HL Deb 15 April 1991 vol 527 cc1318-34

6.55 p.m.

Lord Hacking rose to ask Her Majesty's Government whether they are now in a position to announce support for the European Commission's proposed regulation relating to supplementary protection certificates for medicinal products (EC 6033/90) and, if so, what steps they are taking to secure agreement to the proposals.

The noble Lord said: My Lords, the purpose of this Question is to obtain a long awaited Answer from Her Majesty's Government about the proposed EC Council Regulation concerning the creation of a supplemental protection certificate for medicinal products.This draft regulation was adopted by the Commission on 28th March of last year. It was then debated in your Lordships' House on 25th April. It also became subject to scrutiny by your Lordships' Select Committee on the European Communities. There has been an exchange of letters, as the noble Lord, Lord Hesketh, knows, between himself and the noble and learned Lord, Lord Oliver, who is chairman of Committee E. Notwithstanding the lapse of 12 months, the Government did not state their position. Out of this long delay—out of this elephant—has been delivered a mouse, a mouse that was delivered this very afternoon not in your Lordships' House but in the Library of another place. This has placed myself and the other noble Lords who are participating in this debate in some strange position. Here was a government statement, on exactly the subject of the question that I tabled long ago, being delivered in the House of Commons. This has now been partly remedied because that same government statement has just been tabled in your Lordships' House.

The issue, as all noble Lords participating in the debate will know, is over a longer period of patent life for pharmaceutical products because the effective period of patent protection for pharmaceutical products has over the years, particularly over recent years, been progressively eroded. It has been progressively eroded because of the longer development period as complex drugs battle with more and more complex diseases. The period has been eroded too because of the greater time needed for the licensing process. Therefore it should be emphasised at the start of this short debate that the pharmaceutical industry is not seeking to steal a march and obtain a greater patent protection than is otherwise available to the innovators of new products. It is merely trying to regain the lost period of patent protection and place itself closer to the patent protection available for other products. That is a 20-year period. Under the EC proposals the effective period proposed is not 20 years but 16 years.

What have the Government done? They have, as I have already intimated to your Lordships, delayed. I have to put it a little more succinctly than that. Her Majesty's Government have dithered. Have the French Government dithered? The answer is no. The French Government have introduced legislation on the lines of the EC proposal. Have the Italian Government dithered? The answer is no; but this Government have dithered.

What are the basic facts? The UK pharmaceutical industry consists of United Kingdom companies and international companies operating and manufacturing in the United Kingdom. The first basic fact is that the industry is profitable, and particularly profitable. Your Lordships should perhaps be aware of the figures for 1990. Three hundred and fifty manufacturers operating in the United Kingdom produced a record pharmaceutical product worth £6,756 million. Further, the exports of pharmaceutical products from the United Kingdom rose in 1990 by another 12 per cent. The figure rose by 16 per cent. in 1989 and is now standing at a record level of £2,258 million. If your Lordships need further persuading about the effectiveness, profitability and success of the pharmaceutical industry, perhaps I may draw attention to the record trade surplus of £1.1 billion which was achieved in 1990. The UK pharmaceutical industry was the third largest positive contributor to the nation's balance of trade.

Secondly, it is not simply a story about a successful industry; it is also a story about an industry which makes another major contribution which ranks well above the wealth of the nation or the wealth of the EC. It is an industry which is also very important in protecting health and in alleviating suffering not only in the United Kingdom but also world wide. Thirdly, the pharmaceutical industry has worked under poor patent protection during recent years and is in a much poorer position, for example, than the United States of America and Japan. It is very difficult to draw an exact parallel between the periods of patent protection in different jurisdictions because the patent procedures are different. However, roughly speaking, the USA now has patent protection for pharmaceutical products for 14 years and in Japan the period is 17 years.

It is especially important to note my fourth point when considering the recent statement issued by the Government, that the pharmaceutical industry is highly competitive, both at the research and development level and—I emphasise—at the generic level. Perhaps I may now mention the position of the generic industry. There are one or two companies in that industry which represent a different viewpoint. However, the generic industry as a whole is supportive of these measures because it cannot exist unless and until the research and development industry has produced the products.

What then should the Government be doing? They should certainly not be dithering. Perhaps I may gently suggest that they should adopt the posture of supporting their industries. They should support their research-based industries; they should support the skilled scientists who work in such industries and, above all, they should encourage investment in the United Kingdom. However, what have they done? Well, they have certainly not given any feeling of comfort to the pharmaceutical industry. Worse still they are muddling the issue by including it with National Health Service costs. That is unfair because there are many pharmaceutical products that I could identify to your Lordships which actually save costs because they enable out-patient treatment to be given rather than in-patient treatment.

By the change of atmosphere in the Chamber, it would seem that we are now going through one of those "twilights" which always occur after the television lights have been switched off. I hope that I shall not be speaking to noble Lords in the doom and gloom of the night.

