Examination of Witness

Health Service Medical Supplies (Costs) Bill – in a Public Bill Committee at 9:30 am on 8th November 2016.

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David Watson gave evidence.

We will continue now, Mr Watson, with evidence from the Association of the British Pharmaceutical Industry. Please introduce yourself and then we will go straight to questions.

David Watson:

Good morning. My name is David Watson. I am director for pricing at the Association of the British Pharmaceutical Industry.

Photo of James Berry James Berry Conservative, Kingston and Surbiton

Q Mr Watson, do you think it is right that the Government should take action to stop profiteering from the NHS on drug prices?

David Watson:

Specifically on the issues that we were widely covered by the media, yes. We have been very clear. We think the Government should have the powers to step in where there are price hikes, frankly, in unbranded products. We agree with that and with the intention of the Bill to widen the powers to apply to any company.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q Do you think there are further steps, besides what is in the Bill, that could be taken to ensure that the NHS gets best value for money?

David Watson:

The Bill specifically addresses the point of unbranded generic prices. It also specifically talks about a new mechanism for the statutory scheme. Most branded medicine spend—about 80% of it—is actually in the voluntary scheme. We think that the voluntary scheme has operated very well to help address the issue of affordability and pricing.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Q What would be a reasonable return on capital for your industry, so that we have a thriving and competitive pharmaceutical industry in this country, with prices that are fair to the NHS and the taxpayer?

David Watson:

I could not honestly give you a specific number.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Q Give a range or an indication. Obviously, you are a wide industry and there are different parts to it. We have seen considerable variation in prices and returns from some of the information that has come into the public domain.

David Watson:

I think that the question of profitability in the UK is much more complex than just pricing. The pharmaceutical industry, compared with other parts of the life sciences industry, tends to be much more global in its focus. It perhaps tends to have larger organisations. Those organisations would look partly at, frankly, their profits in the UK, but they would also look at the UK in terms of its uptake of medicines and the UK as a setting to do good science and research. I am sorry that I cannot give you a direct number. I do not have a number we could provide on profitability. My point would be that it is more than profitability; it is companies’ perception of operating in the UK.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Q What is the general perception about operating within the UK then among the members?

David Watson:

I think that we would all say that the UK has had a strong life sciences sector. We have a very strong, productive pharmaceutical sector. Lots of current medicines have been discovered here. It is a challenging market, to put it in those terms, to operate in for companies. It is increasingly challenging for a number of reasons, not just the commercial environment.

Photo of James Davies James Davies Conservative, Vale of Clwyd

Q We have received correspondence from an individual who takes liothyronine, as does one of my constituents who is affected by the current issues. He has pointed out that the company that manufactures that makes an excess profit of £50,000 a day as a result of the hike in prices. With that in mind, do you think that the proposed maximum fine, the penalty of £100,000 or £10,000 a day, is sufficient?

David Watson:

I am not aware of the individual product. We support the Bill in so far as the Government need to be able to have the powers to step in where they spot that there have been price hikes that are not justified. It is entirely appropriate that the Department is able to question companies on why that price has gone up. If it has gone up unreasonably, it is entirely correct that they should reduce it. What I would say, though, is that the majority of branded medicines, for example, covered by the PPRS, have an affordability mechanism underneath them. For example, we repay under the PPRS the difference in NHS spend on medicines; so regardless of the list price, which is often quoted for medicines, very often there are significant deals being made underneath that with the NHS.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q Obviously, one of the problems with the generics was companies that are in the PPRS but also producing generics, and the Bill looks at strengthening the statutory scheme and getting rid of this. Do you think that this is the right way go, to still have two systems, or do you think a single system such as a statutory scheme would have been more helpful?

David Watson:

No, we think it is better overall to have a scheme that industry negotiates. So as for generics pricing, we agree that the loopholes should be closed and the Department should have the same powers that apply, regardless of which other scheme companies are in. As for branded medicines, I think we would say that we have had in this country a voluntary PPRS for a number of years. I think that it serves both sides very well. You also need a statutory back-up for companies that for some reason do not choose to be in the PPRS. So, by default, you end up with essentially two schemes on branded medicines, but we think that there are benefits to the taxpayer, to patients, to the industry, in having a voluntary scheme.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q In the previous panel, the different ways PPRS functions in Scotland and in England was mentioned. Do you see advantages or disadvantages on either side of how that is done?

David Watson:

The current PPRS is a five-year deal. This one has been very different from most previous deals, so it underwrites the growth in branded medicine spend with payments going back to the Department. The idea with those payments is that they are then apportioned to Scotland, to the health service in England, etc. So that mechanism has worked well. I think that the problem has been that, certainly in Scotland, as you know, it has gone into a specific purpose. In England, it has gone into general funding for the health service, and therefore it has not fundamentally achieved its purpose, which was to allow taking the cost question off the table, almost—being able to find the right use of medicines by essentially capping spend on them. Because that flow of money has not worked, I think that that part of its objective has not succeeded in England.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q So you do not feel it is increasing access to new drugs in the way that was envisaged.

