Drugs companies fear results of OFT pricing investigation

The pharmaceutical industry is bracing itself for a proposed overhaul of the drug-pricing regime in the UK.

John Fingleton, the head of the Office of Fair Trading, is expected this week to unveil the findings of an inquiry that could lead to a reduction in the profits that companies are allowed to make on medicines.

"If I were the branded pharmaceutical companies, I would be very worried," said a spokes-man for the British Generic Manufacturers Association.

Under the Pharmaceutical Price Regulation Scheme (PPRS), branded-drug companies are allowed to make a profit of up to 21 per cent on any medicines they sell to the NHS. When this five-year deal was struck in 2005, companies agreed to 7 per cent across-the-board price reductions.

Generic companies sell copycat drugs that are much cheaper than branded treatments and are thus not subject to the PPRS.

The branded-drug companies have warned that cutting returns further would reduce the incentive to invest in research. The UK represents just 3 per cent of the global market for pharmaceuticals but accounts for 10 per cent of the industry's research.

A spokesman for the Association of the British Pharmaceutical Industry said: "Any scheme for controlling prices of medicines in the UK should be looking not just at getting the cheapest possible price for patients, but also at promoting a research-based pharmaceutical industry. It's a balancing act."

The OFT, which has sought evidence from both generic and branded makers, could recommend a system that is based on the value they provide rather than a blanket profitability formula.

The NHS wants to cut costs. The National Institute for Health and Clinical Excellence, set up in 1999 to advise the NHS on which drugs it should pay for, has added another hurdle for the drug companies.