§ 6.12 p.m.
§ Lord Northfield rose to ask Her Majesty's Government what further action they propose to protect patients from the potential dangers of parallel-imported medicines; and what action they will take to recover windfall profits being made by pharmacists on such medicines and to protect the United Kingdom industry from erosion or returns on its successful products.
§ The noble Lord said: My Lords, in putting this Question this evening I again declare an interest as an adviser in the pharmaceutical industry. So called parallel importing occurs mainly because medicine prices are held artificially low by direct state control in some EC member states. Trade across boundaries, profiting from the ability to buy in some countries at these low prices, has mushroomed in recent years and has been legitimised by a rather curious ruling of the European Court of Justice. A new breed of traders thus sells these imports over here to wholesalers and pharmacists at prices below those which apply here under the United Kingdom price regulation scheme—the PPRS, as it is called.
§ In order to reduce dangers arising from this trade the Government have introduced a regulating system based on registration of companies engaged in it, together with a system of product licensing, the aim being to make sure that such parallel imports have no clinically significant differences from the medicine that is authorised for sale in the United Kingdom. Problems, however, arise, and dangers too; and I have given notice to the Minister of the issues I want to raise under the three headings in my Question.1122
§ Let us take first dangers to patients. Parliamentary Answers given to me in the summer filled me with considerable alarm. I was told that 28 companies hold parallel-import licences. I was told that two companies, I think mainly wholesalers, were being prosecuted for infringements; another eight were being considered for prosecution; and no fewer than 16 more were being investigated or considered for prosecution. This suggests that there may be some less than reputable elements at work in this trade. I hope that the Minister for a start this evening will tell us the up-to-date position and comment on the figures as well.
§ I suspect that the selling of unlicensed imports—that is, the ones which have not had a licence under the United Kingdom regulation system—accounts for a substantial proportion of these possible infringements leading to prosecution. I have seen market research findings by a reputable organisation and they estimate that as much as one-quarter—one-quarter, my Lords—of parallel imports sold to pharmacists may be unlicensed. Is the Minister able to confirm this alarming figure?
§ Again, and referring these companies, how can we be certain that if—as sometimes proves necessary—there is need to recall a batch of a particular medicine, the companies are well enough run and regulated for their records to indicate where particular batches have been sold? If, as is quite likely, some of these companies go out of business as quickly as they have mushroomed, particularly if price changes abroad, or exchange rates, suddenly make the trade unprofitable, how in heaven's name will batch recall be able to work in respect of stocks still on the shelves if the firms and the records have all disappeared? This holds considerable dangers for patients.
§ I am bound to say that the inspection system used to check on infringements is woefully inadequate, and I hope that the Minister is going to announce tonight some strengthening of it. The DHSS does not even have its own inspectorate. It has to rely on inspectors of the Pharmaceutical Society, and I understand that they are mainly responding to complaints from the public, or infringements uncovered by United Kingdom pharmaceutical manufacturers, rather than making any systematic inspections.
§ Can the Minister say how many are engaged on this work—I gather it is only a handful—and whether I am right in saying that most pharmacists will not be regularly inspected, given the numbers involved? Inspectors of the Ministry of Agriculture, Fisheries and Food are the ones actually used to draw up cases when infringements are suspected. They have to interview the companies concerned. Can they really do this adequately when they have the whole normal range of their duties to perform for MAFF? I repeat that the system is patently and dangerously inadequate—a handful of inspectors—with consequent dangers to patients.
§ Patients are being put at risk by this trade. Repackaging, for example, when the parallel imports have been brought in can and does lead to vital information being left off the package after translation from a foreign language. In a letter of 16th October the Department of Health itself has warned that some 1123 importers are tempting pharmacists and wholesalers to take incompletely labelled packs by offers of extra discount. This shows that a great deal of less than reputable activity is going on.
§ Again, the bio-availability—that is, the medical effects—differs in the case of some products from the product normally on sale in the United Kingdom. Patients have had epileptic control altered by substitution of an unlicensed product. Erroneous information supplied with inhalers has led patients to believe that a product was suitable for acute asthmatic attacks when the product was only prophylactic. Imported tablets of the wrong strength have been dispensed. Leaflets in foreign languages have been found with packs of pills. Batch numbers on the blister strips of pills—they are the ones inside the pack—do not match the batch number of the outside of the pack.
