Pharmaceutical Industry

HL Deb 20 February 1985 vol 460 cc611-40

5.35 p.m.

Lord Hunter of Newington rose to call attention to the state of the British pharmaceutical industry; and to move for Papers.

The noble Lord said: My Lords, I rise to move the Motion standing on the Order Paper in my name. The dimming of the lights, which I was forewarned about, is for a very obvious reason; though I think, if I may say so, that the noble Lord, Lord Henderson, in the way he led and guided this House in his debate, produced illumination of a very remarkable order.

Recent weeks and months have seen some very remarkable events in the fields of prescribing and the pharmaceutical industry. We have seen a Government who largely accepted the Greenfield Report, and gave advice to the Public Accounts Committee that a limited list might not produce much in the way of savings, change their view completely and introduce a drug list, albeit for discussion. This list was more remarkable for its omissions than for anything else.

The Government, unable to get the full cooperation of the British Medical Association and the Royal College of General Practitioners, wisely, I believe, asked the chief medical officer to set up a committee of experts; and they really are experts. They were to suggest a recommended list. I understand this has been done, and we look forward to hearing from the Minister about this important matter.

The Government must now be considering an even more difficult problem: how are they going to keep this list up to date? The Department of Trade and Industry must be wondering about the future of the British pharmaceutical industry and its contributions to exports and employment. Meanwhile, the British Medical Association, which originally was uncertain about Greenfield's proposals, embraced them vigorously and started talking about generic prescribing as a way of saving money. Surely it must know that only 20 per cent. of the non-patent drugs are available in generic form in the United Kingdom. This, as we will see, contributes to the concern of the ABPI. The roots of the situation are in the history which we must examine.

Meanwhile, the ABPI has mounted a most vigorous campaign against the Government, has encouraged doctors to protest to their Members of Parliament and has dislodged the Greater London Council from the centre pages of the national newspapers with its advertisements. I do not think there is any doubt that the anxiety of doctors about the availability of drugs in the National Health Service has transmitted itself to their patients. Some have anxiously approached your Lordships, and Questions have been asked in the House.

How has this happened? What is the state of the industry? How has it been financed by the British Government over the last 38 years? Have the Government considered the near-monopoly situation created by the National Health Service, and have they dealt with it? Why have they changed their policy about drug lists? Is it the desperation of a Government who feel that they cannot continue as before, and do they have a well-thought-out plan to protect the patient, make things possible for doctors so that they do not emigrate, and maintain the vigour of an important part of British industry?

I believe that to understand this situation we must go back to the beginning: the introduction of the National Health Service in 1948, the situation which existed then and persisted thereafter for a considerable number of years. Two factors were of supreme importance: first, the concern of the Government to introduce this great new innovation, the National Health Service, and ensure that no one who required medical treatment should have to pay; though prescription charges have always been a feature. The other was the determination of the medical profession to maintain its professional independence, and the idea of any restriction on its professional practice or judgment was abhorrent to it.

So at the beginning there was no officially approved list. Many hospitals, at that time and since, had a hospital drug list which was drawn up from time to time by the staff, with the assistance of the pharmacists. At least six government inquiries into prescribing costs have taken place in the last 30 years, and this reflects the deep concern of government about the cost of pharmaceutical services. At the present time the National Health Service market is valued at just under £1,600 million, and the sales are shared between British-owned European and American companies, about a third each. At the same time the pharmaceutical industry is the fourth largest positive contributor to Britain's balance of trade.

It is important to examine the reaction of the pharmaceutical companies to the situation which was created in 1948, and the consumer demand which was, in fact, created. Many UK drug companies and others from overseas set out to estimate and provide for the situation which had been created by the Government and was going to be substantially financed by the Government. Another important reason for the developments which occurred was the opportunity in the National Health Service to do clinical trials, and get results which would have been enormously expensive to do in many other countries.

So the stage was set for the substantial development of the pharmaceutical industry in the United Kingdom. Inevitably, discussions took place between the companies and the Government, and a code of pricing was developed which ensured that the companies got a profit rate comparable to other companies in the United Kingdom.

The present scheme is the Pharmaceutical Price Regulation Scheme, and in this two important factors are taken into account. One is the research component of the companies, and the other is their contribution to exports. In fact, my Lords, I understand that all United Kingdom pharmaceutical companies are considered to be research-based. This is perhaps unique in the world. In other countries, for example the United States, there are companies which produce only generic drugs; those which are not subject to patent restrictions. Later we shall see what are the complications which this causes.

Of half or more of the research-based UK drug companies, the drugs which they provide are not patent protected, and there is a degree of protection from the Pharmaceutical Price Regulation Scheme. The inevitable consequences of this expansion, and the host of new drugs which appeared in the 1950s, which of course was a worldwide phenomenon, culminated in the Thalidomide tragedy, and this stimulated the Government in 1961 to set up the Committee on the Safety of Medicines under the chairmanship of Sir Derrick Dunlop. I had the privilege of serving as chairman of the Clinical Trials Sub-Committee. Sir Derrick did a marvellous job with the industry, which agreed and co-operated, and by the mid 1960s the Medicines Commission was established under the distinguished chairmanship of Lord Rosenheim.

In the UK the Medicines Commission now insists that there is a data sheet for every drug published by the firm that markets it. The data sheet has to be agreed by the licensing authority, and it is illegal for a firm to promote a drug for any purpose other than those set out on the data sheet.

During the period in question, however, the pharmaceutical companies were not idle, making vigorous and imaginative efforts to inform doctors about their drugs; and visits—particularly to general practitioners—were routine. After all, 50 per cent. of the costs of general practice are due to pharmaceuticals, whereas the cost of drugs in hospital is much less. Many of those approaches and meetings organised by the drug industry were inevitably directed towards interesting doctors in the particular company's products. Britain is said to spend a smaller proportion of its gross national product on health care than comparable countries, but it spends about the same proportion of its budget on pharmaceuticals.

In the late 1960s and 1970s, there was a great deal of discussion about drug lists, generic prescribing and the patent life of new drugs, and all the time the costs continued to rise. The patent story is a complicated one, but, put simply, the case is that the introduction of animal experiments and clinical trials of new drugs by the Committee on the Safety of Medicines and similar bodies in the United States and in Europe, has lengthened the period between the time when a patent is first taken out following an original chemical or laboratory discovery, and the time when clinical trials are completed and the drug marketed. This time has become longer and longer, even up to 12 to 14 years in some cases. The consequence is a shortening of the period when the drugs can be marketed under patent protection, allowing the company recoup what it hopes will be a substantial part of the cost incurred in the development, together with profits which they hope to reinvest in further research. So the industry has become increasingly restless over this, and we are very fortunate on this occasion to have the noble Lord, Lord Ennals, speaking in this debate because he, I understand, negotiated the last agreement about patents.

In recent years, the cost of the drug bill to the National Health Service has increased steadily. In the period from 1970–71 to 1980–81, the proportion of national health expenditure devoted to general medical services fell from 7 per cent. to 5 per cent., but the spending on pharmaceutical services has now risen to 50 per cent. of general practitioner costs. As you know, my Lords, questions have repeatedly been asked in your Lordships' House about the Binder Hamlyn report on general practitioner services. Demands by the Government to cut the cost of general practitioner services are therefore substantially related to pharmaceutical costs.

Without waiting for the publication of the Green Paper on those and other problems, the Government is proceeding to introduce an approved list—or is it a recommended list? We look forward to hearing from the Minister. There is a great difference between the two. When I practised as a Professor of Therapeutics and Clinical Pharmacology, I always advocated a drug list professionally chosen. I have also felt that the use of generic drugs makes the demand on the public purse substantially less without detriment to the patient. But the introduction of any limited list at this time will cause acute problems in the pharmaceutical industry, affecting their research and development, and inevitably their contribution to exports. It will also cause substantial problems in the medical profession, and a very complicated administrative structure will undoubtedly be required to run any such scheme, because, to be effective the list will have to be constantly changed and updated to meet the clinical position, and it must have degrees of flexibility built into it.

Under certain circumstances we have to face the issue that we could finish up with a second rate industry; under-funded, behind the world leaders in research, and, most important of all, giving an inadequate service to the National Health Service. We do not wish to finish up like Australia, which has no domestic research-based pharmaceutical industry at all.

There is a growing impression among the medical profession and others familiar with the scene, that ministers in the DHSS do not have a policy, and that they very often do not understand the problems that they are trying to tackle, and the way this matter has been presented, and the way it has been handled, would seem to confirm this.

