Select Committee on Health Fourth Report

2  The UK pharmaceutical industry

17. The pharmaceutical industry is a global enterprise. It is dominated by a few multinationals. The US is the industry's largest and most profitable market, and is the site of most drug research and development (R&D).[12] As such, its policies have the greatest impact on the industry's operations.

18. Nonetheless, Europe, and the UK in particular, provide a strong market for medicines and have traditionally been important sites for drug-related R&D. Two of the largest pharmaceutical companies, questioned as to the relevance of UK health policies to their global businesses, testified to the importance of the UK as a site for the marketing and development of medicines:

Dr John Patterson (AstraZeneca): This is our home market for us. We have a third of our global research and development here; we employ some 10,000 people in this country… it matters to us at the end of the day that those people who have worked with the medicines in research are able to use them in the market place and able to talk to their colleagues globally about their experience with these products.

Mr Gray (GSK): I would support that it matters absolutely. I think I would also add that recommendations both from the Government and indeed from inquiries like this one also pertain to [questions regarding the industry's reputation]. I think, therefore, we would take them extremely seriously.[13]

19. Both those involved in the UK pharmaceutical industry and its critics have given evidence of its strength and success. It is fifth largest in the world by total sales, representing 7% of world sales, after the US, Japan, Germany and France.[14] The UK is the third largest direct exporter of pharmaceuticals; has the third largest world trade surplus; and accounts for 10% of world pharmaceutical R&D expenditure. The pharmaceutical industry is an important employer and contributor to the economy of this country.[15]

20. The UK industry operates within a highly regulated environment. The way in which it undertakes research, produces, licenses and markets its products are all subject to a detailed regulatory system. In this chapter were discuss the industry. We later go on to look at systems for controlling it.

Research and development

21. R&D facilities in the UK are world-class and British-based companies have a long history of success in drug development. The pharmaceutical industry invests some £3.3 billion a year into R&D in the UK. Drug companies based in the UK employ 29,000 individuals in R&D, making it one of the largest employers of science graduates. The industry funds more healthcare-related research in the UK than every other source combined - six times as much as the Department of Health; five times as much as medical charities; eight times as much as the Medical Research Council (MRC) (See Figure 1).

Figure 1. Funding of health-related R&D[16]

22. The pharmaceuticals sector conducts 65% of health-rated R&D, and accounts for around 40% of all industrial R&D expenditure in the UK, spending about £10 million each day. The leading UK companies in R&D are GSK, AstraZeneca, Pfizer, Eli Lilly, Wyeth, Roche, Merck Sharpe & Dohme and Novartis.[17]

23. The combination of a strong history and favourable environment means that the UK pharmaceutical industry is able to "punch well above its market weight": only 3% (by value) of the world's prescription medicines are sold here, yet the UK attracts around 10% of global investment in pharmaceutical R&D.[18] This is more than half of the total pharmaceutical R&D investment in Europe as a whole (see Figure 2, below). Twenty-five of the world's leading medicines have their origins in this country, which is more than any country except the US.[19].

Figure 2. Comparison of share of global pharmaceutical R&D investment[20]


Medicines and health gains

24. The development of effective medicines has contributed significantly to the welfare of patients, over the last 50 years in particular. Examples include the development of vaccines against infectious diseases, the use of H2-antagonists in the treatment of peptic ulcers and the discovery of AZT for the management of HIV/AIDS. The effective treatment of heart disease with clot-busting medicines and anti-hypertensive drugs has helped reduce related mortality rates by 40% in the last decade alone.[21]

25. According to the Association of the British Pharmaceutical Industry (ABPI), the UK pharmaceutical industry's representative body, improved treatments in 12 areas of serious illness since the 1950s have reduced hospital bed days by a number equivalent to £11 billion NHS savings per year. This is £4 billion more than the total annual spend by the NHS on medicines in England.[22] A successful pharmaceutical industry therefore has unquestionable healthcare as well as economic benefits. Advances in medicines and devices can mean greater convenience in use as well as sometimes significant improvements in treatment.