§ I have here three letters from one pharmaceutical company alone giving information about infringements in respect of a product sold in such diverse areas as the Wirral, Wigan and Maidstone, and all constituting a potential hazard for the patient. Counterfeiting of outside packaging has been found, and I am left wondering whether there is also a counterfeiting of drugs or, at least, a dispensing of substitutes that are not actually authorised. Do we have to wait for something dreadful to happen to patients before all this danger is cleared up?
§ Finally, there is the whole area of product liability, on which I hope the Minister will comment. How is the patient going to be protected if, in the case of a claim of harmful effects of some product, the manufacturer can show that the product was not manufactured for or authorised for sale here in the United Kingdom? What is the remedy for the patient? This raises considerable concern in my mind.
§ I see that the Association of Pharmaceutical Importers—those are the parallel importers—are seeking a judicial review hoping that a substitution of products can be authorised where the same product under a different name can be dispensed. I hope the Government will resist this in the courts with all their power. This is the thin edge of a very big wedge, going right against the detailed safeguards in the United Kingdom system. The sanctity of doctor-prescribing would be undermined in one blow and goodness knows where that would lead.
§ I turn now to the second part of my Question. I hope the Minister will confirm that at present this trade at low prices confers no benefit on the National Health Service because it results in no savings of NHS costs. This is because the pharmacist is reimbursed for the ingredient cost of a prescription at the United Kingdom, and not at the parallel-imported, price of the preparation. There is no adjustment downwards for the cheapness of his purchase. He can save 30 per cent. or so by using parallel imports and make a windfall profit at the expense of the taxpaper. This scandal must be stopped.
§ The Government have had one major method of stopping the abuse outlawed by the courts. Can we please be assured that another method is imminent? After all, the figures are substantial, for the importers concentrate on the most dispensed products. Let me 1124 put some figures to this. Has not the global excess reimbursement been of the order of £100 million plus in the last few years; namely, about £20 or £30 million per annum being made as windfall profits illicitly out of the National Health Service? Is that not the sort of figure that equals, for example, the net capital expenditure of a health authority? Do we not need to think of what better use this money could be put to if this shocking abuse were stopped? I am surprised that it has not attracted more attention. It is a pure, flagrant waste of government funds.
§ Per pharmacist the figure is also significant. I know that only about a quarter of pharmacists use parallel imports and most pharmacists are reputable. But the average per pharmacy is some thousands of pounds per annum and those dealing in parallel imports in the last four years may have benefited to the extent of £40,000 or £50,000, depending on the size of their businesses, all in windfall profits.
§ Some scheme reflecting accurate reimbursement must be found. I hope the Minister will confirm that the DHSS will not meet this problem by reducing average reimbursement across the board on all prescriptions, for that would push more and more pharmacists into using parallel imports to cheapen the supply, reduce the costs and hold their profits. Hitting everybody to entrap a few cannot in any circumstances be justified.
§ I turn finally to the effects upon the United Kingdom pharmaceutical industry of this parallel importing. The countries which keep medicines at artificially low prices, and are thus the source of parallel imports into the United Kingdom, are in the main France, Belgium, Italy and Greece. Generally their price controls, in contrast to prices regulated in the UK under the price regulation scheme (the PPRS), make little or no allowance for research and development costs of a product. That is why the prices are held low in those countries. Parallel importers concentrate on the fastest selling, highest value medicines.
§ It is generally accepted that this small number of really large selling medicines form the principal economic framework to support the R&D expenditure of the major companies. Parallel imports therefore threaten the life blood of a successful research-based company by depriving it of necessary funds to support R&D. Purchasing these products manufactured on the Continent transfers manufacturing capacity and jobs from the United Kingdom to those low priced countries. Manufacturing to a total of £80 million to £90 million per annum is being lost to the United Kingdom by these means.
The European Commission is trying to face up to the problem. It has published a draft directive on transparency of pricing, aiming to force countries to show how controlled prices are arrived at. It has also published a memorandum from which I quote. It states:
Although at the present time there is little evidence that parallel imports pose a significant threat to the research-based industry, there is a risk that in the long-term, the policies of those member states who wish to encourage the development of the pharmaceutical industry will be undermined by large-scale parallel importing".
