UK pharma price talks have international implications

With talks now started on the renegotiation of the scheme that controls medicine prices in the UK, the European pharmaceutical industry is nervously watching to see what form the next five years' agreement will take.

Many are concerned that if the government takes the opportunity of the renegotiation of the Pharmaceutical Price Regulation Scheme (PPRS) to insist upon a general price cut, it may provide other EU countries with the perfect excuse to screw down medicine prices still further.

Industry watchers at professional services firm KPMG feel that, distracted by other regulatory concerns, negotiators at both the ABPI (Association of the British Pharmaceutical Industry) and the Department of Health may simply settle for maintaining the agreement in its current form. However, Stephen Oxley, head of pharmaceuticals at KPMG in the UK, believes that the opening exchanges in the talks may be far from straightforward.

'In each of the previous two PPRS renegotiations, the government has opened talks by demanding a substantial price reduction on brand patented products, which was negotiated down to around 5%,' he explained. 'Such a demand could be justified this time round in the context of the worsening budget deficits facing the Treasury and the need to sustain additional funding in other parts of the NHS.'

If the government does press ahead with calls for further price cuts, the outcome could be very damaging for the industry because of the message it would send out to other EU Member States, Oxley warned. The industry is already battling with several countries, most notably Germany, which are trying to reduce expenditure on drugs by forcing down prices, claiming that price cuts on patented products directly affect the amounts spent on future R&D activities.

'Any call for further price cuts in the UK - which easily boasts the highest levels of pharma r&d investment in Europe - would be interpreted by those other Member States as a sure sign that r&d investment can be maintained, while further squeezing industry profits,' he added. 'Those countries would then feel vindicated in proceeding with their own pharma cost containment policies for 2004.'

Within Europe and beyond, the unique PPRS system for regulating pharmaceutical prices and many other facets of the market has been much admired as a model of good relationships between government and indus try and for maintaining stability and a climate of reasonable dialogue.

'The complexity and sophistication of the PPRS have largely defeated attempts to replicate it in other countries. However, this does not mean we can ignore the importance of this scheme outside of our own national boundaries,' Oxley stressed. 'If the ABPI and Department of Health teams thought they were in for a quiet time as the negotiations begin, then they were mistaken. More than ever before, both sides will need to be particularly sensitive to the wider international implications of the outcome of their discussions.'