Britain's competition watchdog is to study a drug pricing arrangement between government and industry to see if it meets the needs of patients and provides value for money.
The Office of Fair Trading (OFT) said on Tuesday that its investigation into the Pharmaceutical Price Regulation Scheme (PPRS) would last until at least spring 2006 and possibly until the end of next year.
The scheme, which has been in existence in varying forms for nearly 50 years, regulates prices of branded drugs and the profits manufacturers are allowed to make on sales to the state health service.
A spokesman for the Association of the British Pharmaceutical Industry, which represents companies in negotiations with the Department of Health over the PPRS, said it was not aware of the investigation ahead of the announcement.
But director general Richard Barker said the association would cooperate fully.
Britain's National Health Service spends about 7 billion pounds ($12.79 billion) a year on branded prescription drugs.
"We want to examine whether the PPRS works well to ensure that pharmaceuticals markets meet the needs of patients by offering adequate rewards to pharmaceutical companies for developing new and useful drugs, while providing the taxpayer with value for money," OFT chairman John Vickers said.
CUTTING PRICES The last PPRS arrangement was agreed between industry and the Department of Health in November 2004 and is due to run until 2010. Under that deal, companies agreed to a 7 percent cut in drug prices.
Drug makers around the world are under mounting pressure to reduce prices as healthcare providers strive to rein in runaway costs.
Mike Ward, a pharmaceuticals analyst at stockbroker Code Securities, said the OFT move was somewhat surprising given the openness of the scheme and the recently agreed new arrangement.
"This is something that gets reviewed on a five-yearly basis, most recently just at the turn of the year when price decreases were brought in," he said.
"It is a scheme that most people think works reasonably well, so I'm curious to hear that the OFT wants to take a look."
A spokeswoman for the OFT said the watchdog was not launching its study in response to any specific complaints but the work was part of a broader investigation into the impact of public procurement on competition.
The Department of Health had been briefed on the new probe and was fully supportive, she added.
The OFT study could result in enforcement action, a further Competition Commission probe, recommendations that government change the PPRS or a clean bill of health for the scheme.
The British market represents some 4 percent of global drug sales, making it a relatively small outlet for British-based groups such as GlaxoSmithKline Plc and AstraZeneca Plc.
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