§ It is clear whose side the Commission is on. But it goes on to suggest that countries generally in Europe should adopt a price regulation scheme, rather like our own, concentrating on profits rather than the control of the prices of medicines, and also that the price control system should give adequate support to research and development costs. I hope that that has been taken fully on board by the Government.
§ I hope that the Minister will assure us that the Government support the Commission in putting open pressure on other member states to apply realistic pricing. This is in no way similar to the trade in motor cars; the situation in which buyers can sometimes buy cars more cheaply in Belgium and import them over here. There is no price control on motor cars. It is a free market. But the parallel import system in medicine arises because there is price control in some countries.
The quixotic ruling in favour of the trade by the European Court of Justice results, as the NEDO working party on pharmaceuticals has just reported in its paragraph 89, in endorsement not simply of free circulation of goods,
but also free circulation of (potentially) illegal pricing methodologies".
§ I hope the Minister will agree with this stricture of NEDO and the views of the Commission.
Finally, in all the circumstances I was deeply surprised to see that in a recent speech the Parliamentary Under-Secretary to the Department of Health and Social Security, the noble Baroness, Lady Trumpington, said:
Licensing has ensured the acceptable safety of the trade"—
a highly doubtful statement in the light of what I have been revealing this evening. She went on to say that parallel importing is,
a part of life in the European Community".
§ Such a statement, virtually encouraging the trade, should not have been made, in my submission. What is needed instead is firm support for the Commission in its efforts to get realistic and fair price controls (where price controls exist) so that the trade ceases, with relief from all the problems I have outlined today.
§ The United Kingdom's pharmaceutical industry has a very good record. Its exports give an annual surplus of £850 million to our balance of trade. It employs 70,000 to 80,000 people. It spends some £500 million per annum on research and development. It deserves support to get rid of this basically piratical trade, and not, as we have heard from the noble Baroness, Lady Trumpington, acceptance that the trade must continue.
§ 6.29 p.m.
§ Lord Prys-Davies
My Lords, my noble friend Lord Northfield returns tonight to a basic issue raised during the Committee Stage of the Patents, Designs and Marks Bill last April. The House must be grateful to my noble friend for the series of detailed questions he has addressed to the Government. I shall deal in turn with each of the three separate parts of the main Question. First, there is the issue of what further action the Government propose to take to protect patients from the potential risks to health from parallel-imported medicines. I will not traverse the ground 1126 again. We have been adequately reminded by my noble friend of the numerous circumstances in which patients can be exposed to considerable danger from imported medicines. The control over the importation of medicine and the safety of medicine are basically provided for in the Medicines Act 1968. Section 7 of that Act provides that no person shall import any medicinal product except in accordance with a product licence. The Government, in recent years, have introduced a product licence (parallel-import) which has to be obtained in relation to the importation of medicines.
The necessity for control having been recognised, we want to know how the department has been coping with the scheme of product licensing. How effectively is the scheme being implemented? My noble friend has asked a number of questions, and I should like to pose a few additional questions of my own. Does the department know how many medicinal products are known to be imported to this country without a product licence? Is that known?
Will the Minister tell the House how many applications for a product licence are currently being considered by the department and are awaiting a decision? Can the Minister go further? Can he tell us how thoroughly scrutinised is an application for a product licence? I ask that question because there is an impression that an application for a licence in practice is treated as if it were a licence. Is there any ground at all for that impression? Will the Minister also tell the House how many complaints have been received by the DHSS since 1982 about alleged unlawful manufacture or sale of medicine that should have been subject to the product-licence scheme? My noble friend has mentioned the number of companies which have been prosecuted for importing medicine without a licence. Will the Minister confirm that those figures are correct?
I turn now to the second part of the Unstarred Question, namely, what action the Government propose to take to recover the windfall profits made by pharmacists from parallel imported medicine. My noble friend has described how windfall profits arise if a pharmacist dispenses the cheaper parallel imported product but claims reimbursement from the DHSS on the basis that he has dispensed the more expensive UK product. The price differential is of the order of 25 per cent. to 50 per cent. That should not happen.
