Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 260 - 279)



260. If there was the willingness on the part of the pharmacists to reduce prices as a result of their purchasing policy through parallel trading, do you think there are possibilities for them to do that if they so wished; or is there some mechanism in the process that would constrain them from doing that even if they wanted to?
  (Dr Patterson) There is a United Kingdom tariff price and they get reimbursed the tariff price by the government. The government is a monopsony purchaser of pharmaceuticals in this country, so everything is in turn dealt with by the government. It is possible if that tariff price were reduced that would change the dynamics of the whole chain.

  261. We have had one pharmaceutical company that has said in evidence to us that the "NHS makes almost no financial gain from parallel imported products". I am interested in your observations on that remark.
  (Dr Patterson) It was not just the pharmaceutical industry that said that; Mr Dobson said that in a recent speech as well. For every £6 of reduction due to parallel trading the government only sees £1. There is an issue there certainly.
  (Dr Brickwood) It is that imbalance I am sure the government seeks to redress.

  262. We all know the pressure there is for dispensing generic drugs rather than branded drugs. Do you think this is driving pharmacies down the road of looking more actively at parallel importing, if they have not done it already or they want to increase the amount? Do you think that is some sort of a driver for them?
  (Dr Brickwood) The drive for generic prescribing is happening at the doctor level. That is quite clear. The doctors are encouraged to write those prescriptions generically. The pharmacist then will fill the prescription in accord with what is written on the prescription.

  263. Have you any evidence that is driving the pharmacies down the road of looking more actively at parallel importing, or not?
  (Dr Patterson) 80 per cent. of parallel imported goods are actually in-patent products.
  (Dr Brickwood) One in eight prescriptions now is filled with the parallel imported product. It was one in ten, and it has risen to one in eight.

  264. Do you see that as a continuing trend, you suspect?
  (Dr Brickwood) It is an increasing trend with one in ten going to one in eight, and that is our primary concern.

  265. In what period of time?
  (Dr Brickwood) Just over one year.
  (Dr Patterson) As the pound has strengthened against the other European currencies that is a significantly increasing trend.
  (Dr Brickwood) That is one in ten in 1997 and one in eight in 1998.


  266. Before that, were you exporting a great deal to Europe when the pound was weaker as a currency?
  (Dr Brickwood) We are all sat here trying to recollect when we exported anything.
  (Dr Patterson) I export an awful lot.
  (Dr Brickwood) You export an awful lot but not in a parallel trade.
  (Dr Patterson) I think we should differentiate between exporting as a normal business activity, and only 5 per cent. of my company sales are in the United Kingdom, 95 per cent. are outside—we are a global company. Therefore we export an awful lot manufactured in Macclesfield and in other places in the United Kingdom. That is normal activity. We export into markets throughout Europe at fixed prices governed by governments. As currencies move in both directions that changes the differential between countries and between those countries and the United Kingdom. We continue to export and import at those fixed prices. There are occasions in normal export and importation when we are winning in terms of the movement of currencies. Parallel traders are not operating in that cycle; they are operating in simply moving our products between countries where we set out to sell them.

Mr Butterfill

  267. Could I turn to the question of exports to Third World countries. A lot of these exports are done at extremely low prices. SmithKline Beecham tell us this is a "virtuous circle" where you are actually subsidising these exports to poorer countries and making up the difference on the prices that we pay in the more developed world. Is it really true that you sell at a loss in the developing world?
  (Dr Hesketh) It depends what you mean by a "loss". The price of a pharmaceutical is not necessarily related to the cost of manufacture. Price is linked to the money we need to recoup and provide investment for future research. It is not a loss as compared to the cost of manufacture; but it is a loss compared to the price we need to charge to fund future research.

  268. I understand that; but presumably the additional volume which you get, albeit at a lower price, itself enables you to sell at a manufactured profit and that helps to support the research?
  (Dr Hesketh) Of course we do not sell without making some sort of profit, but we could not afford to sell globally at the price we sell in developing countries.

  269. I understand that. There does seem to be a huge differential between prices throughout the world, and even prices within the European Union. If we look at the prices the French and Spanish are paying they are in general considerably lower than our government is paying through the NHS. You have said that is due to increased volume. Can you give us some figures. What is the difference in volume overall? I appreciate there may be differences between different products. One product may be in vogue with the doctors in one country but not in another.
  (Dr Brickwood) Just to give a broad example of data I recollect that might be a little old—but not that old, a few years perhaps. For every single visit to a general practitioner in the United Kingdom there are 0.8 items prescribed. If you go to your equivalent general practitioner in France it is in the region of 2.3-2.5 items prescribed for a single consultation.

