The BioScience Industry Association (BIA), a bioscience trade group in the United Kingdom, today attacked the new five-year voluntary drug pricing agreement that for the first time will cap what the National Health Service will spend on branded medicines. The BIA warned that the accord, which is scheduled to take effect January 1, 2014, will hinder the growth of biopharma businesses across the kingdom.

The U.K. government and pharmaceutical companies have agreed to keep NHS spending on drugs flat for two years at the £12 billion ($19.3 billion) level of the 2011/12 budget year, which ended March 31, 2012, followed by increases of less than 2% over the subsequent three years. The agreement, officially known as the Pharmaceutical Price Regulation Scheme or PPRS, followed “many” months of negotiation between the Department of Health and the Association of the British Pharmaceutical Industry (ABPI), the department said in a statement.

ABPI—which called the talks “the most complex negotiation ever”—represents 150 members from big pharmas to smaller companies, whose drugs constitute more than 90% of the value of medicines sold to the NHS.

Drug companies that do not participate in PPRS will have to cut their drug prices 15%.

“Pharmaceutical companies will benefit from greater certainty on how much will be spent each year and increased use of new and recently developed medicines. This will strengthen Britain’s life sciences sector and its ability to compete globally,” the health department added.

Not so, contends the BIA.

“Today’s announcement by government shows a worrying lack of joined-up thinking about a key sector for the U.K.’s future economic growth,” Steve Bates, CEO of the BIA, said. “Buying new medicines is not only an investment in NHS patient care but also in the U.K.’s future economic prosperity, as the life sciences sector is a key part of the our future rebalanced economy. Decisions which affect the commercial environment for medicines have a significant impact on the U.K.’s attractiveness for direct global R&D investment and on our biotech ecosystem.”

Bates also disputed the health department’s belief assertion that “there is no reason to expect that changes in U.K. prices would significantly affect the U.K.’s attractiveness as a location for R&D,” as stated in the “Government Response to the Consultation on Revisions to the Statutory Scheme to Control the Prices of Branded NHS Medicines.”

“The austerity price cap for the whole branded medicines bill is a big change from previous PPRS deals, and I fear this agreement will have a negative impact on industry investment here which is contrary to the government’s stated industrial and life science strategies,” Bates said.

That negative impact, BIA argues, could include decisions by drug developers not to launch new medicines in the U.K. first.

In bows to industry concerns, the government noted that it will postpone the “value-based pricing” policy to be launched by the National Institute for Health and Care Excellence (NICE). The policy—which will tie drug prices to objective metrics of value to the U.K.’s healthcare system—will be delayed from its originally scheduled launch in January, to some time in autumn 2014 following a public consultation.

The government also noted that the new PPRS will exempt new products launched after January 1 from payments. Bates said that “offers scant consolation for companies, particularly when balanced against the changes to the scheme for smaller companies that will make the United Kingdom a less attractive destination for global companies wanting to set up a European headquarters.”

Even the ABPI took some shots at the agreement it helped hammer out.

“The negotiations were built on a myth that medicines are expensive in the United Kingdom, which is not true,” said ABPI President Deepak Khanna. “The United Kingdom already spends amongst the lowest on medicines as a percentage of GDP and has some of the lowest prices in Europe, yet U.K. patients still do not always get access to the most innovative medicines. In 2011, the overall spend on medicines represented less than 10% of total U.K.-wide NHS expenditure.”

Khanna urged the government to work with industry on broadening patient access to new drugs.

Health Secretary Jeremy Hunt took pains to praise industry, stating: “U.K. pharmaceutical companies have responded to the challenges we face as a country, both in terms of the increased demand for medicines and pressure on public spending. I hope in return we have given them the certainty and backing they need to flourish as a sector both here and in the global market.”

The current 2009 PPRS expires on December 31. The U.K. government and the ABPI have long hammered out voluntary five-year price agreements, with the goal of balancing officials’ desire to contain drug costs with industry’s desire to maximize revenues from medicines.

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