The price differential is substantial. My noble friend has indicated that the imported drug costs from about 25 per cent. to 50 per cent. less than the UK brands. Is my noble friend's estimate correct that the NHS has overpaid retail pharmacists dispensing parallel imports the sum of £100 million to £120 million since 1982. And is my noble friend correct in estimating that some phamacists who are dealing in parallel imports may have benefited over the last four years by as much as £40,000 or £50,000.
If these figures are correct—we believe that they approximate to the true position—it is difficult to see how a pharmacist can innocently claim reimbursement at the higher level. One would have thought that such activity almost certainly constitutes a criminal offence of obtaining money by deception, fraud or 1127 forgery. There is only one answer to that problem. The pharamacists who claim reimbursement at the higher level should be detected and prosecuted.
Again, I should like to put come questions to the Minister. Will the Minister inform the House how many prosecutions there have been since 1982 for deception, fraud or forgery? Can he also inform the House how many cases there have been where the department has been able to recover windfall profits and what was the total amount recovered? If a substantial part of this £100 million to £120 million overpayment has not been recovered—we suspect that it has not—that is a sad neglect of the department's obligation to the NHS. Of course, if the department pleads that it is without the resources to check the validity of the claims, that is a sad commentary on Government manpower policies.
I come to the last part of the Unstarred Question, namely, what action the Government will take to protect the UK industry from the erosion of returns on its successful products. I found this to be more complex. It is a controversial issue. Specifically, it is about the degree of protection which would be given, not to all pre-1978 patents, but to a group of pre-1978 patents which were given an extension of four years by the Patents Act 1977, from the sixteenth year to the twentieth year of their lives. At the same time this was recognised to be a compromise solution. I have found it to be a complex issue, and I well recall the noble Lord, Lord Hunter of Newington, with his great experience and authority, asking in the course of a debate in your Lordships' House on 20th February 1985 whether we had too many research-based companies in the UK and whether we did not require high-quality companies that confine their business to generic drugs.
The noble Lord, Lord Hunter, did not offer an answer to the questions which he had posed. But it was his judgment, and I pay it great respect, that this area should be examined and that it should be planned. My noble friend Lord Northfield has developed a robust case for giving the relevant pre-1978 patents full protection until the end of the twentieth year or if (by implication, I suppose) such protection is not available from the Government, then of making it lawful for the Comptroller of Patents to impose whatever limitations he thinks fit on the licences of right when granting the licence.
It is fair to point out that the extent of the Comptroller's discretion to impose limitations on the licence are still uncertain. My noble friend has not referred to the case of Gist-Brocades v. Generics which came before the Judicial Committee of your Lordships' House fairly recently. Two noble and learned Lords considered that he could impose whatever terms he thought fit in the circumstances. One noble and learned Lord disagreed with that view, while two noble and learned Lords reserved their judgment. So there is uncertainty about the discretion which is vested in the Comptroller of Patents.
My noble friend Lord Northfield considers the licence of right, which can be granted during this four-year extension, to be a mischief—an enormous mischief—which puts the British pharmaceutical 1128 industry at a disadvantage compared with the industries of competitive countries, depriving it of adequate remuneration to fund research which can lead to the development of new and successful drugs of benefit to mankind.
That, briefly and in essence, is the case advanced by my noble friend and also by the Association of the British Pharmaceutical Industry. But there is another side to the case. There is an opposing view, which remains unconvinced that additional patent protection is required during the four-year period with which we are concerned tonight. That opposing view naturally is being advanced by the Association of Pharmaceutical Importers who want to keep the licence of right and also want the minimum of limitations to be imposed upon an individual licence. It would argue that there is no guarantee that greater patent protection will necessarily mean that a patent-holder will plough back the profits into research and development in the United Kingdom, or indeed at all. That will depend very much upon the individual company.
It also argues that, in the national interests of the United Kingdom, the National Health Service should have access to cheaper drugs and medicines which are available, or which could be available, by virtue of the licence of right. It further argues that we in this country require highly qualified companies, which will confine their business to generic drugs, as well as the research-based companies. I should also remind the House that an Early. Day Motion, tabled in the other place a few days ago, is critical of what it describes as excessive profits at the expense of the nation's health.
