PPRS renegotiation will cut pharma profits

The health secretary of Britain, Alan Johnson, will likely announce new rules on medication pricing today following the country's renegotiation of its current Pharmaceutical Price Regulation System (PPRS). The move might cause global investors seriously to reconsider entering the British market, where big pharma leaders, GlaxoSmithKline and AstraZeneca, hang their hats.

The British Department of Health, only halfway through the five-year plan it initiated in 2005, made its surprising announcement last year. The pharmaceutical industry believed the country's sweeping 7 percent cutbacks would be in place until 2010, but the department of health decided to go for cuts that are closer to 10 percent.

Initiatives in the revised system might include "value-based pricing"--which link prices of newer drugs to their potential benefits over existing medications--and "risk-sharing"--which would require pharmaceutical companies to reimburse Britain's National Health Service (NHS) in the event that patients do not demonstrate improvement when using a particular medication. The PPRS has covered the price for branded medicines in Britain for greater than 50 years. Currently, pharma companies can set their own prices, but their overall profits remain under the control of the government entity. The new plan might exclude off-patent drugs, leaving them to go head to head with competing generics.

- check out the Financial Times story