Examination of Witnesses (Questions 260
TUESDAY 27 APRIL 1999
DR J PATTERSON,
DR A HESKETH
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,
(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
(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
outsidewe 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.
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
(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 oldbut 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
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
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.