Those are basically the opposing arguments. We are in sympathy with the broad principle that home-based industry should receive an adequate return in relation to its products in order to ensure continuity of research. Indeed, my noble friend Lord Ennals has often made that point in your Lordships' House. Britain needs a strong pharmaceutical industry. We do not want to kill that goose. But it is also in the public interest—and this I assert as a health spokesman on this Bench and also as a taxpayer—that drugs and medicines supplied for the national health should be supplied at reasonable prices. So there could be a conflict of interest here. One has to balance the benefit to the patent-holder of pharmaceutical products against any detriment to the National Health Service as the purchaser of drugs and medicines.
I go back almost to where I began. During discussion at the Committee stage of the Patents, Designs and Marks Bill last April, the noble Lord, Lord Lucas of Chilworth, said that the Government were prepared to introduce legislation to protect what he described as "useful patent life". If that remains the Government's view, will the Government, as the custodians of the National Health Service, also bear in mind the need to safeguard the interests of the National Health Service?
Perhaps I might draw the attention of the Minister to a possible helpful provision to be found in Section 41 of the Patents and Designs Act 1949—that Act having been repealed by the Act of 1977. That section placed on the Comptroler of Patents a duty to ensure, among other matters, that medicines, were available 1129 to the public at the lowest price consistent with the patentees deriving a reasonable advantage from their patent right. The proposed patents protection legislation, if it is to be introduced, should also contain a safeguard for the National Health Service possibly along the lines of section 41, if that is allowed by Community law. It appears to us that that is the only means whereby we can reconcile the different national interests to which I have referred.
§ 6.46 p.m.
§ Lord Hesketh
My Lords, I should like to thank the noble Lord, Lord Northfield, for opening this short debate. A number of important questions have been raised and I hope that in passing on some of my very newly-acquired knowledge I may be able to put minds at rest. I arrived armed with a veritable array of confetti for the debate today and before dealing with my speech proper, I should like to deal with some specific points that were raised during the debate that are not contained in my speaking notes. The subject is complicated enough as it is, without making it more difficult for your Lordships to understand.
However, before covering those points I should like to say two things which I feel are relevant. First, I heard the phrase, "piratical trade" I think that is a little strong. A free market in Europe by definition means that products of all kinds (including medicines) are going to cross borders. Another point of which I took note was hearing efficient purchasing described as "fraud". Again, I think that is a little rich.
I shall now move to the other points that have been raised and then I shall deal with the speech itself. The noble Lord, Lord Northfield, pointed out certain cases, in particular I believe he was referring to an anti-epileptic drug and its application. We know that on certain occasions there have been errors; but it is also true to say that parallel imports have been blamed where in fact they are not to blame and the complications were due to reasons which had nothing to do with them.
There is the policy of reimbursing the pharmacists. I am informed that there are certain pharmacists who on principle have not used parallel imports. It is felt that they should not suffer as against those who have used such imports. As many of your Lordships will be aware, parallel imports are in fact a phenomenon of the 1980s, and in the 1970s we were actually parallel exporters. At this moment a new survey is being conducted in order that we can respond to this problem. The results of that survey are just about to reach the Government and therefore there will be a new basis on which we might hope to resolve this problem.
The noble Lord, Lord Northfield made a point concerning counterfeiting. We have evidence, and I shall come to it later, with regard to counterfeiting of cartons and leaflets, but we have no evidence with regard to the product. I think possibly the noble Lord was referring to the Ventolin saga, which concerned the counterfeiting of the packaging but not of the product itself.
§ Lord Hesketh
My apologies, my Lords.
It was said that a quarter of all parallel imports are unlicensed. There is no basis on which to confirm or deny this figure, but 80 per cent. of applications are now dealt with, and all allegations of unlicensed trading are investigated.
The noble Lord, Lord Prys-Davies, referred to the number of applications that had been received and to the licences granted and refused. The figures are that since May 1984, 3,155 applications have been received; 1,500 licences have been granted and 722 refused. Applications returned or withdrawn numbered 312. The balance outstanding is 571. We are now getting on top of the problem.
§ Lord Hesketh
My Lords, perhaps I may move on to the next point on applications treated. Importers have been warned that an application is not a licence. They will be pursued if they make that foolish error.