Generic medicines

26. All the major pharmaceutical companies produce branded products. Another section of the industry has traditionally produced generic medicines, which come to market once the branded drug's patent expires. Generic drugs play a major part in containing NHS drugs expenditure. In 2002, unbranded medicines accounted for 53% of all prescriptions dispensed in England, but 20% of total drug costs. Four years after patent expiry of a branded product, generic drugs will account for about half of the drug's market (UK average) and the average price differential between branded and generic versions of the same drug is approximately 80%.[23]

27. In the UK, those prescribing in the community are encouraged to write the generic drug name, whereas in many other countries (and in UK hospitals) there is an automatic generic substitution system in place. Nevertheless, the rate of generic prescribing is still very high compared with other major European pharmaceutical markets, and substantial costs savings are achieved. In 2003, 77.8% of prescriptions were written generically, a record of which the Department is proud.[24] Since 1997, the proportion of prescriptions written and dispensed generically has significantly increased, though cost savings appear to have slowed. [25]

28. Over the past decade, there have been significant changes in the pattern of UK generic manufacturing ownership, leading to increasing domination by large international generic manufacturers. In general, these manufacturers operate independently of, and in competition with, the major brand name companies. However, the £4.4 billion acquisition of two major generic producers by the Swiss firm, Novartis, in February 2005, may presage a major change. Novartis, the world's sixth-largest producer of branded drugs, is now the world's largest manufacturer of generics.

The Pharmaceutical Industry Competitiveness Task Force

29. Despite its continuing success during the 1990s, there were increasing concerns about the competitiveness of the UK pharmaceutical industry that were voiced at a meeting in November 1999 between the Prime Minister and the Chief Executive Officers (CEOs) of AstraZeneca, Glaxo Wellcome and SmithKline Beecham. The CEOs argued that the traditional factors that underpinned the UK's past success in pharmaceuticals were no longer sufficient to guarantee good performance, and that an initiative was required to ensure the UK retained its competitive edge. They expressed particular concern about difficulty in getting their products to the UK market, and intellectual property protection. This led to the establishment of the Pharmaceutical Industry Competitiveness Task Force (PICTF).

30. The overall aim of PICTF was to look at ways of ensuring that the UK remained an attractive location for the pharmaceutical industry, with specific reference to international competitiveness, the free movement of medicines within the EU and European licensing of medicines, the UK as a site for R&D (including partnerships with academia) and the NHS as a location for clinical studies. The group was co-chaired by Lord Hunt, then Parliamentary Under Secretary of State for Health, and Sir Tom McKillop, CEO of AstraZeneca, with equal representation from Government and the industry.

31. PICTF published a report in March 2001 that proposed specific measures and commitments by Government to assist the UK pharmaceutical industry. It also defined 'Competitiveness and Performance Indicators' for the industry, to be recorded and published each year to assess trends over time. These indicators provide the objective data to underpin assessments of how well the UK is performing in the key areas that are crucial to its competitiveness as a location for pharmaceutical companies. [26] The main indicators of value proposed all related to economic gains rather than health benefits:

  • Proportion of world first patents filed for marketed new drugs divided by proportion of world R&D spend;
  • UK-based companies' number of 'global top 75' new active substances; and
  • Percentage of world pharmaceutical R&D spend.

32. The first set of indicators was published in March 2001 and the most recent set was published in December 2004. They show that the UK currently has:

  • A pharmaceutical industry that contributes significantly to the UK economy;
  • A comparatively strong scientific research base;
  • An impressive record of pharmaceutical innovation;
  • A relatively rapid regulatory process for medicines compared to other countries; and
  • Relatively slow uptake of medicines by prescribers.[27]

33. Under PICTF, it was agreed that there should be close joint working between Government and the industry on the National Service Frameworks (NSFs) that set standards for the NHS in clinical priority areas. The report also identified the potential for greater use by industry of NHS information, building on existing systems such as the General Practice Research Database (GPRD).

34. The 2001 report resulted in the creation of the Ministerial Industry Strategy Group (MISG), which now meets on an ongoing basis. In addition, the Healthcare Industries Task Force (HITF) was created to examine "issues of mutual interest in the healthcare sector".[28]

35. These measures indicate the importance of the pharmaceutical industry and the Government's desire to respond to its needs. However, questions have been raised about the Government's excessive focus on ensuring the competitiveness of the industry, to the disadvantage of the NHS and patients. These issues are discussed later.

12   PI 35 Back

13   Q719 Back

14   Information supplied by the House of Commons Library, based on 'UK Trade and Investment' Back

15   PI 35 Back

16   Based on 2000 figures. PI 35 Back

17   PI 22 Back

18   PI 35 Back

19   PI 35 Back

20   PI 35 Back

21   PI 35 Back

22   ABPI briefing document, The Cost of Medicines - Good value for patients. Available online at  Back

23   From IMS Health.  Back

24   PI 01 Back

25   In 1997, 47% of prescriptions were dispensed generically, and accounted for 15% of the England drug bill. In 2002, the 53% of prescriptions prescribed generically accounted for 20% of the bill. Department of Health: Statistics of prescriptions dispensed in the community - England 1992 to 2002, Back

26 Back

27   PICTF Performance Indicators, available at  Back

28 Back

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Prepared 5 April 2005