By Ben Hirschler
LONDON (Reuters) - Drugmakers warned on Wednesday that a planned radical overhaul of Britain's medicine pricing system from 2014 risked undermining medical research if it looked only at drug breakthroughs and not at incremental innovations.
The industry is due to start detailed talks in September or October on the new system, known as "value-based pricing".
Details so far are sketchy but manufacturers fear it could cut rewards for developing new medicines, thereby undermining research in a key European market that is home to major firms like GlaxoSmithKline and AstraZeneca.
Worries over Britain are a further headache for drugmakers already suffering as cash-strapped governments in the euro zone slash prices and revamp payment systems to discourage use of newer and more expensive drugs.
Stephen Whitehead, chief executive of the Association of the British Pharmaceutical Industry, said Britain's pricing negotiations would decide the future of drug research in the country and companies would go abroad if incentives were cut.
"There are some worrying signs around research currently being conducted on thresholds (for payments) that there isn't a full understanding as to how pharmaceutical innovation works," he told Reuters.
Industry argues that incremental improvements in medicines can make a real difference to patients, even if they do not represent scientific breakthroughs.
The current Pharmaceutical Price Regulation Scheme, which companies would be happy to retain, controls the prices of branded drugs by regulating profits they are allowed to make on sales to the state-run National Health Service.
From January 2014, the new value-based pricing scheme will seek to reward manufacturers with higher prices for the most effective, innovative and badly needed new medicines.
This is likely to involve using a series of cost-effectiveness thresholds, with more leeway given to drugs that represent a big advance in treatment or which tackle a condition where there is major unmet medical need, such as Alzheimer's.
The pharmaceutical sector is important for the British economy but the industry has seen significant cutbacks in recent years, including plans by Pfizer and AstraZeneca to close two large drug research sites.
(Editing by Helen Massy-Beresford)