Finally. I was asked how many complaints we have received about parallel imports. We have investigated 38 allegations of unlicensed trading in 1986. That can include multiple complaints involving the same product.
As far as licensed parallel imports are concerned there should be no question of danger to patients. These are all medicines which have been licensed in other European Community states in accordance with EC requirements. I shall be saying more about the action we are taking to stamp out the trade in unlicensed medicines, but in general the safeguard is that we would expect pharmacists to ensure that they only dispense UK licensed products.
We must put this into context. Parallel importers are concerned with a nucleus of a small number of the most frequently prescribed and generally more profitable products, perhaps some 200 out of a total product range of more than 10,000. The trade in parallel imports is difficult to quantify but figures that have been suggested put it at substantially less than £100 million per year. This should be compared with some £2,600 million for the UK pharmaceutical industry output as a whole. I shall also explain the efforts that are being made to deal with the remuneration for retail pharmacists in relation to the discounts offered by parallel importers. Finally, I shall have a few words to say about the effect on the UK pharmaceutical industry.
As noble Lords are aware, parallel importing of medicinal products occurs when medicines are purchased at a relatively low price in one country for sale in another. They compete with identical, or virtually identical, products already being marketed there, often by the same manufacturer. Products are cheaper in the exporting country usually because of local price regulation systems and currency fluctuations. In the 1970s the UK was a parallel exporter.
By the early 1980s, medicinal products were being parallel imported into the United Kingdom on a substantial scale and without adequate controls. The Government therefore decided to introduce a scheme, 1131 based on the EC recommendations, for the licensing of parallel-imported medicinal products. The scheme took effect on 16th May 1984 and required that a parallel import product licence should be held by anyone marketing medicinal products in the United Kingdom after that date. The scheme is kept under review and various changes have been made since it came into operation. For example, the accession of Spain and Portugal to the European Community from 1st January 1986 brought further problems especially in relation to certain UK patented products where the UK patent holder could seek to prevent imports. We have co-operated with the Association of the British Pharmaceutical Industry to produce lists of the patented products and their Spanish and Portuguese names which have been circulated to parallel import licence holders.
Parallel import product licence applications cover a very small number of products, but there are multiple applications involved, as each importer wishes to handle the same basic range of high volume products. Once the initial decision has been made that an import is acceptable, subsequent applications can be processed on a mirror image basis. There are, however, still some applications outstanding from the start of the scheme. A relatively small number of officials in the licensing authority is concerned with parallel imports—basically one medical assessor, two pharmaceutical assessors and a small administrative section—but none of these is devoted exclusively to parallel import work. There are 250 staff in the medicines division of the department and 20 medicine inspectors under the department's control. Parallel import applications are not given preference to UK company applications.
As the regulatory authority under the Medicines Act, the health Ministers are concerned to ensure the safety, quality and efficacy of all medicines sold or supplied in the United Kingdom; and subject to that proviso, they are neither for nor against parallel importing. They are, of course, bound by EC regulations to facilitate the free movement of goods between member states. The position therefore is that the great majority of parallel-imported products available to UK pharmacists should be licensed products. As such they should present no health hazard as they have been licensed on the basis of information supplied by other regulatory authorities and/or manufacturers as to their equivalence to the UK licensed product. Products come mainly from France and Belgium and to a lesser extent from Italy, Greece, Denmark and Holland. Labelling and patient information must be in English.
It would also be wrong to suggest that licensed parallel imports are inferior in quality. All Community member states are required to follow a common procedure in marketing authorisations for medicines. Overseas manufacturers of pharmaceutical products intended for the UK market must in general comply with conditions which equate to those applicable to UK manufacturers. We have ensured that community pharmacists have up-to-date information available to them as to the products which have been granted licences. Monthly lists of such products have been published throughout this year. For the future we 1132 would suggest that the presence of a product licence number indicates the product's status; if no number is quoted it can be assumed that it is.unlicensed and should therefore be reported to the department for consideration of prosecution. When I say "community pharmacists", I am referring to what could also be known as the local chemist, in case anyone thought it was something to do with Europe-wide pharmacists.