David Watson:

That was the plan. I do not think it has achieved that. I think it could do. I agree with some of the comments that Dr Ridge made on this. It is quite complicated, for example, to imagine a big national medicines fund. I think that would have unintended consequences. I am not sure that is what the NHS wants. I think that there are other ways that we could address the real affordability challenge of new medicines, by finding a way to use this money through PPRS for the benefit of finding medicines for patients.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

Q Currently, over-the-counter medicines are exempt from the proposals. Do you think that that is right, or do you think that if we do not actually include them in the proposals, we shall be sitting around this table again in a few years’ time, amending the legislation yet again? If you feel that they should be excluded, do you think that there are any other medicine groups that should be excluded or included in any other way?

David Watson:

No, I think that the over-the-counter medicines exclusion is sensible. It is much easier for companies to report when they are not including over-the-counter sales. On your question about whether other medicines should be excluded, if we look at the intent of the Bill, which is to introduce a new payment mechanism for those companies that are in the statutory scheme, it was suggested in the previous panel that the problem with this is that companies are already agreeing deals with the NHS. I suspect that if we end up with a payment mechanism and deals with the NHS, there may be some reluctance to give the best deal possible to the NHS—if, at the same time, a payment is being made in addition to that. I think that may be one of the consequences of this.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

Q So you feel that what is included and what is not included is correct in the Bill?

David Watson:

Yes. Increasingly, the NHS itself is looking to strike deals with industry on medicines that are launched that have a large budget impact. Quite often, those are sold through contracts with the NHS as well. One of the options here would be that the payment mechanism would exclude those products, which have frankly already been managed elsewhere, rather than there being effectively a double dip.

Photo of Justin Madders Justin Madders Shadow Minister (Health)

Q You mentioned various challenges to the industry. I wonder whether you could expand on that a little and say whether you feel we are close to a tipping point in terms of the potential impact on investment in jobs and research.

David Watson:

As I said, the UK has a really strong history here. The EU transition is clearly one of the specific challenges at the moment, which I will not go into, but there are challenges from industry from a commercial point of view. Access to new medicines in the UK is more challenging for UK patients than it is in a lot of other countries, so we do not always have the best clinical practice here, particularly on newer medicines. As Dr Ridge mentioned, a consultation has just been launched on the interaction between the NHS and NICE. That creates a whole lot of uncertainty for industry, at a time when we have a PPRS in place. The accelerated access review is potentially very good, but it is unclear how it is going to work. At the moment, industry sees a number of different initiatives, some of which it is very encouraged by, others of which it feels are slightly piecemeal and working in isolation from each other. From a global company perspective, I think that it leads to the UK being seen as a confusing place to operate.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q Following up on that, I understood you to say that other jurisdictions do it better, particularly for new medicines. Forgive me if I misunderstood you there. If I did understand you correctly, can you give some indication of what they are doing that we are not doing, which you and your members think would be desirable for the industry and for patients, were we to do it in the United Kingdom?

David Watson:

That was exactly the subject covered by the Government’s accelerated access review, so it has identified some of the reasons. One of the specific things we would say that the NHS could look at is that, where medicines are viewed to be very cost-effective, the implementation of the guidance and quick access for patients to those medicines should be a priority. Quite often, we see medicines that are cost-effective and affordable, but are still not being taken up. I think that is a real concern for everybody.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q Is that partly because NICE is slower than you would wish it to be?

David Watson:

No, I think that industry recognises that NICE actually does a very good job, given its resourcing and its focus. The question is more about the complexity of the system—the NHS—at different levels and it being able to pick up new medicines. Inevitably, one aspect of that is affordability of new treatments. That is why the benefit of a voluntary scheme such as we have with PPRS is that all these medicine policy issues can be negotiated with the Department of Health and the NHS from an industry perspective. It makes it much clearer for industry to figure out how to navigate the area of uptake of medicines.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

Q In your written evidence, you said:

“The Department of Health should provide greater clarity on the additional information that will be required by the Department”.

Can you expand on that further and outline what clarification you need as an industry?

