Select Committee on Health Minutes of Evidence


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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