CORRECTED - UK watchdog chief attacks drug firms on prices

(Amends headline to show comment refers to drug firms in general)

LONDON, Aug 16 (Reuters) - Incentive schemes linking drug industry executives' pay to their firms' share price and profits help drive up the price of new drugs, the head of Britain's health cost-effectiveness watchdog was quoted as saying.

Michael Rawlins, chairman of the National Institute for Health and Clinical Excellence (NICE), hit back after the watchdog was criticised this month over its decision that kidney cancer patients on Britain's state-run National Health Service should not be treated with four expensive new medicines.

"We are told we are being mean all the time, but what nobody mentions is why the drugs are so expensive," The Observer newspaper quoted Rawlins as saying in an interview to be published on Sunday.

Kidney cancer drugs could be produced for about a tenth of their current cost, Rawlins said.

He was quoted as warning of "perverse incentives" in the pharmaceutical industry that drove up the price of new drugs -- such as linking the pay of industry executives to their firm's share price, which in turn relied on growing profits.

"Pharmaceutical companies have enjoyed double-digit growth year on year and they are out to sustain that, not least because their senior management's earnings are related to the share price," the newspaper quoted him as saying.

"It's not in their interests to take less profit, personally as well as from the point of view of the business. All these perverse incentives drive the price up," he said.

Halting such "perverse incentives" could significantly reduce drug prices, he said.

Another factor in high drugs prices was that the pharmaceutical industry faced a "very bad period" in the future because a lot of its big-earning drugs were going off-patent, allowing rivals to make cheaper versions, Rawlins was quoted as saying.

"So part of the cost is cushioning against that," he said.

Marketing costs were also included in the price, he said.

"Traditionally the pharmaceutical industry will admit that they actually charged what they think the market will bear. The wiser ones are recognising that that model is no longer available," he said.

The drug industry says it costs around $1 billion and years of work to develop a new medicine and these costs must be recouped, although it says prices have fallen in real terms.

Earlier this month, NICE said Roche's Avastin, Bayer's Nexavar, Pfizer's Sutent and Wyeth's Torisel could extend kidney cancer patients' lives by some months but were not cost-effective.

The decision fuelled controversy about the way NICE rations treatment on the state health service in England and Wales, denying patients access to costly modern medicines that are used routinely in some countries. (Reporting by Adrian Croft; Editing by Jon Boyle)