If the intention is to produce a recommended list of drugs, then how is it to be managed? Is it to be managed by a drugs review committee of the Medicines Commission? That would seem to be logical. But if 50 per cent. of drugs are to be provided in the generic form, there will have to be substantial changes in the British pharmaceutical industry or a massive importation of drugs from abroad. The consequences of a recommended drug list will be many. Will the recommended list be backed by statutory powers? I hope not. I believe that the whole matter can be sorted out over a period of, say, five years, but for some time the price of generic drugs in the United Kingdom will have somehow to be supported by the Government.

Are the Government going to continue to encourage imports from abroad on a "best buy" basis from the Common Market? The ABPI would claim that that policy has already undermined the United Kingdom industry's domestic earnings by something between £50 million and £100 million per annum.

Therefore, one can see the problem. The United Kingdom drug industry has developed along certain lines made possible by the Government. It is obviously the responsibility of the Government to provide reasonably priced drugs that are required in the National Health Service. Over-prescribing of medicines must somehow be stopped: but do we have too many research-based companies in the United Kingdom? Do we not require high-quality companies that confine their business to generic drugs? All of this will have to be examined and planned, and it will take time if the pharmaceutical industry. its exports and its employees are not to suffer.

Hopefully the Chief Medical Officer's Committee will have produced a recommended list which is satisfactory. But the evolution of a new future for the National Health Service drug supply and for the ABPI and its constituent companies will just be beginning. Perhaps the problem will be solved by free enterprise and market forces, in which this Government have great faith. One thing seems certain: the pharmaceutical industry and its supply of drugs to the National Health Service will never be the same again. My Lords, I beg to move for Papers.

5.52 p.m.

Lord Auckland

My Lords, your Lordships have listened to a most erudite, restrained and sensitive speech from the noble Lord, Lord Hunter of Newington. If I may say so, I can think of very few noble Lords with more experience who could initiate a debate on this subject. Anyone who is a layman and who ventures into a subject of this nature is probably taking the most awful risks. But during my 25 years or so in your Lordships' House I have spoken on a number of medical topics, including the drug industry. I have no interest whatever of a financial nature to declare in the industry, but I have toured a number of pharmaceutical companies, both as a member of the All-Party Parliamentary Chemical Industries Group and by invitation. I have also attended a number of conferences. Some of the drug companies have been accused of giving free gifts of a very lavish standard. I must say that I have yet to see free gifts of a very lavish standard from drug companies any more than I am likely to see them from companies in the non-medical sphere.

There is no doubt that the medical profession itself is to some extent divided on this topic. I readily accept from the researches which I have undertaken that there are doctors who support the Government's attitude with reservations. However, I should like to ask my noble friend the Minister a question. I know that he may have been asked this question before, as, indeed, my right honourable and learned friend the Minister of State for Health has been asked it in another place. How much consultation has there been with the pharmaceutical industry, with the medical profession and with the medical organisations? I put that question as a purely disinterested person so far as the profession goes, but as one who is deeply caring about the profession. I recall that back in 1941 I had a very bad mastoid following measles. Those were pre-penicillin days, pre the discovery by that great man Sir Alexander Fleming. I had to have my eardrum pierced. I make no complaint about that because medical progress, like any other progress, comes with time. But if penicillin had not been developed, how many other people would have suffered similarly?

There was a very interesting letter in a recent edition of the London Times from a Dr. Collier, who holds a senior position at the St. George's Hospital Medical School at Tooting. He wrote: In common with many others, I view the restricted drugs list as a charter for improving drug usage and so patient welfare. Economies made are a welcome, but a secondary bonus". My interpretation of that paragraph is that he would appear to support in part what the Government are doing, but he seems to me to be questioning whether they have really researched the matter sufficiently.

Of course, there is another side to the case. Medical cabinets in many homes are full of unwanted drugs—ordinary aspirins, proprietary drugs and generic drugs: you name them, people have them. And declaring my interest, not for the first time, as an honorary vice-president of the Royal Society for the Prevention of Accidents, I am concerned about the situation. Indeed, we are all concerned about it. However, I really wonder to what extent there has been proper consultation.

I think that one is allowed to mention specific drugs or medicines. Benylin expectorant is a cough medicine which has been used for many years by children and adults. It is an anti-tussive preparation. Why is that to be removed from the list of preparations available to the National Health Service? I know that there are about six other cough medicines, including various linctuses, which are still available. I admit that this medicine has soporific qualities, but I believe that by law the drug companies are supposed to put that on the label. It is an example of one medicine which should certainly not be on the restricted list. Other noble Lords may disagree, but I speak merely as one who has consumed this medicine from time to time and whose children have consumed it, and I am quite sure that many of your Lordships' children and possibly grandchildren have consumed it.

The noble Lord, Lord Hunter, mentioned exports. I know that the Government may well argue that one can ally exports to any profession, be they visible or invisible exports. But the pharmaceutical industry has a tremendous record in the field of exports. Its record stretches all over the world to Scandinavia, the Commonwealth countries and the third world, where there is an extremely vital market for drugs combating diseases such as malaria. I cannot help feeling that these measures will have a harmful effect upon exports unless and until they are properly clarified.

I am not necessarily criticising this or any other Government for looking into the number of drugs which are prescribed. Doctors' surgeries are often bombarded with literature. I know that my own general practitioner has complained more than once; yet he takes the Lancet and the British Medical Journal, and can glean much information from those publications. I accept that with some drug companies there is over-marketing or over-selling. But, against that, we have to look at the whole matter of research.

Perhaps I may go off at a slight tangent. I think that everyone was highly disturbed to read of the incident involving the Royal College of Surgeons, and of other incidents where there have been break-ins to pharmaceutical companies. Although this is not entirely germane to this subject, it is something that must be considered. Those who develop drugs are not wealthy gentlemen; they are not people who do it for the fun of it. They do it because they have a very genuine care about research. Having visited some of these companies, I believe that there is a real need for more consultation.

There is another aspect to this matter, and it concerns the outlying areas. My noble friend the Minister comes from Scotland, and for much of my life I have lived in Scotland. There are outlying areas in Scotland, the West Country and elsewhere. How will they fare if the limits on these drugs are as tight as is envisaged by the Government? There was an article about this in a recent edition of The Scotsman. The Government may well say that people will be employed to carry these drugs. Perhaps midwives or doctors themselves will be able to take them to people's homes. But that is not always easy when the weather is inclement. I believe that this is a matter which must be considered very seriously.

There has certainly been no lack of debate on this matter. The other day your Lordships' House debated the Greenfield Report and a Member for one of the Bradford constituencies tabled an Adjournment Debate in the other place. I am bound to say that I did not think my noble and learned friend the Minister, for whom I have the greatest respect, gave a particularly satisfactory reply. I take the point that the honourable gentleman, who I also know personally, raised some political points, but I think that even on an Adjournment Debate he was entitled to a more satisfactory reply. I understand the position of my noble friend the Minister; he has taken a great deal of stick on this. However, as a result of this and other debates, I hope that the Government will take on board that there must be more and comprehensive consultation.

6.4 p.m.

Lord Kilmarnock

My Lords, this debate inevitably takes place against the background of the Government's proposals for a limited list of drugs that may be prescribed for National Health Service patients. However, we cannot consider the timely Motion of the noble Lord, Lord Hunter, only in that current and, I suspect, rather shortsighted perspective. Our task this evening is surely to consider the wider question of the relationship of the industry to Government and how that might develop on more fruitful lines than those in prospect at the moment.

We start with a basic difficulty—a conflict of interests, which we have to acknowledge if we are to reach sensible conclusions. The Government, through the DHSS, are in a monopsony position; that is to say, the position of a monopolistic buyer in this country. They are also the custodian of the National Health Service. The industry consists of national and transnational firms, most of them with a manufacturing presence and a research base in the United Kingdom, but with sales world wide. A mechanism exists, the Pharmaceutical Price Regulations Scheme, the object of which is to reconcile these interests as far as possible. It has the difficult task of trying to create a favourable climate for a successful industry with a good export record, while securing to the National Health Service the best value for money on its drugs bill. The signs are that the Government now want to concentrate on the second of these objectives and to distance themselves from the industry, which means that the DHSS, hitherto seen as the industry's "sponsoring department", from now on will start dealing at arm's length with its previous protégé.

The industry has reacted with outrage, invoking its contribution to research, to jobs and to exports. Some have queried the industry's net export figures, but there can be no doubt that the industry's research record is very good, perhaps the best in the world. The industry, therefore, asked the question: Do we want a pharmaceutical industry in this country? It is a fair question. But we also have to ask—and I certainly as a health spokesman have to ask: "Do we want a National Health Service in this country?" In this complex and by now overheated situation, it seems to me that the time has come to call a truce and to search for common ground before we end up without either an industry or a health service.

