The pharmaceutical industry has expressed dissatisfaction over a new deal which will see a seven per cent reduction in the costs to the NHS of major drugs.

Announcing the plan on Wednesday, John Reid said it represented good value for money.

The health secretary said the new five year deal with the Association of the British Pharmaceutical Industry (ABPI) was "win-win" for drugs companies and the taxpayer.

But the industry, which welcomed aspects of the scheme, said it had been "imposed" by the government.

Under the terms of the new agreement, which was negotiated over the last nine months, savings of £370 million a year are expected for the health service.

Reid pledged the cash savings, which will be available from January, would be channelled back into enhancing frontline services.

"The NHS in England spends around £11 billion on medicines each year," he said.

"It is vital that this money is spent wisely and that we get good value for money.

"This new deal is a win-win. It is good value for money for the NHS and the taxpayer and it is good for the industry because it provides an incentive for research and innovation."

Drugs deal

The Pharmaceutical Price Regulation Scheme (PPRS) agreement limits the price of branded prescription-only medicines prescribed on the NHS that are on the market as at December 31 this year.

A target rate of 21 per cent return on capital will be set, and firms which earn higher profits will be required to repay the excess.

The companies will also be able to decide which medicines they reduce the prices of, as long as the overall effect is a seven per cent cut.

However, companies will still be able to set the price of new drugs as they see fit.

The objectives of the scheme are to secure the provision of safe and effective medicines for the NHS at reasonable prices, and promote a strong pharmaceutical industry capable of sustained research and development expenditure.

The deal also aims to "encourage the efficient and competitive development and supply of medicines to pharmaceutical markets in this and other countries".

Industry concern

Reacting to the deal, the ABPI said it would bring some benefits and was "the best available".

But organisation president Vincent Lawton said the price cut was "unnecessary given the fact that medicines prices have fallen in real terms by some 15 per cent over the past 10 years".

"However, other aspects of the PPRS make the overall agreement one which the ABPI is able to recommend to its member companies," he noted.

"Because it is a five-year agreement, it offers a degree of stability that is important to an industry that works very much in the long-term - it takes some 10 to 12 years and costs £550 million to develop a single new medicine."

He added that the overall impact of the PPRS "provides several benefits for the industry".

"In particular, the government has recognised the role of the industry in providing information about medicines to a wide variety of people and organisations, and this is reflected in the agreement," said Lawton.