Currently we are investigating 20 parallel importers for various offences mostly involving trading in unlicensed products and labelling or assembly irregularities. Two parallel importers have been prosecuted and convicted. Other prosecutions are pending. There is difficulty in securing evidence strong enough to support a criminal prosecution. A recent encouraging trend is a tendency for the more responsible parallel importers to complain to the department and supply evidence as to the activities of other importers.
§ Lord Northfield
My Lords, is that not alarming? There are only 28 registered parallel importers and the noble Lord has just said that more than 20 of them are being investigated for possible infringements and possible prosecution.
§ Lord Hesketh
My Lords, the number of importers is 31 rather than 28. As I said earlier, the vast number of cases concern irregularities to do with packaging or labelling. It could be said that we are doing a very good job in pursuing so many.
Controls over unlicensed products entering the country would require a check on all incoming vehicles. This is not practicable. In any case it is not an offence to import from the European Community and hold in store medicines licensed in a Community country. Close liaison is maintained between the enforcement branch of the department, medicines inspectors and inspectors of the Pharmaceutical Society and investigation officers of the Ministry of Agriculture, Fisheries and Food and Customs and Excise.
Both the UK pharmaceutical industry and parallel importers have at various times been critical of the handling of parallel-imported medicines. On the one hand, the UK industry has suggested that there was no need to set up a scheme and the UK could have invoked the provisions of Article 36 of the EC Treaty to avoid this. They also argue that licences should not have been issued for products bearing certain UK trade names and that the scheme has been too liberal and favours parallel imports at the expense of UK products.
Our scheme is based on the European Commission's recommendations and we have taken great pains to ensure that licences are only granted where the information available to us suggests that the parallel-imported products are equivalent to their UK licensed counterparts. As for product names on licences, the department's guidance to parallel importers states that it is for the applicant to ensure that he is entitled to use any name applied for. As to favouring parallel imports, the scheme has been modified in the light of revised advice from the European Commission and 53 appeals against refusals of licences.
1133 On the other hand, the Association of Pharmaceutical Importers has been equally critical of the department's apparent tardiness in dealing with applications, the unnecessary restrictions inherent in the licensing scheme, and unwarranted zeal in enforcement action. It is also at this time seeking judicial review action in respect of the department's instructions to pharmacists which it is alleged discriminate against the dispensing of parallel imports. If somebody is criticised by both sides it suggests to me that broadly the system is operating fairly. I have already said that the UK licensing authority is neither for nor against parallel importing.
I now turn to the question of what the noble Lord, Lord Northfield, refers to as windfall profits being made by some retail pharmacists. He will be aware that when this problem first came to light in 1983–84, the Government introduced a scheme designed to complement the existing reimbursement arrangements by taking into account the very high discounts which had become available in the market. This was the high discount endorsement scheme. Unfortunately this scheme was found to be in breach of Article 30 of the EC Treaty by both the High Court and the Appeal Court.
Since that time, the department's legal advisers have been considering the full implications of that judgment on the existing arrangements for reimbursing retail pharmacists. One thing that is certain is that any new scheme which may be introduced in the future must be seen by all to be fair and must be seen to be fully meeting our legal obligations in both Europe and the United Kingdom. I can assure noble Lords that no decisions have yet been taken on any new scheme.
One of the major problems facing us is that despite the fact that parallel imports have been with us for some time—and, before that, parallel exports were the problem—very little factual information on the extent of their usage exists. Let us be quite clear that not all pharmacists use parallel-imported medicines in their NHS dispensing. It is necessary, I think, to put the problem in perspective. Various estimates have put the value of the trade at between £40 million and £100 million. This has to be compared with a total drugs bill in the region of £1,800 million. That is not to say that the Government are being complacent. The results of inquiries are expected shortly. Once they are available, the Government will be considering as a matter of some urgency what action may be taken to curb any excess profits being made by pharmacists under the existing reimbursement arrangements.
We have been discussing this evening a problem affecting the pharmaceutical industry in this country. In doing so, I believe it is important that we should remind ourselves that this is a successful industry—successful both in terms of the quality of its products and in terms of the industry's economic success. Of the £1,800 million NHS spending on medicines, some £1,200 million was for medicines supplied by UK-based pharmaceutical companies who also exported medicines in 1985 to the value of £1,440 million. Those figures surely speak for themselves. In 1985, the pharmaceutical industry in the UK produced total medicine sales, home and abroad, of more than £2,600 million, with a positive 1134 balance of trade of very nearly £850 million. Noble Lords will surely agree that this is indeed a success story.