In the first place, I should have thought that we should all agree on the desirability of an efficient, cost-effective National Health Service and an efficient, innovative industry earning fair but not excessive returns on capital employed. In the second place, there seems to be wide agreement between the industry, the professions, the distributors and the consumers that the Government have not chosen the best means of bringing about these desirable ends.

A unilaterally imposed list is roundly condemned by all the interests concerned, and I do not think that the Government can simply shrug this off as perverse or dictated purely by blind sectoral self-interest. In a book called The Wrong Kind of Medicine, written from the consumer angle by Charles Medawar, the author makes a telling point: A Government cannot simply insist on having its own way. It must not exceed its legal powers; nor does it have effective power without co-operation from the medical profession and the industry". I am sure that that is profoundly true, at any rate in a democratic country. Therefore, one has to deplore, as was so frequently the case before, the way in which the present Government are seeking to make savings. I suggest that the industry has a perfectly legitimate complaint that in late 1983 the Government appeared to accept the Greenfield recommendation against a limited list—I believe that it was Recommendation 25 in that report—only to spring just this on everyone a year or so later without any intermediate consultation at all, which was the point made by the noble Lord, Lord Auckland. Clearly, this must be damaging to investment plans and to job prospects, to say nothing of the way in which it strikes at the heart of the Government's relationship with doctors, who, after all, are still independent contractors to the health service.

However, none of this means that savings could not be made by more sensible or sensitive means. Where should they come from? It seems to me that everyone concerned should make a contribution. The doctors should work on their prescribing and sharpen up their self-audit on the lines proposed by the Royal College of General Practitioners. The pharmacists have suggested a war on waste, which was another point referred to by the noble Lord, Lord Auckland. This is not the place to stray into those fields, because we are talking about the industry and that is what the Motion of the noble Lord, Lord Hunter, refers to. So I hope that I shall not be thought invidious in asking: "What could the industry do?"

At present, prices are not negotiated on individual drugs but on a company's overall sales. Individual product price control would be immensely complicated and bureaucratic. The experience of that system has not been good in France. It therefore seems that the present system must continue, but with modifications.

The PPRS does not distinguish between really innovatory R and D and research leading to analogues of existing drugs; sometimes a breakthrough is made leading to an important therapeutic advance, but often innovation means slightly modifying an existing drug. Some feel that there is no need for the NHS to pay heavily for such new drugs. But the border line between what is an advance and what is not is difficult to determine. Duplication of effort is, after all, common throughout the sciences. One way in which to proceed might be to make the Committee on the Safety of Medicine independent of the DHSS and to lift the veil of secrecy which covers its work. Surely it is absurd that this too should be covered by the all-embracing pall of the Official Secrets Act.

Why should there not be public access to the full company submission for all successful licensed applications? Under current provisions, if a new drug is as good as an existing one, it has to be granted a licence, but one could envisage an arrangement under which a drug might continue to be licensed as at present but made available to the NHS only if shown to be more efficacious, cheaper or safer. We made such a proposal in a policy document we issued in 1982. It would encourage real innovation and be much less draconian than the Government's proposed list.

Now to generics. The vexed question of generics versus branded drugs has been much over-dramatised. The historical facts are that when the NHS was founded in 1948 only 16 per cent. of prescriptions were branded. By 1970 this had risen to over 80 per cent. It would not seem unreasonable to redress this balance a little.

The Sainsbury Committee in 1967 recommended that there should be no brand names for new pharmaceutical products. This was not accepted, and the PPRS was introduced. But mounting costs led to the commissioning of the Greenfield Report, which proposed a compromise—namely that generic substitution should be carried out by pharmacists with the doctor's consent where the generic equivalent existed.

I do not believe that industry could not adapt to this, with one important proviso concerning patents. Patent life, as I understand it, was extended in 1977 from 16 to 20 years. The industry estimates that the lead time required for research and development often leaves only eight to ten years for the effective exploitation of a drug before the patent expires. The noble Lord, Lord Hunter, suggested that in some cases it might be even less. However some drugs need more development time, others less.

A suggestion recently made to me by an informed source was that all drugs should have a 15-year patent life from the moment of licensing. I am no patent lawyer—it is a complicated subject, as the noble, Lord, Lord Hunter, suggested—and I do not know whether this is feasible, but I have no doubt that we should be seeking to meet the reasonable demands of the industry on patent protection. If we do this, I cannot for the life of me see why, in return, generic substitution should not become the norm for products out of patent.

There is little reason to suppose that a market as large and viable as the pharmaceutical drug market could not respond to a change in the pattern of demand. If there were a greater demand for generic products I see no reason why existing companies, or new ones, should not manufacture high quality generic drugs in this country, thus easing the quality control problem posed by parallel importing, and, incidentally, introducing a more genuinely free market in drugs than exists at present.

I turn briefly to promotion. There seems to me to be some imbalance when one learns that the total industry spending on promotion is as great as that on research. It is argued that this is necessary to keep doctors informed, to provide back-up service for the medical profession, and so on. But it surely cannot be necessary to spend £180 million, or about one-tenth of the whole cost of the industrial operation in this country, on wooing 30,000 captive doctors. That works out at £5,000 or £6,000 per doctor. I am told that there is one representative in the field for every eight doctors. That seems to be rather excessive.

The Government have recently restricted allowable promotion to 9 per cent., and I would argue that more savings could be made here, and more money thus released for other purposes. One of the by-products of over-promotion is that overworked doctors develop excessive brand loyalty, with the result, for example, that valium, eight years out of patent, is still overwhelmingly prescribed at £13.62 per 1,000 tablets rather than diazepam at one-eighth of the price. This is hardly helping doctors to change their prescribing habits. Let us have a little more sense of proportion here.

When all this is said, my Lords, it is clear that the industry needs a stable and predictable financial climate within which to work and to plan its investment programme. The lack of any clear or consistent policy on the part of the Government is a major disincentive to investment and research. The clumsy limited list weapon which the Government have grasped is the wrong one. It interferes with the doctor's clinical freedom, it discriminates against poorer patients, and it means that the industry will not know where it stands.

I suggested on 6th February—and I make no apology for repeating the suggestion again—that the Government should hold their limited list in reserve and seize this opportunity to take a longer look at the whole problem, inviting this time the full collaboration of the industry and everyone else concerned. I believe that this is a propitious moment and that all interested parties would respond positively to a fresh Government initiative.

The Government may not be temperamentally attracted to this course. They may think it "wet". But they pride themselves on their realism in their approach to the nation's problems, and I would ask them simply to be realistic. A revised limited list—and they have already agreed that they will have to revise it—will not save £100 million. It might come out at £70 million on paper. And when you take into account the almost inevitable response of doctors, who will trade upwards to bridge a clinical gap, the Government may be left with only £30 million or £40 million—no more than they could have achieved without all this upheaval by generic substitution of a dozen branded drugs.

If they strive to make up this shortfall by cuts in other National Health Service departments they will be going back on their commitment to 1 per cent. real growth in that service, and they will not, I am sure, be anxious to do that. And it is all unnecessary, my Lords. There are greater savings to be made by a combination of measures willingly adopted by doctors and pharmacists with some contribution from the industry, than by heavy-handed lists and regulations which at best will only secure grudging compliance.

It is not too late for the Government to think again, and I am sure that we are all grateful to the noble Lord, Lord Hunter, for providing them this evening with the opportunity to do just that.

6.16 p.m.

Lord Greenhill of Harrow

My Lords, in the debate on 6th February on limited list prescribing I declared my interest as a director of a British pharmaceutical company, and that declaration is of course relevant today. I referred in my speech on 6th February to certain aspects of the pharmaceutical industry, and I should like to take advantage of Lord Hunter's Motion to emphasise some of these points again and add some additional observations.

Attention at the moment is rightly being constantly drawn to the unhappy state of British manufacturing industry as a whole. As noble Lords know, a Select Committee of this House under the noble Lord, Lord Aldington, is now looking at this situation. I am glad to be a member of this committee, but the evidence that we have been receiving is not encouraging. The British pharmaceutical industry is, generally speaking, an exception. It is substantial, financially successful and scientifically important. It has a worldwide reputation for high quality and brilliant innovation, and contributes substantially, as several noble Lords have said, to our export earnings. It is also a large employer, especially of skilled workers including scientists, a class of person who must be attracted to remain in support of British research.

