The pharmaceutical industry is taking a tough line in negotiations on drug pricing, offering to cut the $20 billion National Health Service bill for prescription medsl by roughly half the amount sought by the government, The Daily Telegraph writes.

In secret negotiations, industry leaders have offered to cut the price of patented drugs by under 5 per cent, significantly less than the 10 per cent to 12 per cent that the government is seeking. However, the Association of the British Pharmaceutical Industry sweetened the deal by cutting the price of drugs that come off patent but have no significant generic competition. And they’re proposing to stagger the cuts to the NHS drug bill over seven years, instead of the normal five-year period.

“What is separating the two camps is not so much the current cost of drugs but how they think the bill will rise. On the one side you have the drug companies saying it will be just 3 per cent compound annual growth, while the Government is worried it will be nearer 8 per cent,” an unnamed source tells the paper. “The question is how much the government wants to break the back of an industry that is already struggling. What the government seems to be saying is that all its talk of investment in innovation is not backed up by action.”

The negotiations come after the government scrapped the current pricing agreement, which had led to a 7 per cent price cut in 2005, halfway through the five-year period. The decision led to threats by drugmakers that they may move R&D units abroad if they are hit with price cuts, the paper reminds us. Several ceo’s are holding a well-publicized ’summit’ to pressure the government.

Already, Shire Pharmaceuticals, the UK’s third-largest drugmaker, plans to move its headquarters to Ireland. Although the decision was taken for tax reasons rather than concerns over drug pricing there are mounting worries that a combination of factors could lead to an exodus of investment in the UK. AstraZeneca is also considering such a move.

One area where the two parties are closer to agreement is on the treatment of smaller biotechs, which are likely to be offered some kind of protection from price cuts. An ABPI spokesman tells the paper that “we are hopeful we will reach an agreement with government, not just on pricing but also on access to drugs.”

The government announced it was scrapping the current Pharmaceutical Price Regulation Scheme in February, meaning a new system has to be in place by September 1.