Examination of witnesses (Questions 80
- 99)
THURSDAY 4 NOVEMBER 1999
MR JON
CLOSE, MR
ANDREW KAY,
MR MICHAEL
WATTS and MR
WALLY DOVE
Dr Brand
80. I do not understand that. Why by definition
does that create a shortage?
(Mr Kay) A shortage of the bulk pack. Not a shortage
of the medicine but a shortage of the bulk.
Dr Stoate
81. Surely when the GP writes a prescription
for Frusemide, 40 mg times 60, why should that cause any problems?
(Mr Kay) It does not, I agree. Perhaps if I go through
the sequence of events it will become clearer for you. We have
moved to a Patient Pack. The drug tariff is still based upon the
bulk. For some time as an industry and as a company with an interest
in these products we have had discussions with the PSNC, discussions
with the PPA and discussions with the Department to say: "Look,
there is an issue coming here whereby there is going to be an
arrival in the market of products moving from bulk to a Patient
Pack. The system should be set up to cope with that". There
should have been and there could have been—and it is not
for the want of trying on our part to achieve this -a mechanism
whereby the Patient Pack could have been listed as well. What
that could have resulted in was the Patient Pack could have gone
in as a Category A product, the bulk pack could have stayed as
a Category A product because there was no shortage, there was
a shortage of the pack that was listed in the tariff but not a
shortage of the medicine per se. So had that step been
taken the increases that the Chairman pointed out on Frusemide
would not have happened.
Dr Brand
82. So the 723 per cent increase in costs is
due to bulk packaging for Frusemide?
(Mr Kay) It is due to the shift. It is due to bulk
going into Category D as a result of a shortage of the bulk pack.
It is not a shortage of the medicine as such. There are Patient
Packs available.
83. I still do not see why whilst both could
be supplied there was a shortage because if there were enough
non bulk pack Patient Pack products, you could still supply the
goods. Can we use another examine, that of Atenolol 50 mg. I think
Atenolol since it first came out has been in Patient Packs all
the time. that has gone up in a year by 62 per cent. What is the
reason for that?
(Mr Close) I will try and take some of them together.
On the Atenolol one, it will be again because people were chasing
immediate shortages, of which I think one was Warfarin at the
time. The reason Warfarin was a shortage was because, as I said
earlier, Regent did 30 per cent of the volume. If you are running
that particular product down your line to try to make up that
shortage then something else is going to fall off. In other words,
if you decide you are going to have to put products into the market
to make up for a shortfall another product is going to suffer.
You have this effect of a cyclical effect of them falling through.
Whilst we are raising Atenolol let us also raise the other issue
there. When Atenolol is written branded still as Tenormin, and
it still is written branded in some cases, that costs the NHS
an extra £2.9 million just when it is written branded. Nobody
raises an eyebrow about that. Here we have got the generic industry
today under the spotlight and yet we are not raising those issues.
Another one I will give you as an example which will probably
come up is Bendrofluozide. Bendrofluozide has gone up in price
but it is still half the price of the brand. Nobody is questioning
about the price of the brand, they are just questioning why has
the generic gone up. My final point which I have to come back
to is if you make generic products so unattractive, which in some
cases they were before, such as Frusemide which is the example
we are looking at, people will stop producing them. My own company
stopped producing Frusemide two years ago, not for any reason
other than the fact it was losing money to producers. If you want
to drive the generic industry down to the lowest common denominator,
and I do not apologise for using the comparison with Smarties,
what happens is people stop producing that, you do not have a
full range of generics and the moment people stop producing it,
what happens, somebody else decides the market has become more
attractive now. So you have this cyclical effect of products coming
down, the prices are rock bottom, people falling out of the market,
then people coming back in and prices going up. Is that any way
to run a reimbursement system, a sensible approach to funding
NHS drugs or anything else?
Chairman
84. It raises the question whether we should
leave the whole process to the market at all.
(Mr Close) I do not think we should. I think we should
get round the table with all interested parties, with the Government
as well, and get a system that is sustainable, competitive and
actually provides the best service for a full range of generics
at a competitive price. We are still today, with those price increases,
the most competitive generic industry in the world.
Audrey Wise
85. I want to explore further the Patient Pack
and that sort of thing because it seems to me that we have been
given a number of explanations which are worth exploring a bit
more. The thing about the Patient Pack that strikes me is that
this was predictable. It is not something which just arose overnight,
it is quite different from the closure of the Regent company.
You said that you had been in discussion, could I ask when those
discussions started because the Patient Pack situation has been
known for a long, long time?