It is important for the interests of us all to keep this industry strong and to permit its further growth. It is in a very competitive market. We have ranged against us the huge resources of Europe and the United States. Furthermore, the full weight of Japanese competition has yet to be felt. It is common knowledge that its impact will not be much longer delayed, and when it comes it will be powerful and expert.

It is essential therefore that Her Majesty's Government should not regard the pharmaceutical industry as primarily a source of rich pickings. It must be permitted to earn in this country and overseas a justifiable standard of living, taking account of the scale of investment and the exceptional level of research and development costs, and the need to maintain them. Equally, the industry must be scrupulous and not load the National Health Service and the general public with unreasonable charges. All this calls for closer co-operation and better relations between the Government and the industry than we have seen in recent months, and better relations with the medical profession.

Moreover, pharmaceutical companies have a certain strategic importance both domestically and internationally in cases of unforeseen epidemics both in human and in animals, polio, cholera, foot and mouth disease, and so on. Account must be taken of this.

The next point that I wish to make has very far-reaching consequences which are really outside the scope of this debate except that my point reinforces the need for a strong and healthy research-based pharmaceutical industry. In recent years drugs and other medical advances have, it might be said, altogether been too effective. They have not only improved our health but have changed the general shape of disease in the developed world. The third world is another question; it is a matter that we do not have time to debate today but it should be debated at some time in the future. As of now we no longer see a high incidence of death in the developed world from acute infection. We now see more and more of the population living to an age where they experience chronic diseases that require both prolonged treatment and often prolonged hospitalisation.

We are constantly getting better at devising drugs and other medical procedures for treating, and sometimes curing, the remaining blights that ail us and we do so in even more sophisticated and costly ways. The total cost of medicine must by all of this increase in the future. How is it to be paid for? This is a highly political question. How much can the state carry and how much can the private individual be called upon to contribute? Self-medication is increasing world wide and has many economic and social advantages. But what is certain is that if these advances are required—and surely we must seek them—then there must be powerful and sophisticated drug companies strong enough to provide them. There are many qualified persons who believe we are close to a breakthrough in rational drug development, not only because of advances in molecular biology and genetic engineering but because extensive and expensive new techniques are available to us. I instinctively feel that this is true and that an unparalleled advance lies a short way ahead. The British pharmaceutical industry must be ready for it and contribute to it and we must be ready for it with political solutions.

Unless there is an upward surge in our economy I do not see how a solution can be achieved which does not involve some shift from the public to the private purse. If this becomes necessary, I do not see why this should not be achieved equitably and acceptably. The solution may outrage the theorists; but we must pass from theory to reality and I sincerely hope that this can be done with the minimum of divisive acrimony.

6.24 p.m.

Lord Molson

My Lords, I should not normally intervene even for a few moments in a debate in which nearly all the other participants are experts if it had not been for a remarkable personal experience of mine in the last fortnight. I obtained a renewal of the sleeping tablets which I keep by my bedside on the advice of my doctor. I had been accustomed to paying £12.02. As a result of hearing that nitrazepan was a generic drug, identical with the mogadon which I normally took, I found that instead of having to pay £12.02, I paid £1.77. That is an indication of the immense savings that could be made in the National Health Service if it became customary to prescribe generic drugs and not proprietary drugs.

With a figure like that it does not seem to me that the estimate by Mr. Norman Fowler that there is scope for economy of £100 million in the drug bill of the National Health Service is, on the face of it, in any way exaggerated. I only came across this matter because, as a result of taking a certain interest in it—owing to a casual conversation with the noble Lord, Lord Hunter—I saw a review of a book that had just been published by Social Audit called The Wrong Kind of Medicine? I bought it, perused it and was quite astonished by the revelations which are given in that book. The technical information is provided by a Dr. Herzheimer whose qualifications are indicated by the posts that he has held. In addition to being a senior physician at the Charing Cross Hospital, he is the editor and founder of the Drug and Therapeutic Bulletin, published by the Consumers' Association. He is a member of the World Health Organisation's expert panel on the selection of essential drugs and chairman of the health working group of the International Organisation of Consumers' Unions.

The noble Lord, Lord Kilmarnock, also indicated that he is familiar with this book. It is quite extraordinary what emerges from it. It was as a result of my conversation with the noble Lord, Lord Hunter, that I learned about the tendency of drug companies to produce marginally new drugs. When a branded name was ceasing to be effective because the patent had run out, drug companies would produce a new drug marginally different from the old drug, give it a name and obtain patent rights. As a result of the new patent rights, they were able to sell the new drug at a much higher price than would otherwise have been the case. There are an immense number of drugs which, according to this book, are amost identical. If the generic term were used in prescribing the cost could be very much reduced.

When I noticed that this debate was coming on I thought that I ought to intervene for just a few moments to draw attention to my own experience. It does not matter that I myself in the last two years while I have been living in London have paid six times more for a necessary drug than I should have done had I known its generic name; but I do regret that when I was living in Scotland and had the same drug prescribed by a National Health Service doctor I was charging the taxpayer of this country six times as much as would have been necessary.

I do not wish to go into the question of whether the Government may or may not have consulted the medical profession and other interested parties in the way that perhaps they should have done. I consulted a doctor friend of mine who considered that the line taken by his profession was unduly arrogant—and he used the word "arrogant"—and not sufficiently cooperative with the Government in this matter.

I hope that the Government will take every possible step to carry the interests concerned with them but on the broad principle I have not the slightest doubt that the attitude and policy of the Government are entirely right. There is ample scope for producing a list of drugs which will be very much less costly to the taxpayer and those patients will not in any way suffer from the prescription of generic drugs instead of the branded names which are so often charged at many times the price of the generic substitutes.

6.31 p.m.

The Earl of Halsbury

My Lords, I apologise for not having put my name down to speak, but the matter to which I wish to draw your Lordships' attention came to my notice only at tea-time yesterday. It took me a little while to make up my mind to intervene and by that time it was too late to put my name down. I am obliged to the noble Lord, Lord Hunter, for raising this subject. May I begin with a generality? When I was a young man, the popular public enemy No. 1 was the armaments industry. It was regarded as totally unacceptable that people should make profits out of death. Well, fashions in these matters change. The demonological enemy now is the pharmaceutical industry and, by a slight change of emphasis, it is wicked to make profits out of life.

Many a time I have risen in your Lordships' House to defend the pharmaceutical industry from its many critics. The particular matter to which I wish to draw your Lordships' attention is the patent situation. Here, may I just say a few general words about patents, because it is a technical subject and the actual status of a patent is not familiar to everybody. A patent does not give you the right to make something or do anything except to appear in court as the plaintiff in an action for infringement. The right to make anything you please is a common law right, intrinsic to the subject. What the grant of a patent does is to enable you to bring suit for infringement against somebody who is doing the same thing as you are and to take away from him the rights that he would otherwise have at common law to do so.

Before 1977, the law on patents on foods and drugs was that they had the same effective monopoly granted to the inventor for 16 years from the date of grant and, in the case of patents in the field of foods and drugs and medical and surgical appliances, there was a proviso that the Controller of the Patent Office should grant to any applicant a licence of right, at a royalty to be determined by the Controller of the Patent Office, to make, use or sell the subject matter of the patent. This was felt to be wrong at the time of the 1977 Patents Act; and I spent night after night of a most traumatic and prolonged Committee stage modifying the Patents Act, as the Government thought it ought to be, by a number of amendments which certainly hurt, to judge by the counter-proposals that the Government made at Report stage.

We took away the proviso that, in the case of food and drugs, the Controller of the Patent Office must grant a licence of right; and the patent was extended from 16 years to 20 years. At a later stage—and I hope that I am not scoring own goals by relying on my memory—an honourable compromise was reached. The patent was extended to 20 years but the provision that licences of right could be granted was applied to the last four years of the life of the patent.

This is the matter that I wish to raise because it was raised with me by the pharmaceutical industry yesterday. I simply want to take the illustration by the noble Lord, Lord Hunter of Newington, that the time before a patent starts paying off can be anything from 12 years to 14 years. Subtract that, my Lords, from its 20-year life and you get eight years and six years. If you now shorten that by a further four years to grant licence of right in order to effect generic substitution of what would otherwise be a patented drug, then you are really running down the life of the profitable part of a patent not from eight years to six years but from four years to two years. That really is emptying out the baby with the bath water.

In defending the pharmaceutical industry, as I have so often done, I would utter the same plea as I have uttered on many occasions to the Front Bench of Governments of either complexion. Do not, please, kill the goose that lays the golden egg. Remember that the goose is a migratory bird and that some of them come from foreign parts! Any one of five American pharmaceutical houses is larger than the entire British pharmaceutical industry. This could also be true of the largest European pharmaceutical house. The Government are in a fairly strong bargaining position: all that I beseech of them is that they do not over-use that bargaining position by taking advantage of the provisions in the Patents Act which were an honourable compromise, not intended to effect generic substitution at the time that they were entered into. I ask them not to use the power that they have under that Act to shorten the life of patents still further.

