Examination of witnesses (Questions 50
- 59)
THURSDAY 4 NOVEMBER 1999
MR JON
CLOSE, MR
ANDREW KAY,
MR MICHAEL
WATTS and MR
WALLY DOVE
(Mr Hinchliffe resumed the Chair)
Chairman
50. Colleagues, first of all, can I apologise
for my absence from the earlier part of the session. I was defending
the interests of this Committee in another meeting. Can I thank
our next set of witnesses for coming before us today. I wonder
if you would briefly introduce yourselves to the Committee.
(Mr Dove) I am Wally Dove and I am Chairman of the
Pharmaceutical Services Negotiating Committee and I am also a
practising community pharmacist.
(Mr Watts) I am Michael Watts. I am the Director of
the British Association of Pharmaceutical Wholesalers and I represent
full-line wholesalers in the country who provide every prescribable
medicine and a full service to pharmacy. I do not represent short-line
wholesalers and that distinction must be understood.
(Mr Kay) My name is Andrew Kay and I am representing
the ABPI. The ABPI members supply something of the order of 85
per cent of NHS medicines. The Association represents primarily
research-based companies and it does have some generic members.
I personally chair the committee representing generic interests
and I am also a member of the board of management of the Association.
My employer is APS/Berk, a leading supplier of generics, and I
am Managing Director of that company. APS/Berk itself is part
of a leading global generics company, TEVA Pharmaceuticals.
(Mr Close) I am Jon Close, Chairman of the BGMA, the
British Generic Manufacturers Association, and Managing Director
of Norton Healthcare.
51. Thank you. Can I just begin by raising with
you the points made by the Department of Health in their memorandum
to this Committee. I do not know whether you have had the opportunity
to actually study their memorandum, but if you have not can I
summarise what they talk about in terms of the key questions in
respect of the operation of the market, and I will summarise it
and maybe we need to look at this in more detail. Firstly, the
questions they believe need to be asked obviously by this inquiry
are: whether some suppliers, manufacturers and/or wholesalers,
have been charging excessive prices; whether some suppliers have
been holding excessive stocks for speculative purposes; whether
some suppliers are exploiting the rules for reimbursing products
which are in short supply; whether there has been an explicit
or implicit collusion between any suppliers to bring about or
sustain any of the practices that we are describing here today.
Have you any thoughts on the points that the Department makes
in its memorandum?
(Mr Watts) We all know that the shortages have been
created by a number of different factors and in a commodity market,
which is what this is, prices go up just as prices go down. Because
there are shortages, there are undoubtedly people in the market
who exploit that.
52. Who?
(Mr Watts) Well, I do not represent anybody who does
exploit it because the—
53. But you know obviously that people do and
we are trying to work out who does.
(Mr Watts) In every industry if there is a shortage
people exploit it.
54. We are concerned with this industry and
we are concerned with a particular period of time and certainly
the Department of Health are pointing fingers. You are implying
that people exploit these situations, so who are we talking about?
(Mr Watts) I suspect that is probably true in that
instead of my members being able to buy from manufacturers of
generics, they often have to buy from some short-line wholesalers
because there is not any other product available.
(Mr Kay) I think the situation that we have seen this
year can be attributed to factors which have not previously been
the case. At the turn of the year we had lost a major supplier
into the market, Regent GM Laboratories, and at the time that
company went we had no knowledge of the reason for that, nor do
we have now, but, more to the point, no knowledge as to when that
company would return to supplying the market and that company
accounts for something like 10 per cent of the volume of generics.
So that did cause immediate problems on a number of items which
the industry responded to through juggling of output schedules
to seek to restore normal supply. The second factor that came
into play was the introduction or the enforcement in legislation
of the Labelling and Leaflets Directive which led to the Patient
Pack situation which you will be aware of from written evidence.
This movement towards Patient Packs appeared to cause shortages,
but it was not shortages of medicines per se, it was shortages
of medicines in bulk packs, so we had two situations in there.
In terms of pricing, it is certainly true that the prices of a
number of generic medicines have risen. The reason for that is
that we do operate in a commodity market. If our prices are too
high, our medicines do not sell. Equally, if our prices are too
low, the market will come to us and clean us out and that is an
important issue that I would like to make, that it is the market
driving the situation. That is one point I would like to make
on pricing. That is followed up by the fact that even with the
higher prices, the generic products that we are looking at are
cheaper than the branded equivalents and discounts are available
in the market and those discounts will be swept up in the normal
inquiry process. In terms of hoarding, which was another point
that you made, I cannot comment on that. Colleagues from the distribution
side would be nearer to that. I can certainly say in response
to a point which was made earlier on holding back on stock by
manufacturers that, as a basket manufacturer, that is not the
case and I would welcome any study of our records that would support
that.