  270. But very often low cost products. They seem to provide pessaries for almost everything when you go to a continental doctor. I understand that. I think we really want rather more evidence there really were real volume increases in the Spanish and the French markets compared with here to justify the price differential. Can you supply us with some firm figures?
  (Dr Brickwood) We could certainly attempt to do that if we have a clear picture of exactly what you need. There are lots of data in this arena as you can well imagine, but let us see if we can pull the data you need.
  (Dr Patterson) I would not like to give you a misunderstanding, that volume is the key or only driver of price differentials in our industry. The differentials with Spain and Italy, for instance, are specifically related to government price controls and currency movements; the government price control in terms of entry to the market and then subsequent enforced price reductions in that market.

  271. Does that mean our government is really not doing its job properly in securing products at the best possible price compared with other governments?
  (Dr Patterson) We are an R&D based pharmaceutical industry that gives a balance of trade of plus £2 billion that is employing directly 80,000 people per annum and about five times that number indirectly. My company alone is paying corporation tax of more than £100 million a year; it is putting more into the United Kingdom economy by a long way than any of our products.

  272. We understand that. Similarly there are pharmaceutical companies based in France, are there not?
  (Dr Patterson) There are less in France.
  (Dr Brickwood) It is a much smaller base.
  (Dr Patterson) The point I am trying to make is, part of the issue on pricing in the United Kingdom is that many other governments in Europe and in the rest of the world reference price. By that I mean, they only allow you to sell at your home market price, usually minus 10 per cent. That reference pricing against a single market or a basket of markets is a very significant factor in the way we do business.
  (Dr Brickwood) Greece will fix their price on the average of the lowest three prices in Europe.

  273. What you are effectively saying to us is the British taxpayer is subsidising your research and development costs in order to keep you here as a manufacturing base, for fear that you might go elsewhere. We do not actually do that with many other industries, do we?
  (Dr Patterson) I am not saying they subsidise us. Our prices in the United Kingdom are, we said, around the European average and they are much lower than the United States and Japan. The United States in particular is a very buoyant industry. The American companies would say that Europe in general is actually being subsidised as a whole by sales in the United States. It depends on how you look at this.

  274. I am struggling to understand the special case which makes you unique almost, in terms of the manufacturing industry. We seem to be able to attract other industries without necessarily guaranteeing them higher prices in the United Kingdom.
  (Dr Brickwood) I think if we had a deregulated market we would not be here.
  (Dr Patterson) We are not pleading a special case. We just want to be allowed to operate in normal circumstances.

  275. If you had a deregulated market, where would you be?
  (Dr Patterson) We would not be sitting here.
  (Dr Brickwood) We would be working.

  276. You did not mean that your company would not be in the United Kingdom?
  (Dr Brickwood) No, no, we are not pleading a special case. That is what you were referring to.

  277. All we are trying to do is to tease out of you the precise basis of the special case, so that we can understand this and report accordingly.
  (Dr Patterson) When we introduce a medicine into the United Kingdom market, we have very little chance over the ensuing ten or twelve years of patent life that we have to support R&D, actually to increase the prices. The prices have increased by less than 0.5 per cent over the last five years in the pharmaceutical industry in the United Kingdom. So we have to come in at a suitable price to get our global price, and the European price, and to pay for the R&D for the next generation of medicines.


  278. I am a wee bit confused here. It appears that the American and Japanese consumers have to pay the burden of research in their countries in the same way as we have to in ours. The argument is that in the case of France, for example, there is certainly a more generous form of prescribing of medicine by doctors than there is in the United Kingdom. What I am not clear about is, let us take your best selling drugs, are they prescribed more heavily in France than they are in the United Kingdom? The impression I have is that you may get a bigger number of drugs prescribed in France, but is there a French view that instead of our taking two tablets in the United Kingdom, you take four in France if this is a particularly good drug?
  (Dr Brickwood) No. I do not think there is an issue with regard to dose. You use the appropriate dose to treat the illness.

  279. So if we are talking then about countries of roughly the same size, dealing with roughly the same prescription of a particular drug, will that drug cost more in Britain or more in France; and, if it costs more in Britain, why?
  (Dr Patterson) Some drugs will cost more in Britain, some more in France. On the whole, more drugs will cost less in France because when you go into the market place in France you have to get technical approval on the safety, efficacy and quality; and then the French Government introduces a hurdle called pricing control. You have to fight for that for about a year to get a price. Generally speaking, they offer you a price on a price/volume relationship. That price is negotiated downwards by the French Government. They give us a choice: either to sell nothing in France or accept our price.

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Prepared 8 July 1999