I do not expect the noble Lord, Lord Glenarthur, who hears about this from me for the first time, to give me a very definite assurance on this point, but I think that I should on this matter fire a shot across the Government's bows and say that if I cannot get an answer from the noble Lord on this occasion I shall certainly seek an opportunity to raise it on some other.

6.38 p.m.

Lord Tordoff

My Lords, I am pleased that the noble Earl, Lord Halsbury, decided to intervene at this stage because he has injected a dimension into this debate to which none of the rest of us has really applied his mind. I wish that my noble friend Lord Lloyd of Kilgerran were here, because I think that probably he could comment on it much more than I possibly can. There really is very little else to say. The noble Lord, Lord Hunter, as always, applies his gentle wit and his considerable ability to a subject of this sort, and those of us who sit with him on the Select Committee on Science and Technology know that this is what we would expect from him. It has been an extremely good debate. It is a pity that a debate of this sort, which probably shows your Lordships' House at its best, does not have the benefit of television cameras, whereas the more exciting parts of the day have that benefit. But, be that as it may; that is the public's loss, except for those who are sitting in the Galleries upstairs.

I should declare an interest, in that I am associated with a chemical company which is not in the pharmaceutical industry but which could be so, given the opportunity. Having said that, I may say that I have spent a considerable amount of my working life in the chemical industry with the pharmaceutical industry as a customer of mine. I have the greatest respect for that industry and for the people who work in it. I think that that view has been ably expressed from all sides tonight, particularly from the noble Lord, Lord Greenhill of Harrow.

There are really three players on this scene: there is the pharmaceutical industry, the doctors and the Government. None of them has behaved wholly badly; none has behaved wholly well. The pharmaceutical industry has worked well for this country in the sense that, as the noble Lord, Lord Hunter, has said, it has been a research-based industry, it has attracted overseas investment, it has brought us a lot of export business, and it has produced drugs in this country which are greatly to the credit of the industry and to the health of the nation. Nobody yet has made a comparison with the pharmaceutical industry behind the Iron Curtain, which, to my knowledge, has produced nothing in all the years since the war. There has been virtually no creative research behind the Iron Curtain. I do not make that as any party political point, but it is a fact, and I think it is something we should always bear in mind when we are looking at things which may impinge upon the pharmaceutical industry in this country.

Doctors have served the nation well. After a hesitant start, they have thrown themselves into the National Health Service and looked after us well. Your Lordships would not expect me to say too many good things about the Government, but I think they have recognised that there is a problem here, although in my view they have been a little ham-handed in the way they have gone about things; and I shall come back to that in a minute.

On the other hand, the pharmaceutical industry has not been its own best friend in the way in which it has gone about the promotion of its branded products. It has created an image of itself which has become a little "tacky", for want of a better word. The noble Lord, Lord Auckland, said, I think, that he had not really seen any lavish gifts being offered by the pharmaceutical industry; but it is common knowledge that there have been instances of lavish gifts being spread around the medical fraternity, and that is unfortunate. On the other hand, I do not think that doctors have really been as wise as they might have been in allowing themselves to fall into the trap of prescribing branded products when, as the noble Lord, Lord Molson, said, many other products were available to them.

Perhaps I might just pick up the points made by the noble Lord, Lord Molson. I do not think there is really anything between us on this, but I think that perhaps he has not quite understood what the Government have set about doing so far. I do not think there is anything between us on believing that generic prescribing is something to be encouraged, but I believe the way in which the Government have restricted the list which they say is consultative (and again I shall come back to that) has given an impression that they are trying to be far more restrictive than common sense dictates. Nobody is saying that there should not be an increase in generic prescribing, and that there should not be encouragement to the full; but the Government have gone further than that and have said that there is a very limited list of drugs which may be prescribed. The Government then come back and say, "This is only a starting point, and we will consult from here on".

I think it is unfortunate that the Government took such a restrictive view in the beginning. We are still waiting to hear what will come out at the end of the day, but the starting point for the Government's argument was far too restrictive and, even giving them the greatest benefit of the doubt, I think they have thrown a shadow over this whole argument which, frankly, was unnecessary.

As the noble Lord, Lord Auckland, said, greater consultation in the early stages would have been much more helpful because I do not think there is any great party argument between any of us on this subject tonight, save only that the Government started from a point where they appeared to be saying, "So far and no further", and giving the impression that the only thing they were interested in was saving money. I think that was extremely unfortunate.

It is quite clear that there must be some changes in the situation, but we must be careful that in making them we do not restrict some of the good things which have come out of the relationship between the pharmaceutical industry and the medical profession. For instance, my noble friend Lord Winstanley pointed out that there has come from the pharmaceutical industry the funding of a number of post-graduate magazines which have been of the greatest possible use in the past, and that these are now going out of business because of the pressure which is being put on the industry. That I think is extremely unfortunate.

If I may encapsulate my view—and, I am sure, the view of the noble Lord, Lord Kilmarnock—we believe that the pharmaceutical industry has a right to make a reasonable profit in order to make sure that its research is properly funded. That is very much in the national interest. If necessary, the patent restrictions should be extended if the timescale is too restrictive. There are cases, though, where products which have been researched by a particular company should perhaps be opened up to other companies at an earlier stage. It may well be that because of research done in one particular laboratory products are discovered and developed which may not necessarily be appropriate to the manufacturing facilities of that particular company, and there should be the opportunity to spread those manufacturing opportunities elsewhere. I think the Government should encourage that, lest products which are perhaps not necessarily related to a company's normal line of business, as it were, are left on the shelf, when somebody else could exploit them.

But, having said that, when we get to the point where the patent has reasonably expired we need to recognise that we want to open up the maximum production opportunities in this country. Certainly it is my view that there are a number of companies in this country which would be perfectly capable of producing generic drugs, or perhaps their precursors, and could in fact add to the competitive situation once we are past the point when the patent has expired. I fear that there is a danger of a certain cosy relationship between some of the major pharmaceutical manufacturers that at the moment precludes that from happening. That is something to which we certainly ought to try to put an end. Certainly we should not leave it to importers of generically prescribed drugs to bring them in from Italy, or wherever, where there is a certain cavalier attitude towards patent restrictions, to supply the market over here if it is possible for the market to be supplied by British manufacturers.

The Government are the monopoly buyers, as my noble friend has said, and therefore there is a particular responsibility on the Government to take the lead in this matter, but not to use their monopoly in such a restrictive way as would damage the industry. On all sides of the House tonight we have heard that the industry is capable of serving this country well, provided that it is perhaps opened up to a little more competition and provided that generic prescribing is brought into play. If these things happen, I am quite sure that the industry can continue to serve this country for a long time to come. It is of course an industry where safety is of the greatest importance. It is subject to restrictions that many industries do not have, but let us not pretend that it is possible to have anything which is absolutely safe.

If I may just float a little bee which is always in my bonnet, I think that too often in this country these days we try to pretend that we are immortal. We are frightened of taking risks, and even in the pharmaceutical industry nothing is absolutely risk-free. We must have the right kind of controls and the right kind of screenings. Let us not pretend that at the end of the day there is no risk in using powerful drugs on people, because if we go down that road we shall have no development and no research, and on the whole the country will suffer.

I am grateful to the noble Lord, Lord Hunter, for raising this topic, and I hope that the Government have gained from this very balanced debate a better understanding of what is the view of your Lordships—the view that more consultation is required and that they have been over-hasty in bringing forward the list. I hope we shall have some sort of indication tonight not just that they are going to have a token consultation but that they genuinely believe that the list can be very greatly widened while at the same time going very firmly down the road of generic prescribing.

6.50 p.m.

Lord Ennals

My Lords, I am sure that we are all most grateful to the noble Lord, Lord Hunter, for raising this debate and for the manner in which he did so. Inevitably, I suppose, we have concentrated on the Government's sudden proposals for a limited list, and I want to take a minute or two of your Lordships' time in broadening the subject a little.

In a national newspaper last week, I was accused by a Member of Parliament of, a new-found enthusiasm for the pharmaceutical industry". I want to say quite openly, having no financial interest at all in the pharmaceutical industry to declare, that I have been enthusiastic about the pharmaceutical industry for 40 years, since I spent three years in hospital at the end of the Second World War. I should not be here, if it were not for the discoveries and inventions of the pharmaceutical industry—a point that was very well made by the noble Lord, Lord Auckland.