(Mr Close) I will try and do it very quickly. The
Patient Pack discussions started probably over ten years ago,
and I am not joking, it has been going on and on. Right up until
October 1998 there was an understanding that the industry was
going to move into Patient Packs in a co-ordinated fashion with
Government support as well and certain products would all come
in at the same time. As of October 1998 that was just cancelled
and the industry was left to fend for itself, to comply with the
EC Directive under its own pace. That is what the industry is
doing now. It has been a major reason for what you have seen this
year in terms of product shortages. The other thing I would like
to say is this Committee actually shares more in common with the
objective that we all want to see in terms of generics and prices
and drug costs but we need to understand the whole picture. I
actually appreciate we are coming from the same direction, but
it is that lack of understanding that is jumping to conclusions.
86. Just so we are beyond any shadow of doubt,
there were discussions going on which would have led to an orderly
changeover?
(Mr Close) Yes, they would have done.
87. Then it was unilaterally cancelled by the
Government, is that what you are saying?
(Mr Close) Yes. It is wrong to say the Government,
the Government is a big thing.
Chairman: The current Government.
Audrey Wise
88. The Government in October 1998. I mean were
they the cause of the breakdown in the arrangements?
(Mr Close) Yes, it was.
89. They changed their minds.
(Mr Close) Yes.
(Mr Kay) Yes, there was a formal process which had
been set up that involved all the stakeholders, it involved industry,
the medical professions, the wholesalers, the PSNC, ABPI, BGMA,
everybody was involved and working on this plan together. There
was a plan which could have been rolled out and certainly, taking
Frusemide as a specific example, it would have avoided that situation.
Audrey Wise: That is something to pursue with
Ministers.
Chairman
90. I do not fully understand how the matter
could have been addressed at that point, if you could briefly
explain to the Committee? I do not understand what could have
happened at that point that the Government was not prepared to
go along with.
(Mr Kay) It is a complex issue so I will run through
it once more. Frusemide was only available to bulk pack up until
the point at which our company, because it happened to be the
one that moved first on that, moved toward a Patient Pack. Despite
our requests, and this is the key point, that product had not
been listed as a Patient Pack, so the drug tariff could have said
"Frusemide 1000" and a line below it "Frusemide
28".
91. This was directly in the hands of the Department
of Health?
(Mr Kay) Indeed.
(Mr Dove) Because the pack is dearer. Pro rata it
is dearer, that is the point that has not been made. That is why
we cannot dispense it.
Audrey Wise
92. It is bound to be dearer.
(Mr Kay) Following on from that, if I may, any price
differential there would have been—that is a reasonable
point—would have been far less than what has actually happened
as a consequence of Frusemide moving into Category D. That is
the thing that could have been and should have been done differently
and was envisaged as part of the original programme which was
going to show an orderly transition by therapeutic group from
bulk to Patient Packs and eliminating bulk in the process. Please
bear in mind that bulk which is being dispensed at the moment
is in breach of the Labelling and Leaflet Regulation unless it
is going out with a label and leaflet, and I know it is not.
(Mr Close) The other thing just to say on Patient
Packs is that the decision on having to move into Patient Packs,
besides being a legal one, the capital investment for the machines
to do that took place 18 months before the beginning of January
1999, so you order a machine 18 months in advance and these machines
have to be built and commissioned, et cetera.
(Mr Watts) I think the thing that caused a major problem
was that discussions have been taking place with Government and
all the interested parties for well over 15 years, and it was
OPD, I think, to begin with and then it changed to Patient Packs,
and this was all going ahead, we thought, on the programme that
Mr Kay was explaining. Then the Government refused to fund or
help fund some of the changes to Patient Packs which are considerable
and, as a result of it, the programme stopped and there was no
direction given and that is where the whole thing is lacking.
No direction was given to say, "You must complete this by
the spring of next year". If direction was given, then people
would be able to create their own programme and finance it and
get on with it, but there is no direction and so the thing stopped,
and patient packs are significantly more expensive for everybody.
They are more expensive to produce, they are more expensive to
store, they are more expensive to distribute, and they are more
expensive to hold in pharmacies.
(Mr Close) Just to clarify for the Committee itself,
there was a huge amount of direction up until October of 1998.
In fact, every single product had a defined date and phase of
when it would be introduced and the Government had done their
homework with industry and all interested parties to make sure
that it would be a sensible phase-in. It was the fact that they
dropped it at the last moment which was the real issue.
93. I know that we will be taking that whole
issue up, but perhaps I could ask about the workings of the market
in a wider way and especially the wholesaler side, first of all,
so that we all understand it. You represent the full-line wholesalers
which means that you take the whole range and keep everything
in stock and there is nobody here who is a short-line wholesaler.