55. But can you show us any specific evidence
that people have exploited this situation?
(Mr Kay) I cannot point to any specific evidence.
To explain, we, as a manufacturer, post list prices and we are
but one part of the dynamic that sets prices, and the distributors
are another part of that. In order to answer your question, it
would need somebody, which I am not in a position to do, to do
a study of prices in the market as a whole to assess that, but
certainly from the standpoint of manufacturers I am not aware
of exploitation of the type that you describe.
56. So you have no evidence of the point that
the Government clearly makes in its submission?
(Mr Kay) I have not seen the submission, so could
you repeat the point?
57. This is the Department of Health's submission,
and the questions that they say arise are: whether some suppliers,
manufacturers and/or wholesalers, have been charging excessive
prices; whether some suppliers have been holding excessive stocks
for speculative purposes; whether some suppliers are exploiting
the rules for reimbursing products which are in short supply;
and whether there has been explicit or implicit collusion between
the suppliers along the lines that they are suggesting here. Clearly
they must have evidence or some suspicions for them to make these
allegations in a submission to this Committee.
(Mr Kay) The point on collusion, certainly from a
manufacturing standpoint there has been no collusion and we would
welcome any study that wanted to look at that. That has not been
the case. What we have been doing as an industry is trying to
work very hard in a difficult situation to maintain supplies as
best we can. As for exploitation, which I would describe as using
the system over and above reimbursement against the branded equivalent,
I have no evidence of manufacturers engaging in that activity,
but that is not to say that there are not other elements—the
point I made before—that there are other distributors in
the mix who may be doing that, I do not know.
(Mr Close) I think we should start from the premise
that the generic industry is responsible for 50 per cent of the
total volume of prescriptions. That is about 15 billion tablets
that go into the market from the generic industry. When Regent
came out, Regent were responsible for about 10 per cent of that.
From the Department of Health's own figures that they shared with
us in the middle of this year from data that we have supplied
to them, the generic industry had made up that 10 per cent shortfall
in total volume terms by June of this year and I think that shows
the effort that was put in to actually make up that shortfall.
Clearly we were not able to make it up on a specific product-by-product
basis and what has been happening over the last nine months is
that we have been chasing the shortages as they occur. I can speak
on behalf of both the BGMA and my own company as well where literally
the moment we are aware of the shortage in the marketplace that
product gets priority on the production line even to the extent
where we actually run a smaller and inefficient volume of it to
get it back in stock as quickly as possible. We certainly are
not sitting on supplies or restricting supplies.
58. So you would refute, as it relates to your
area of concern, your role as manufacturers, the suggestions being
made here by the Department?
(Mr Close) I think the other thing is the Department
has shown on specific products that we have produced more volume
than the demand that is out there. Now if there is clear evidence
to show that we produce more volume on a product than the demand
from the Prescription Pricing Authority then that product is out
in the market somewhere. It might not be with the main line wholesalers
but it is somewhere in the distribution chain.
59. Mr Dove?
(Mr Dove) To take up the first point of collusion,
your colleague asked earlier from the PPA whether there was any
connection between the five basket suppliers and wholesalers and
branded manufacture. Four out of five of them have no connection
at all in terms of manufacturing, so I do not see that to be a
problem of collusion. Mr Close mentions that the generic industry
has moved very quickly to produce extra volume because of Regent
going out of the market place, certainly from a community pharmacy
level we have realised that Regent Laboratories actually were
sole producers of some products. I think the difficulty is for
the generic industry to actually correctly forecast the mix of
their production. In my view this has been exacerbated by the
introduction of Patient Packs. When you look at it we were buying
a pack that big when we were buying this sort of volume to replace
it. If you think, our pharmacies do not have elastic walls, the
possibility for hoarding, certainly at the pharmacy level it is
very low. Our main drive, of course, is to ensure that patients
have a correct supply of products. The earlier group of witnesses
were asked whether there was evidence that patients have suffered.
I think patients have suffered. Community pharmacists have been
forced to supply, let us say, a five milligram tablet against
a two and a half milligram demanded by the doctor and we have
had to instruct patients to break them in half. This is not a
satisfactory situation. Certainly from the community pharmacy
point of view the sooner it is sorted out the better.
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