I have had, and I have today, a very great respect for an innovatory, life-saving industry. Its successes are based on research and there are many conditions, both in our own highly developed, long-life society in the West, and in the Third World where there are still mass diseases linked with poverty, for which cures and relief can still be found. If any of us assumes that the pharmaceutical industry has now completed its task, then he must be living in cloud-cuckoo-land.

There has to be research, and more research, and, as the noble Lord, Lord Greenhill, said from his own experience, Britain needs a strong pharmaceutical industry. I realised this when I was Secretary of State for Social Services. I did everything I could to promote the pharmaceutical industry in Britain and I am personally appalled at the way in which current Conservative Ministers are undermining a relationship which was a very good one.

We should not underestimate the economic as well as the life-saving importance of the industry. There are 70,000 people employed in the British pharmaceutical industry; 10 per cent. of worldwide research spending takes place here, even though the NHS represents less than 4 per cent. of the world market; pharmaceutical exports from Britain earn us £1,200 million a year; and capital investment in United Kingdom-based pharmaceutical companies annually exceeds all the profits that the industry earns from the National Health Service.

The noble Lord, Lord Tordoff, said that the pharmaceutical industry has a mixed record. It is good and bad and sometimes indifferent. I am glad that he referred to the concern of the noble Lord, Lord Molson. It is absolutely right that there are great savings to be made. The speech that the noble Lord, Lord Molson, wisely made is the best possible argument, not for the Government's system but for the system recommended in the Greenfield report on generic substitution. I support generic substitution, but I believe that there might be a situation—I shall not take the case of Mogadon and I do not know the condition from which the noble Lord, Lord Molson, suffers, nor do I know his doctor—in which the doctor says "No, not a generic substitute. It is this that is best for my patient." I believe it is right that a doctor should still be able to say that a particular patient deserves a certain drug: "Three years" or "10 years have shown it to be, and that is what he should have."

Lord Molson

My Lords, may I say that my doctor was perfectly happy to prescribe a generic substitute?

Lord Ennals

My Lords, I wish that he had done so before, and then he would have saved the noble Lord, Lord Molson, a great deal of money, which I am sure the noble Lord would have welcomed. But that does not undermine the argument. I am just saying that there are circumstances which have to be taken into account, whether it is Mogadon, or the noble Lord, Lord Molson, or some other person, or some other drug.

Sometimes the industry is unfairly maligned. I believe that there have been cases where perfectly good drugs have been driven off the market by campaigns. I am thinking of Debendox, which was literally driven off the market. It was a product of Merrell Dow. Though it had been prescribed to well over 35 million people here and in other parts of the world, for cases of vomiting and for other conditions of pregnant mothers, it was driven off the market, which I think was appalling, in spite of the fact that it was eight times examined by the Committee on the Safety of Medicines. On the other side, we had the Thalidomide tragedy, when the Distillers Company fought for years and years before they were prepared to pay compensation to people who had been appallingly damaged as a result—

The Earl of Halsbury

My Lords, will the noble Lord give way? May I say, as a director of the Distillers Company at the time, responsible for clearing up the tragedy but having had no responsibility for it, that that statement is not true? The difficulty was to get the people to come and make their claims.

Lord Ennals

My Lords, I am very glad that the noble Earl, Lord Halsbury, was involved in finding a solution, because I do not think there was any doubt at all that the drug produced the Thalidomide children, with all the problems from which they are now suffering as young adults, but the compensation that was paid can never be proper compensation. It led to the Committee on the Safety of Medicines and that was a good result which came from a great tragedy.

Some individual firms are open to criticism. I think of the exploitation of Third World markets and the offloading of drugs that are no longer needed for the Western world. They are sometimes criticised for that and when they are they should be exposed. But there is enormous potential, both in this country and in the Third World. I was talking only two nights ago to two scientists who work for a drug company. We were discussing river blindness, which is a well-known scourge of the rivers of Volta and the Nile, affecting an estimated 40 million Africans in the heart of West Africa, Sudan and Ethiopia. Since I happen to be going to the Sudan in three days' from now. I, too, have an interest in this. But the scientists are very near to discovering something that may well bring an end to what has been a terrible blight. I hope that that is so.

I was glad also to see recently that the Association of the British Pharmaceutical Industry have put up in collaboration with the World Health Organisation a fund called the Action Programme on Essential Drugs. It will support expert advisers on such important needs as effective procurement of medicines, safe storage, quality control and distribution to the deprived rural areas. It is a good thing when we see the drug industry applying its mind, its time and its money to the needs of the Third World.

Certainly, no one doubts that there must also be effective control over pharmaceutical profits. We must protect the National Health Service from excessive profits. But I believe that there has sometimes been very unfair criticism. We talk about propaganda by the pharmaceutical industry, but I think that some of the propaganda by the Government has given a very false impression. I want to give three examples. The Government claim that there are 17,000 products prescribed under the National Health Service—twice as many as 25 years ago. The majority of the doctors use MIMS, which contains 2,100 medicines, and even the British National Formulary lists only 6,000, so this figure of 17,000 is absolutely wrong.

The Government have also been saying that the number of family doctor prescriptions issued has risen by 100 million in the last 25 years, implying that this justifies the Government's new plan. Of course, there have been enormous changes in prescribing, partly due to new drugs, partly to the fact that people are living so much longer and need more medication, and partly to the fact that fewer people are living in institutions and more in their homes; but if the medicines were not prescribed many of them would be in hospital instead of being in the community.

If we look at what other countries are doing, the Government say that no other country allows every drug to be prescribed at public expense under its health service. In fact, no other country has a universal, efficient and low-cost health care system like the National Health Service, or an overall medicine cost control scheme like the Pharmaceutical Price Regulation Scheme. Britain spends about £30 per head per annum on NHS medicines. The corresponding figure for countries like France, Germany and the United States is twice as much. So it really is not fair to say that there has been a dramatic increase in spending. Spending on medicines in the NHS represented 8.3 per cent. of NHS costs in 1970 compared with 9.6 per cent. today—that is marginally more, but that is because of the circumstances in which so much more prescribing is done for people in the community.

As I said earlier, there has to be effective control over profits in an industry so heavily dependent upon the National Health Service. The Government are quite right to look around for further ways to do so. Further cuts in the profit margin may be necessary, but in their plans to achieve a further saving the Government must, in my view, answer some questions. They are questions that have been posed to Ministers before and I hope that, from the noble Lord, Lord Glenarthur, we shall have some answers tonight. I make no apology at all for returning to the limited list question.

First, how far are the Government prepared to go to imperil investment in Britain by the pharmaceutical industry? I honestly believe that they under-estimate the extent to which major pharmaceutical companies are now looking to other parts of the world as a place for investment. Those companies have up to now with encouragement from—I was going to say successive Governments; I certainly was deeply involved in trying to persuade (and in producing inducements, with some success) pharmaceutical companies to invest in Britain. However, many of those same companies and others are certainly coming to me and saying—I guess they are coming to other noble Lords too—that they are now looking in other parts of the world. I want to say that if we lose the investment, if we lose the central position that we hold as being probably the best country in the world for research, we may never be able to build it up again. The painstaking work of previous Administrations may be undermined to the detriment of the British economy.

One wonders why it is that the Government seem to be so unaware of the reactions in the pharmaceutical industry. How far are the Government prepared to sacrifice jobs in Britain at a time of high unemployment? How far are they prepared to go in sacrificing exports by a powerful, strong pharmaceutical industry in Britain? I want to ask why the Government have done a U-turn in terms of their limited list concept.

It was rejected in very clear terms, as the Government know, by the Greenfield Committee. The committee said: It is our view that a limitation on prescribing at NHS expense would be interpreted by some doctors as an attempt to curtail their clinical freedom. Since we have not seen any convincing evidence that suggested financial benefits would outweigh the administrative problems in drawing-up and maintaining the list, we have concluded that such a move would not be justified and we do not recommend any measures to introduce nationwide a Limited List". I think that that is very clear indeed. Partly that conclusion was reached by the evidence that the DHSS itself gave to the Greenfield Committee. It was quoted by the noble Lord, Lord Rea, in this House at column 1176 of the Official Report for 6th February. I shall read it again: It is almost impossible to establish"— this was the DHSS's own evidence— whether the introduction of a limited list of drugs will in itself produce any financial saving for the NHS. What does seem apparent is that any attempt so to do is likely to arouse hostility, result in higher administrative costs, affect the pricing of drugs and the industry, generate unwelcome pressures for GPs and pharmacists, and possibly cast some doubt on the Government's intentions towards the standard of provision of general medical services in the NHS". They were right. It has done exactly that. All those things have been quoted by organisations and sections of the health service with which Ministers ought to want to be on a friendly relationship.

