An agreement between the UK government and the pharmaceutical industry will cut around five per cent off the cost of medicines sold to the National Health Service (NHS).

The deal is set to replace the old Pharmaceutical Price Regulation Scheme (PPRS) which expires at the end of August 2008. Under the terms of the new agreement the price of branded drugs sold to the NHS will be cut by two per cent from 2009 and the price of older medicines that are now off-patent will be brought down if a generic equivalent exists - resulting in total savings of around five per cent.

Small companies with sales of £25 million or less may be partly exempted, with their first £5 million of sales not subject to the proposed price cuts. The cuts are accompanied by measures to encourage innovation in the pharmaceutical industry including incentives for NHS Primary Care Trusts to prescribe new products and a new horizon scanning process to ensure the NHS is aware of new drugs that are in development.

The government's decision to scrap the PPRS - which was originally slated to run until 2010 - followed a report from the Office of Fair Trading in February 2007 which suggested the PPRS be reformed 'to deliver better value for money'. The NHS, which spends around £9 billion a year on branded medicines, has also been under growing pressure to make efficiency savings.

The details of the new agreement are expected to be finalised over the next few weeks. The price of drugs will be frozen from 31 August until the new agreement takes effect on 1 January 2009.

Commenting on the proposals, Chris Brinsmead, president of the Association of the British Pharmaceutical Industry, said 'This outline agreement provides an excellent platform from which we can work to strengthen our relations with the government and the NHS, and further to improve the access to innovative medicines for patients.'

Aisling Burnand, chief executive of the BioIndustry Association, said, 'The BIA is pleased that months of uncertainty have now ended and that we now have the outline of a new voluntary scheme for the pricing of medicines in the UK. We are also pleased to note that this new voluntary scheme does make some allowances for the smaller companies which comprise the majority of the UK's biotechnology sector.'

Ananyo Bhattacharya

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