One does not of course wish to dismiss or minimise the effects of parallel imports for the UK pharmaceutical industry. But I believe it is important that we should keep this question in perspective, and I hope the figures which I have quoted will help us to do that. The cost of research and development figures prominently in the cost of the pharmaceutical industry. The UK industry's current spending on R&D is more than £500 million per annum. The importance of this element is taken into account in the prices of medicines supplied to the NHS, which have built into them a specific provision for R&D support currently running at more than £300 million a year.
In conclusion, I would emphasise that it is wrong to suggest that patients are at risk from licensed parallel-imported medicines. In some cases these are made in the same factories as supply the UK products; in others from sister companies to the same formulae. The UK licensing authority has devised a licensing scheme to control parallel imports, and now that it has absorbed the initial flood of applications I would suggest it is well on the way to ensuring that only licensed products are marketed in this way. The department will follow up all allegations of unlicensed trading and will consider prosecution action where the evidence warrants this.
As for the effect on the UK pharmaceutical industry, I know it would have preferred us not to set up a parallel-import scheme. We had, however, to honour our obligations as an EC member state. As for windfall profits by some pharmacists, I have indicated the action in hand to deal with this.
I am grateful to the noble Lord, Lord Northfield, for raising this subject today. It has been an interesting and well-informed debate. I also thank the noble Lord, Lord Prys-Davies, for his most valuable contribution. If, in the interests of brevity, I have failed to answer all the points raised I hope that noble Lords will forgive me. I shall of course write to noble Lords to correct the situation.
§ Lord Hacking
My Lords, before the noble Lord sits down perhaps he will allow me to intervene because I believe there is a weakness in one of his arguments. If I understood the noble Lord the Minister correctly, he said that both the customer and the industry would be protected from some of the consequences of the matters on which the noble Lord, Lord Northfield, addressed us by the adoption of a common procedure for the marketing of medicinal products.
However, does this not focus into a problem which exists not only in this country but in other countries within the EC? I refer to the abridged application procedure. Before panic sets upon the Minister because he cannot find a tab in his brief headed "abridged application procedure", may I tell him briefly that this is a procedure under which second applicants for a product licence are relieved, in part or in whole, from producing with their application experimental and biological studies or preclinical, clinical and laboratory studies in support of their application. The result of that is that a second 1135 applicant can pick up a canister of pills from the chemist, break down the constituents of it, and possibly without even having to produce comparative data, then make his application for a product licence either in this country or the EC. If that is right—
§ Baroness Nicol
My Lords, will the noble Lord give way? I think it is the custom of the House that when intervening in an unscheduled manner, the intervention should be kept short. I am sure the noble Lord will bear that in mind.
§ Lord Hacking
My Lords, I am sorry if I am making a rather long intervention. I apologise to the House and to the noble Lord, Lord Northfield, for not being able to make my intervention at an earlier stage in the proceedings.
All I put to the Minister, which arises out of one of the points he was making in his submission, is that a weakness lies in this proposed "common procedure" that he is speaking about because of the use in this country and in other EC countries of the abridged application procedure. If it would be easier for the Minister to reply to me in writing, I shall be happy to receive his reply in that way.
I therefore direct two questions on the abridged procedure. Is reference made to the original applicant's clinical and other data when considering the second application, and, if so, to what degree? If the Minister could reply in writing, it would certainly assist.
§ Lord Hesketh
My Lords, I am sure that it will come as no surprise to the noble Lord that I shall be writing to him rather than answering him at this time.
§ Lord Northfield
My Lords, before the noble Lord finally sits down, I wonder whether I may ask him to be sure to write to me about the points I raised about the EC; namely, that the EC Commission needs support in pressing through its view that research and development expenditure should be included in the pricing of pharmaceuticals by other countries and that some order should be brought into the whole system of comparative pricing so that, one hopes, parallel importing will fade away. I should be grateful if he would write to me about that.
§ House adjourned at eleven minutes past seven o'clock.