Medicine prices in Britain will be cut by 7 percent under a new five-year deal between government and drug makers that will save more than 1.8 billion pounds ($3.30 billion) on the nation's drugs bill. The move is a further sign of the mounting pressure on pharmaceutical prices around the world as healthcare providers strive to rein in runaway costs. The price reduction for branded prescription medicines was announced by the Department of Health on Wednesday, confirming recent speculation that a substantial cut was imminent. The price deal represents the central plank of a new Pharmaceutical Price Regulation Scheme (PPRS) between the department and the Association of the British Pharmaceutical Industry, which represents major companies. The rolling PPRS arrangement regulates prices of branded drugs and the profits manufacturers are allowed to make on sales to the state health service. The last two agreements resulted in price cuts of 4.5 percent and 2.5 percent respectively. R&D SWEETENER In return for the price reduction, pharmaceutical companies will get a sweetener in the form of increased research and development allowances. Under the new scheme, the amount of R&D spending that firms can offset against their permitted profits is increased to 28 percent of sales to the National Health Service (NHS) from 23 percent. "This new deal is a win-win," said Health Secretary John Reid. "It is good value for money for the NHS and the taxpayer and it is good for the industry because it provides an incentive for research and innovation." Reid said that money saved on the drugs bill -- at least 370 million pounds a year -- would be channelled back into frontline healthcare services. The total NHS drugs bill was 9.5 billion pounds in 2003 but this is expected to rise to around 11 billion in 2005-2006. Net spending on drugs prescribed by general practitioners, rather than in hospitals, is expected to be around 5.3 billion pounds a year, leading to savings of 1.8 billion over five years, but additional savings should come from sales to hospitals. The British market represents some 4 percent of global drug sales, making it a relatively small outlet for UK-based groups such as GlaxoSmithKline Plc and AstraZeneca Plc, which make most of their money in the United States. But company executives want the home environment to remain favourable for investment. The British price cut follows a wave of similar cost-cutting measures by governments across Europe, most notably in Germany where a 16 percent price reduction for many drugs was instituted earlier this year.