Why have they decided totally to ignore the very clear policy statement, which has been quoted before in this House, by Mr. Patrick Jenkin when he was Secretary of State for Social Services? I quote again: In Britain, in contrast with many other countries … we have resisted any system of limiting the freedom of a doctor to prescribe whatever he thinks his patient needs. Not for us are such devices as limited lists". Why do the Government suddenly decide that a commitment made by one Minister should be overturned by a successor Minister of the same Government? I just do not understand and I hope that the Minister will explain.

I want to ask about the well-tried machinery of the PPRS, which has been referred to by several noble Lords. I actually have an interest in this since I negotiated it with the pharmaceutical industry. It was referred to by the noble Lords, Lord Hunter and Lord Kilmarnock. It was part of a broad agreement with the pharmaceutical industry which, as the noble Earl, Lord Halsbury, said, led to an extension of the patent life from 16 to 20 years and reduced the amount which the pharmaceutical industry could spend on promotion and still charge against the NHS. I do not object at all to the department going a stage further and knocking off another 1 per cent. It might knock off 2 per cent. The PPRS was established in order to control prices in the pharmaceutical industry. I find it very difficult to understand why the department resorted to something different when the pharmaceutical industry had accepted the PPRS.

The last question I want to ask is this. Why did the Government embark on this course without consultation? It was a question put by the noble Lords, Lord Auckland and Lord Kilmarnock. The Government will no doubt say that of course they are consulting; that they are consulting with everyone; that they have produced their list and anyone can comment; and that if I do not like something on the list, I can write in. My objection is that there was not consultation before the principle was established. There was no consultation with doctors, with pharmacists or with any of the ogranisations before the Government decided to break away from the recommendation in the Greenfield Report and from the commitment that was made by Mr. Patrick Jenkin. All the consultation has simply been about what should be on the limited list and not on the basic principle of the limited list.

It is to the principle that I object. All right, they can change the list as much as they like, but I am afraid that I shall still object because I believe quite fundamentally that a doctor has a right, not to prescribe expensive medicines—I believe that a good deal of education is necessary—but eventually that he must say he is the one to know that a particular medicine is something that is best for the patient, the particular individual, whom he is treating.

I agree with the noble Lord, Lord Kilmarnock, that the Government should think again. They have heard a good many views expressed from these and their own Benches. I believe that they should really think seriously not just about what is on the list but about the whole principle that lies behind the list and the effect it will have upon the pharmaceutical industry.

7.8 p.m.

Lord Glenarthur

My Lords, I too am grateful to the noble Lord, Lord Hunter, for initiating this debate. Many claims have been made by the pharmaceutical industry and others about the threat to its profits, its investment, its research and development and indeed its very existence as a result of the measures which the Government have taken. Many of these claims not surprisingly have been repeated today, and I welcome the opportunity to lay some of the more extravagant ones to rest.

Let me first put the pharmaceutical industry into perspective. In 1983 the value of pharmaceutical production as assessed by the Business Statistics Office was about £3.3 billion. Imports increased this total by about £½ billion. Sales to the National Health Sevice at £1.4 billion thus represented only about 40 per cent. of the industry's total saleable output. This is an important figure to bear in mind.

Many of your Lordships have painted a dramatic picture of the adverse effects of our limited list proposals on the industry. We have said on numerous occasions—indeed, we debated it in your Lordships' House only two weeks ago—that these changes will reduce net drug sales to the health service by up to £100 million per year. This represents only 7 per cent. of the industry's sales to the NHS; it is only 3 per cent. of the industry's total output. Can it really be that the industry's strength is so delicately balanced that it will collapse if sales of this magnitude are lost? I think not. Yet the Association of the British Pharmaceutical Industry is spending up to £1 million telling all who will listen that it might. I only hope that the association does not expect the National Health Service to foot the bill for this advertising extravaganza through higher drug prices.

The debate has centred largely on the limited list and I hesitate to go into it in quite the depth that I did the other day because there are other equally important matters to be covered such as the Pharmaceutical Price Regulation Scheme referred to particularly by the noble Lord, Lord Ennals. However, as regards consultation, the limited list proposals were announced on 8th November and there then followed a consultation process of some considerable extent. It went on until 31st January. We believe that a three-month period was sufficient for proper discussion of the details of the scheme. We have given careful consideration to the very many representations which have been made. The noble Lord, Lord Ennals, chides us for not having gone into a consultation process before, but I am quite sure that with his experience he will realise that it is not always appropriate to do so and that it is right to make a policy decision in principle and consult afterwards.

Lord Ennals

I disagree, my Lords.

Lord Glenarthur

My Lords, the noble Lord says that he disagrees. I am afraid that I must disagree with him.

Lord Tordoff

My Lords, is the Minister saying that the policy decision has been made or that the consultation process is still continuing or has just been completed?

Lord Glenarthur

My Lords, the consultation process on the limited list ended on 31st January. As regards the pharmaceutical companies, a letter was sent to the ABPI on the day that the limited list proposals were announced.

Lord Ennals

My Lords—

Lord Glenarthur

My Lords, the noble Lord has made his point and I ask him to let me continue. What has happened is that individual companies have made their own representations to the department and the experts concerned. They have done it in very great numbers and at great length. There is no truth in the suggestion that they have not been able to make their point. As regards a review of the limited list, a point made by the noble Lord, Lord Hunter, perhaps I may say generally that we hope to announce the final details of the limited list very soon. We will deal with the question of its review at that time, as we will with outlying areas in Scotland, which is another point that was raised.

The whole essence of the limited list is that it is no more than a continuation of the Government's efforts to make the most of the money that we have available to spend on the National Health Service. One of our heaviest bills is for drugs and medicines. Of course, much of this money is very well spent, but can anyone really claim that on such a colossal bill there cannot be savings—savings which can go to expand the service elsewhere? My noble friend Lord Molson put his finger on the point when he described his own personal experiences so well. Therefore, what we have done is take a good look at the great mass of medicines in a narrow range of the less important drugs to see whether all of them are really necessary and need to be paid for by the taxpayer.

I have said that genuine and widespread consultation has taken place over a period of three months to ensure that the limited list will meet all clinical needs, and the Chief Medical Officer has set up a panel of experts to advise him on it. As regards generic substitution, again it will be necessary for me to rehearse some of the arguments that I have been through before. The BMA claim that it is in favour of the system of generic substitution recommended in the Greenfield Report and that it would save as much as the limited list. Those claims are false. The BMA actually rejected the Greenfield proposal and produced a scheme of its own which would make substitution entirely voluntary and leave the decision up to the doctor as to whether a branded or generic drug is supplied. That is what happens now.

Doctors can make a decision on what to prescribe—but to what effect? A soaring drugs bill. Generic substitution has been on the agenda for 30 years and the medical profession has never actually agreed to anything yet. Even with its own suggested scheme the BMA introduced so many "ifs" and "buts" that the only conceivable outcome would have been more years of inconclusive talk while the drugs bill continued to spiral.

I now turn to other criticisms. It has been claimed that the profits we allow companies to make on their sales to the National Health Service are too low. We are not against profits. They are essential to the well-being of all companies, but we are against excessively high profits—as I assume is the noble Lord, Lord Ennals—and that is what we believe the pharmaceutical industry has been achieving in recent years. Until we reduced it on 1st April last year the industry as a whole had been allowed to earn profits of 25 per cent. on capital employed. This may not have been unreasonable when it was fixed in 1978—in the early days of the PPRS, but by 1983 it was manifestly too high compared with what the rest of British industry was able to achieve and in the light of the Government's success in reducing inflation. That is why we thought it right to reduce the allowable rate of profit last year and why we shall do so again from 1st April this year. It is also the reason why we are reducing by 10 per cent. the amount of sales promotion expenditure which can be reflected in the price of medicines sold to the National Health Service. If I understood the noble Lord, Lord Kilmarnock, right, he thinks there is room for further savings here. I assure the noble Lord that we keep this matter under review and I shall carefully note his words.

While competition is to be applauded, it is not necessarily right that the National Health Service should pay for the whole of such expenditure. Overall, we think that the new profit levels of 1985 are about right. The industry naturally disagreees. But it is instructive to look at the annual accounts of some large British companies. For those whose pharmaceutical business represents only part of their total turnover, it is usually the pharmaceutical division which is more profitable. For one well-known company in 1982 its pharmaceutical division represented only 36 per cent. of total sales but provided 65 per cent. of total company profits. For another equally well known company the figures were 7 per cent. of sales but 38 per cent. of profits. These are significant figures. I am sure that your Lordships will realise that those are significant figures.

