A new deal on drug pricing will see the cost of branded drugs cut and ensure the cost of medicines reflects their importance to patients, the government has claimed.

The flexible pricing scheme agreed today with the pharmaceutical industry includes a 3.9 per cent cut in the cost of drugs sold to the NHS from February next year. It will be followed by a further 1.9 per cent price reduction in January 2010.

These changes are different from those in the heads of agreement announced in June.

The Department of Health is also hoping to start substituting branded drugs for generic versions from January 2010, subject to discussion.

The deal allows pharmaceutical companies to supply new drugs to the NHS at low prices at first, with the option of higher prices later if their value is proven.

It will also pilot an extension of prescribing incentive schemes, with primary care trusts to promote the use of innovative products.

Health secretary Alan Johnson said the approach was in everyone's interests. "It gets clinically and cost-effective drugs to more patients - providing cheaper options where clinically appropriate, delivers value for money for the NHS and the taxpayer, and creates a better market for the pharmaceutical industry while supporting research and innovation."

The BioIndustry Association welcomed the deal. Chief executive Aisling Burnand said: "The new deal not only delivers cost savings for the NHS and helps patients gain earlier access to innovative treatments but also recognises the contribution smaller companies can make to healthcare in the UK."

For more details on the new scheme, go to nds.coi.gov.uk