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Health Service Branded Medicines (Control of Prices and Supply of Information) Regulations 2008

My Lords, I thank the noble Earl, Lord Howe, for giving the House an opportunity, perhaps somewhat belatedly, to examine briefly the vexed matter of reform of the PPRS. I have said often in this House that one of its functions should be to stick up for people whose causes are not always popular. I congratulate the noble Earl, Lord Howe, on going in to bat for the pharmaceutical industry, which is not always one of the most popular industries. Before I turn to the matters immediately before us, I shall make an observation which might help to explain why we find ourselves in this unsatisfactory position. The PPRS is a voluntary agreement which has stood for more than 50 years. It is an agreement between two significant parties. First, there is the Government, who control the budget for probably the most significant pharmaceutical contract in the world. Pharmaceutical companies will argue that other markets, such as the USA, are larger; and they are. However, the NHS contract sets a benchmark throughout the world, so it has an added value beyond the total of UK domestic sales. The other party is the pharmaceutical industry, which in 2004 spent £3.2 billion on UK-based research and development. It is an industry which brings evident benefits to the UK, not just in terms of medical developments, for which we are grateful and from which citizens benefit, but in the development of research capacity and revenue for the Treasury. It is an industry with an almost unique bargaining power, a fact which is evident from the trenchant tone of its briefings. It is also an industry which is mindful of its duty to patients and it has legitimate concerns about the cost and length of time that it takes to develop new molecular entities. If one looks back over a decade, it is evident that the renegotiation of the PPRS is a periodic opportunity, one which both sides exploit to the full, to battle over the pricing of medicines. In 1998, the Government announced plans to reform the PPRS and, on 17 November 1998, the ABPI warned that any attempt to cut profits could drive manufacturers away and damage business. That is a warning which is by no means idle, and which the pharmaceutical industry repeatedly presents to government. The noble Earl echoed it this evening. Those are the antecedents of the current dispute, and it is against that background that a neutral observer—as I believe myself to be—must weigh the claims of each side. It is important in all this to remember that the OFT report recommended that the then existing arrangements in 2007 should be overhauled from a complex system of controls on profits and post-launch price changes to one based more on the value of individual medicines, based on economic evaluation of their benefit to patients. The Government propose to introduce a settlement based on an across-the-board price cut. It does give stability and predictability for the next five years—the statutory scheme will be reviewed annually—but in practice it appears to be a polishing of the existing regime, sweetened by a commitment to speed the uptake of newly registered medicines, rather than a fully thought-through and thorough reform. That is unsatisfactory. I agree with the noble Earl that the reference to continued free pricing for new active substances is a very important matter and should not be mentioned in passing in the Explanatory Notes. It should be in the regulations, as it is a legitimate and very important point for the industry. It is regrettable that the Government have responded to the High Court ruling, among other matters, with this somewhat ad hoc proposal, when there could have been a much more strategic, thought-through approach to medicines, which is a key issue for the NHS. It is regrettable because value-based pricing is something that deserves full consideration. It has been successfully implemented in many other countries, including Switzerland, Australia and Canada. There have been successful pilots in the United Kingdom, such as Velcade, but to change the system in such a fundamental way, one needs to look very carefully at how appropriate it is for our system, given that we have a National Health Service. The noble Earl is right. Clearly there is an issue about consultation. Page 4 of the Explanatory Notes, in paragraph 7.17, states: "““The consultation started on 18th June and terminated on 15th July 2008. Ministers agreed a short consultation period in order to maximise the opportunity for both the Department and the industry to conclude negotiations on a new voluntary scheme””." With whom did Ministers make that agreement? Was there a contemporaneous understanding that the regulations would be published in late July and brought into force before Parliament returned from recess—and, therefore, there would be a limited opportunity for scrutiny? I turn to the issue that the noble Earl raised about timing. The PPRS contains within it a number of very complex factors, such as costs of research, commercial risks, and loss of revenue when similar molecular entities become available from low-cost overseas producers. There is a huge issue of drugs that come off patent and, specifically, the rate at which they decrease over time to 1.5 of the reimbursement price of the generic equivalents. That is a big consideration for suppliers. In addition, this House needs to probe in some depth the claims by the pharmaceutical industry that the proposal that the Secretary of State should take into account prices from other countries would be harmful to the industry. There is also a short-term problem. Because of the uncertainty about pricing, which has arisen from all these events, wholesale pharmaceutical distributors are winding down their stocks. I am informed by my very good friend, Sandra Gidley, who is my honourable friend in another place and a pharmacist, that pharmacists have their busiest period in December, because GPs and their patients stock up to get people though the holidays. So we are facing a point in winter when we could have problems over immediate supply and availability of drugs at a time of high demand. Furthermore, while not making any particular claim on behalf of the pharmaceutical industry, now is not a good time for any industry to have uncertainty added to that arising from the financial turmoil. In conclusion, I understand entirely that in the ongoing battle between the industry and the NHS, implementation of directives, High Court rulings and deadlines are all legitimate weapons. Each side has the right to do whatever it thinks necessary to achieve what it believes to be in the best interests of patients. But because of some of the flaws in the regulations as they are drafted and some of the short and long-term consequences, I, too, urge the Minister to consider whether it would be possible to continue the arrangements for the voluntary PPRS to be expanded for a limited and specified time, so that the terms of the new voluntary scheme could be fully consulted on, and some of the issues raised by the noble Earl and myself could be given further consideration. It would be naive to believe that further time will lead to an outbreak of harmony, the like of which has not existed for 50 years. Nevertheless, this process has been less than satisfactory and there are some major issues that would benefit from greater investigation over time. If that would be in the best interests of patients, I believe that the Minister would be well advised to consider that as a way forward, to make progress.