UK drug price negotiations to begin next month

LONDON (Reuters) - The British government and the pharmaceutical industry will start negotiations next month on a new framework for pricing drugs that is due to take effect from 2014, the two sides said on Friday.

Health minister Andrew Lansley has championed a shift to "value-based pricing", raising concerns among drug companies that the government will end up setting prices for medicines based on a rigid assessment system.

The industry fears that may not reward incremental innovations, stifling the uptake of new drugs.

The changes, however, will be evolutionary rather than revolutionary in nature, according to a joint statement from the Department of Health and the Association of the British Pharmaceutical Industry, outlining their plans for the talks.

The new value-based pricing arrangements will focus primarily on new drugs placed on the market from January 2014 and the great majority of existing treatments will continue to be handled under existing arrangements.

The 50-year-old Pharmaceutical Price Regulation Scheme, which is renegotiated every five years, gives companies freedom to set prices for medicines within an overall profit cap. It will remain in force for older drugs alongside the new system.

Drug companies face growing pricing pressure from governments across Europe as austerity triggers budget cuts designed to rein in rising costs, and the issue took its toll on profits in recent quarterly results.

Britain - home to two major drugmakers in GlaxoSmithKline and AstraZeneca plus international players like Pfizer - has seen significant drug industry job cuts in recent years as companies struggle with global patent expiries and squeezed prices.

(Reporting by Ben Hirschler; Editing by Mark Potter)