What about the effect of our plans on investment? This point particularly concerned the noble Lord, Lord Ennals. Companies will of course be concerned and I know of some planned developments by national pharmaceutical companies which have been deferred.

But I ask your Lordships: where is this investment to go if it does not come here?

Lord Ennals

Holland and Belgium, my Lords.

Lord Glenarthur

Will it go to France, my Lords, which has a drugs reimbursement system which is much more restrictive than anything that we plan? Or will it go to Italy, where drug prices are very low and patent protection somewhat weak? Or is the investment to be cancelled altogether? All the countries in Europe and Scandinavia are taking steps one way or another to reduce the cost of drugs, which in this country have risen inexorably year on year.

Lord Ennals

My Lords, is it not more likely that the investment will go to Belgium, Holland and possibly to Ireland?

Lord Glenarthur

My Lords, so far as I am aware there are no countries which are not facing similar problems to our own. I do not have specific figures with me for Belgium, Holland or Ireland but I can tell the noble Lord that only a few weeks ago a senior official from the Swedish Department of Health visited the DHSS to see whether there were any lessons for Sweden in our methods of seeking to keep drug costs down. Therefore, I say again, where is this investment to go?

Turning to research and development, this was spoken about by the noble Lord, Lord Hunter, my noble friend Lord Auckland and by others. Research and development has figured prominently in this debate and there is no doubt that it is essential to the pharmaceutical industry. The phrase, "Successful research is the lifeblood of the industry" is no idle statement in the pharmaceutical world. I join with the noble Lord, Lord Ennals, in paying tribute to the research work that they do and have done over the years, and to the marvellous products that they come up with. But the pharmaceutical industry is largely multi-national. Two-thirds of the companies in this country are subsidiaries of foreign parents. The remaining one-third, which is British owned, itself has its own subsidiaries throughout the world. Britain represents only about 4 per cent. of world consumption of drugs. Despite what the noble Lord, Lord Greenhill of Harrow, said, I do not therefore see the logic in the argument that research and development in this country will be seriously affected by our limited list proposals and the reductions on profitability.

Currently about 12 per cent. of the world's research activity is carried out here; and it is for two main reasons. The first is that this country is good at it and the second is that we are willing to pay for research. It is often claimed that pharmaceutical companies must have high profits because they have to finance the cost of research from them. This leads to the assumption that the cost of research must come from the profits we allow to companies through our price control system. Nothing could be further from the truth. In our price control calculations we allow reasonable expenditure on research and development as an item of expense before the profit is struck—a perfectly normal accounting practice.

We are currently financing the cost of research and development to the tune of over £200 million each year through the price of NHS medicines. This is in addition to profit of about the same amount. If industry insists that research is indeed financed entirely out of profits, then the real profit it earns from its sale of drugs to the NHS is something like 50 per cent. return on capital employed. Even to non-accountants that would appear to be an exorbitant figure, and I am sure the industry would not want it to be publicised in that way. Nor is that the way it appears in company annual accounts. I think that the main point is that research on a very considerable scale will continue to be financed through drug prices, so there is no reason why it should be seriously affected by the limited list or reduced profit levels.

There are those who have indicated perhaps that the main casualty resulting from the limited list proposals will be research into illnesses treated by drugs within the therapeutic groups most affected by the list. This need not be so. We have said quite clearly that, if new medicines within the categories covered by the list were produced which offered real improvements in treatment and represented good value for money, it would be possible for them to be added to the list of drugs available on the NHS. What we should not welcome is research to promote yet another variant of similar products already on the market. But there is a real challenge to the industry to find something significantly better than what we have now.

The noble Lord, Lord Ennals, raised the question of jobs. When it comes to jobs the ones hurt most are those which coincidentally concentrate on the therapeutic groups most affected by the list. For these companies, I accept that there will be some job losses. How serious this will be depends on the extent of the final list and how well companies can adapt to the loss of NHS sales. But I must remind your Lordships that a high proportion of the drugs which will no longer be prescribable under the NHS do not need a doctor's prescription. They are already available in chemists' shops and can be bought over the counter by the general public.

One of the effects of the limited list will be that there will be created a greater incentive to manufacturing companies to increase over-the-counter sales. This, I am sure, they will attempt to do. However, it is clear that, where their NHS sales loss through the limited list is severe, it will not be easy to maintain turnover in the short term.

Lord Pitt of Hampstead

My Lords, the noble Lord said that one of the consequences of the limited list will be an increase in over-the-counter sales, if I understood him correctly. Is he telling the House that that is something we should welcome?

Lord Glenarthur

My Lords, there are considerable over-the-counter sales of medicines already. I can see no reason to suppose that it is necessarily a bad thing.

We have also been told—by the noble Lord, Lord Auckland, particularly—that exports will suffer as a result of our proposals. The argument is that as certain products will no longer be prescribable under the NHS they will be regarded overseas as being of little use. I do not think that there is anything to support that. We are not saying that the products affected by our proposals are no good. What we are saying is that the taxpayer should not be expected to pay for them. All the products will still be saleable in this country and will retain their product licence, which is essentially a certificate of safety, quality and efficacy. We will still issue export certificates on request, so I cannot see that exports suffer here.

The noble Earl, Lord Halsbury, and the noble Lords, Lord Kilmarnock and Lord Hunter, raised the question of patents. I shall study with care the points that they have raised. I, too, cannot claim to be the expert on patent law which the noble Lord, Lord Lloyd, would have been had he been here. But I am aware of the recent moves in the United States which have extended the patent term for drugs in that country. The pharmaceutical industry in this country has expressed concern about the length of the patent term and discussions are taking place with the ABPI and the Patent Office.

An important point to bear in mind is the various conventions in Europe and elsewhere to which we are signatories, and that any extension in the United Kingdom of the patent term would be contrary to the spirit, if not the letter, of those conventions. But I shall study the noble Earl's remarks.

The Department of Health and Social Security is not against the pharmaceutical industry. What I have been trying to do is to expose some of the fallacies of the arguments used against the steps which we really have to take. We are, after all—and as the noble Lord, Lord Greenhill of Harrow, will readily understand—the sponsors of the industry, as well as its best customer via the NHS. These two roles are difficult to play of course, and it is probably impossible to get the balance absolutely right.

We want to see a thriving pharmaceutical industry. It provides employment and contributes very positively to our balance of trade. It also contributes to the nation's health and well-being. If we need it, it certainly needs us. Where else would it get an assured market of £1.4 billion for its products? It appears that the industry has become somewhat complacent. It had a certain and generous profitability rating and operated in a trading environment unique in Europe in that there were no prescribing or reimbursement restrictions in our publicly financed health system. It did not believe that similar restrictions would be introduced in this country, but they had to be and are coupled with a trimming of profit levels.

If patients could accept that there is not a pill for every ill; that all effective drugs are in fact potentially dangerous and in taking them there is a balance to be struck between benefits and disadvantage; that many minor ailments are self-limiting and drugs are not necessary; in fact that on many occasions it would be positively advantageous not to take a medicine—if these simple precepts could be accepted, then perhaps we should not need a limited prescribing list or even a price control system. But while patients expect—as they very often do—a prescription from every visit to a doctor, and doctors, are willing to accede to these expectations, some controls are necessary.

We believe that the anxiety expressed about our present policies towards the pharmaceutical industry is misplaced. Both our limited list proposals and the changes in the Pharmaceutical Price Regulation Scheme are in the interests of more effective prescribing within the National Health Service and in aid of reducing an enormous NHS drugs bill. Both will help to restrain public expenditure, which is an important part of the Government's already successful economic strategy, and will provide a sounder basis for overall economic expansion, which will in turn enable us better to support health and other social services.

Lord Hunter of Newington

My Lords, one is tempted to ask one or two supplementary questions of the Minister but I think that we have had a reasonably well-balanced debate. I congratulate him on his spirited defence, although I think that many of us feel that this problem is by no means finally solved. We are still worrying about the distinction which I tried to make in my speech between the limited list and the recommended list. It seems to me that many people might come round to the limited list, particularly if it is obviously something that can be limited. But to do that on the negative side, without taking the opportunity of producing guidance for the medical profession by the experts, such as the CMO's experts, seems to some of us to be a great tragedy. I hope the Minister will take that thought away with him.

I thank all noble Lords for having contributed in the way that they have done to this debate which I think has been very successful. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.