Small cut in drug prices brings relief to industry

THE UK drugs industry breathed a sigh of relief yesterday after the Department of Health proposed a 2.5 per cent cut in the cost of all prescribed pharmaceutical products for three years from 1 October. Analysts had feared it might insist on cuts of up to 6 per cent.

However, the blanket 'voluntary' price cut is to be in addition to an extension of the 'limited list'. This is a group of 10 categories of drugs where the Government may blacklist products if their price is not cut substantially.

Yesterday's changes were part of a new five-year agreement for the Pharmaceutical Price Regulation Scheme, and designed to help the National Health Service cut its pounds 3bn drugs bill.

The proposals envisage cuts in the size of the additional profits that companies earn as a result of improved efficiency. And they set stricter guidelines for firms seeking approval for price increases for products already on the market.

But there is no change to the overall level of return on capital, and companies will also retain freedom of pricing for new products.

Mark Clark, pharmaceuticals analyst at Nomura, predicted it would mean a 1 per cent reduction in the total profits of the big drug manufacturers. Glaxo, which has the largest exposure to the UK market with 11 per cent of drugs sales, said it would agree to changes because it understood the Government's budgetary dilemma. Other companies are expected to fall into line. Glaxo shares rose 7p to 524p, while Wellcome lifted 5p to 659p.