David Watson:

First, we agree with the intent of the information powers. It is important; if the Department is to address some of the issues of significant price rises, it needs the information to go and do that. Our concern was that, as written, the Bill is extremely broad in this area. For example, it will require companies to provide profit-level data at product level, or even the cost of delivery at the product level. That requirement would be on every company across, potentially, tens of thousands of products a week. So we thought that the Bill was too broad in that area, and we would like to make some written submissions about how it could be tightened—although we recognise that the regulations underpinning the Bill, which we saw yesterday, provide some additional clarity in this area.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

Q Just as a small supplementary to that, having run businesses—I would imagine pharma is the same—is it not possible that when you drill down to that sort of level, an unintended consequence will be that where you perhaps support a drug to market by using one that has volume-based profit to it, you may unintentionally stop that development? My other worry is about the rare diseases and specialist cancer areas, where it is highly expensive to develop drugs. We all know that we are trying to close this loophole, and that is right—exploitation around that area is not good for the NHS or, ultimately, patients—but can you see any unintended consequences that you would like to flag before you go?

David Watson:

Yes, we recognise that it is very difficult to put a specific cap on a price, because the requirements on a company to produce, discover and sometimes cross-subsidise some of their costs across their portfolio are quite complicated. If the UK system, it seems, wants to drive costs of some medicines down to the lowest possible mark then that is, of course, quite possible, but the consequence if we look at areas such as vaccines, though, is that we end up in a situation in which companies do not invest appropriately in the factories or quality, etc., and then there are potential gaps in the supply of those products. So what we would ask for here is that, when the Department is considering the circumstances in which it thinks the price is too high, it has a dialogue with that company to understand the reasons for the price and what may be going on underneath to ensure the continuity of supply of the product.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q I want to ask Mr Watson about the issue that I raised with the previous panel about the repurposing of patent drugs and the concern that we did not pass a Bill to add those purposes to old licences, or to have a new system. What would the ABPI view be on trying to avoid that, for the new purpose, suddenly a pretty similar drug comes back at an eye-watering price?

David Watson:

Again, I agree with that, and I understand quite often that medicines are repurposed, not necessarily by pharmaceutical companies, but by other research centres. Quite often, even in that scenario, those companies may expect a reasonable return on their effort to bring that product in, which might mean a price rise. Again, I would say that there has to be a balance between price rises to reward innovation and return on investment and those price rises that are clearly not justified.

Photo of Philippa Whitford Philippa Whitford Shadow SNP Westminster Group Leader (Health)

Q Do you think that the Bill as it stands will deal with that, or do some of these more specialist areas need to be highlighted?

David Watson:

I do not think that the Bill will perhaps ever be clear enough about the circumstances in which one price rise is right or wrong, but I think that we agree with the need for the Department to have adequate powers to go after those cases—though of course to do so it needs adequate resources as well. But we agree with the principle that the Department should be able to look at price.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Q I am tempted to have another go, because you used the phrase “reasonable return” in your answer to Dr Whitford. You would not give me a figure on that earlier. Are you prepared to say anything further on that?

David Watson:

I could make up some figures, but companies, depending on their skill and their pipeline—

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Q You could not give us a range within which “reasonable” might lie typically within the industry that you think would still lead to a healthy, thriving industry, which is what we want, with an NHS that is not being ripped off.

David Watson:

The range would start at zero because I believe there are companies selling products in the UK and making no money from them, and probably losing money. There are companies making a high return of 20% or 30%, so there is a big range in between.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

Q The actual question I want to ask follows on from Ms Churchill’s question. What is your experience of how reasonable the NHS is when dealing with you on the sort of quality and safety issues you referred to in terms of how the Government will respond on pricing if there are specific reasons in terms of plant safety and quality and so on that might justify a slightly increased price? You have obviously been dealing with the Government for a long time. What is your experience of the NHS’s reasonableness in responding to those valid issues you mentioned?

David Watson:

Companies will never launch products that are not of the required quality, and the NHS would never pay for them. The issue is more that if there is essentially a procurement-driven approach to medicines, that can and will drive prices down. The long-term impact is much more about organisational investment in the UK, perceiving the UK as a good place to do business. I suspect that in some classes—biosimilar and vaccines are examples—companies will eventually drop out of the market because they do not see the UK as a viable place to do business.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

Q Is there a better way of looking at this? If we had more transparency through the pricing mechanism, but enabled tax efficiencies, R and D and so on, would that be a different way of balancing this for the industry?

David Watson:

Yes. That is why this sort of industrial policy becomes really important. Again, that is why the industry semi-globally recognises the value of the Government’s continued willingness to have a voluntary pricing arrangement that not just covers pricing and affordability, but touches on some of the other aspects of how industry operates in the UK. We think that is really important.

Thank you, Mr Watson, for coming this morning.

Given that we have no more witnesses, I invite the Government Whip to propose the Adjournment.

Ordered, That further consideration be now adjourned. —(Mark Spencer.)

Adjourned till Tuesday 15 November at twenty-five minutes past Nine o’clock.