You have told us, Mr Watts, that you have simply got empty shelves
and that you are an innocent party, an innocent victim in a sense,
I suppose. What about the short-line wholesalers? What is their
function?
(Mr Watts) Unfortunately they do not have a representative
body. There are somewhere in the region of 800 wholesale dealer
licences. I represent the 16 full-line wholesalers who provide
80 per cent of the requirement and so there are a lot of short-line
wholesalers around. There are some people, short-line wholesalers,
who deal in as few as 25 products. There are some who come into
the market one month and go out of the market two months later
and they deal in products that happen to be profitable at the
time. I do not represent them. That is why I am absolutely delighted
that there are inquiries so that everybody can see what is happening
in the marketplace and we would very much like to know.
94. So they are, in a sense, speculators in
this?
(Mr Watts) Many of them are. Many of them are very
reputable.
95. But they come in and out and take advantage
of price movements?
(Mr Watts) Some do.
Audrey Wise: I think it was you yourself, but
certainly one of our witnesses, who said, "If the prices
get too low, the market will come to us and clean us out",
and I do not understand that because for a lot of the products,
or the major ones we have been talking about, it is not a market
like the market, say, for Smarties where you can say, "Well,
demand for Smarties will increase or demand for confectionery
will increase and people will eat less fruit", but this is
a market which depends on prescriptions and so by saying, "The
market will come to us and clean us out" that sort of suggests
that doctors will say, "Oh look! That's cheap, so we will
have some extra of that".
Dr Brand: Or, "We're not treating thyroids
this week—they are very expensive!"
Audrey Wise
96. That is right, yes, so it does seem to me
that that is an odd scenario. Can somebody explain that?
(Mr Kay) Chairman, it was my point, so I am happy
to follow through on that. Generics, as opposed to branded products
under patent, are what we refer to as "multi-sourced products",
which simply means that the same product is available from one
or more suppliers and in many cases three, four, five up to ten,
so at any point a given manufacturer has a given share of that
market. Therefore, let us say for the sake of argument that my
company, because of its particular competitive position, has a
10 per cent volume share of that market. If something happens
elsewhere in the market to a company that, say, has maybe only
ten, but let us say it is to a bigger supplier and if something
happens to that supplier who has, say, a 20 per cent market share,
maybe it has a manufacturing difficulty, or maybe for reasons
that Mr Close alluded to, has decided that that product is no
longer worth continuing in their range, there are other newer
products coming along and they have decided to make a switch,
if that company decides to withdraw the supply, that means that
company's customers are looking for supplies. It is a small industry
to the extent that all distributors, all customers, know all the
suppliers and they will have a list of products and if they see
that product on my list and they need that product and they know
that there is a shortage, they will come to me. I really would
like to support an observation that Mr Close made earlier, that
I would welcome any of the Committee coming to our site to see
the way that the system operates and I could certainly show you
examples of where that happens and if we did not take action then
we would be cleaned out and it is because of the fact that it
is a multi-sourced market. If we were the only person producing
the product, then, as the point was rightly made, it is not an
issue of prescribing, but it is an issue of the availability of
the product in a multi-sourced environment and that is how that
situation arises. I have seen it many times and, as I say, I am
more than happy to share that with the Committee.
(Mr Close) I think the short-liners are the ones that
are quickest in identifying that something has happened in the
marketplace, that either somebody has stopped producing or has
run into a problem and then they buy in order to accumulate and
I think that does happen. That could take it all off your shelf
in one go. So if you imagine that we might process 6,000 orders,
unless you have briefed your people to say, "Do not supply
to this customer", and we supply to over 6,000 customers,
for example, then that product could be wiped off your shelf before
you know about it. We have put in place during this year a process
where if somebody is ordering what we consider to be an excessive
amount of stock then we actually do not process that order until
we have found out what the real reason is.
97. What you are telling us is that it is at
that particular point where there can be manipulation, because
that is manipulation?
(Mr Close) Yes.
98. And at that particular point there is no
regulation or rule or anybody keeping an eye on it?
(Mr Close) No.
99. So that is obviously something to pursue.
Mr Close is keen on having much more regulation and planning.
Do you share that view, Mr Kay?
(Mr Kay) I speak with my generic hat on in answer
to that because, of course, the branded sector is regulated through
the PPRS. As a manufacturer I would certainly welcome anything
that gave some sort of predictability to our situation and gave
us a fair return for the 50 per cent of the medicines that we
as an industry supply into the NHS against a situation whereby
we would not have this sort of discussion and we would not be
faced with an unpredicted overspend. If there was a more regulated
environment that had something in it for both of us, in simple
terms, I would welcome that and we have made this suggestion before.
Mr Close has made the point, and we have made it at meetings with
Department officials.
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