent survey revealed that three-quarters of UK-based drugmakers had little confidence in the domestic market environment, with 83% believing it would get even worse over the next 12 months.

However, the new, non-contractual voluntary scheme will provide the industry with stability and predictability in pricing for the next five years, says the government. The deal will include an independent resolution mechanism, and companies will continue to be able to price their new products freely and to modulate prices. The mid-term review, which has been a feature of previous Schemes, will be dropped.

Moreover, for companies with sales of £25 million or less in 2007, the first £5 million will be exempt from the price cuts. This development was warmly welcomed by The Ethical Medicines Industry Group, which represents small and medium-sized companies in the UK and says its members have felt “unfairly treated” in previous PPRS negotiations. This is “a large win for our membership,” said EMIG’s chairman, Leslie Galloway.

There will also be action to support innovation, aimed at ensuring patients have faster access to new medicines that are clinically and cost-effective. These include: - the establishment of a single horizon-scanning process for new drugs in development, flowing through the NHS and with more systematic industry involvement, to support better forward planni