As well as being unfair, the issue of the National Health Service costs is unsound. Indeed it represents —I raised this point when we last debated the matter a year ago—a startling conflict of interest in the Government, acting as they do both for the supplier through the DTI (supposedly supportive of industry) and for the purchaser, through the DHS, in the purchase of products. I have to suggest to your Lordships that this position of both plaintiff and defendant is most unsatisfactory.

It is of course important to control the escalating costs of the National Health Service. There is no argument about that. However, it should be carried out by use of the proper means. It should be effected by the proper operation of the pharmaceutical price regulation scheme, the PPRS, or by other recently introduced means, such as the indicative prescribing scheme.

At this stage of the proceedings I believe that the swiftest and easiest course of action would be for us to look at the statement. I assume that the statement which I have with me is the same one as the noble Lord, Lord Hesketh, will be delivering to the House as his speech at the end of the debate. If that is the case, perhaps I may in anticipation of his speech, and certainly after having inspected the statement, venture to pose a few questions and make a few comments.

Having set out the history on the first page, the statement continues to deal with the National Health Service costs point. I have already commented upon that issue in my submission to the House. As I said, it is unsound for the reasons that I have already advanced. On page 2 the statement reads: In judging the right period of supplementary protection we need to look at the historical evidence".

That is the wrong way round. We are not looking at the past, we are looking at the future. We are looking at an industry which is tackling more and more complex diseases which are most costly to research. The statement continues to say that: the average period of protection for new chemical entities in the 1960s was around 13 years".

It is absolutely splendid for the Government to base their case on the period of patent protection applicable about 30 years ago. The statement continues, presumably in an effort to couple the 1960s with the 1990s, to say: More recent evidence on the products that matter in terms of company profits"—

I should be most interested if the Minister could explain what is meant by that part of the statement— shows a similar overall position, and the level of research and development remains high

I have to point out that that bland statement is in its generality misleading, if not plain wrong. There are very important drugs which have only had a very limited period of patent protection. I refer, for example, to Feldine. I mentioned that drug when I spoke to your Lordships on the matter previously. It is the non-steroidal, anti-inflammatory drug for the treatment of arthritic diseases. However, it only had four years of patent protection. Then there is Zoladex. It is also a very important drug and is used in the treatment of prostate cancer. Its period of patent protection has been reduced to six years. Finally there is Diprivan which is the anaesthetic drug which has special value for day surgery. Indeed, it is one of those drugs which is cost saving for the National Health Service. Its period of patent protection is five years.

The statement goes on to set out the Government's position in the penultimate paragraph. It states that their position is not to go for the 16 years' effective period of patent protection (as proposed by the Commission) but to go for one of 13 years with a maximum extension of five years. I assume that that means that the supplementary protection certificate should not, as in the EC proposal, be a period of 10 years, but that it should be a period of five years. If that is right, I have to say on first blush—and I must admit that I am no mathematician—that I do not believe the Government's mathematics are very good. I say that because if one studies the period of patent protection, on the Government's proposal one finds that during the last six years it progressively goes down from 11 years, to 10 years, to nine years, to eight years, to seven years and finally to six years. On a very elementary mathematical calculation, it seems that the period that the Government are trying to achieve in their proposals does not give an effective patent period of 13 years; it gives rather less.

The most important drugs in this connection are those which are tackling the most difficult diseases. They are the ones which take much more time to pass through the development and licensing processes. Those are the drugs which are the most valuable. Further, it is precisely those drugs which will be prejudiced by the Government's position.

Another factor that your Lordships should bear in mind is that the Government make no recommendation for any change on the EC proposals under which the time runs from the first authorisation in a member state. The licensing procedure takes different periods of time in different member states. I can cite examples where in some member states a drug has been cleared through the licensing process in year one and in another member state exactly the same drug has taken three or four years longer to be cleared. The date of the patent protection under the EC proposals goes back to the first authorisation. If the Government maintain their present position, the only result will be that we shall handicap a major industry. We shall continue to run behind the USA and Japan. The exercise is to catch up, not to overtake patent protection in Japan and the USA.

Above all, your Lordships should take into account that when tackling progressive and degenerative diseases like multiple sclerosis, Alzheimier's disease or schizophrenia, drugs to combat these diseases must have an extended period of development because the disease itself is slow and remedies cannot be discovered and tests verified over a short timeframe. Therefore, drugs for these diseases need more time for research and licensing.

I know from discussions that the Minister has had with members of the industry that he is not unsympathetic. However, we have had very little time in which to consider the full implications of the Government's statement. Can he give the subject careful thought? In the unsatisfactory position in which my fellow speakers and I find ourselves this evening, I reserve the right to return to the subject later in the parliamentary session.

7.12 p.m.

Lord Butterfield

My Lords, I am pleased to follow the noble Lord, Lord Hacking. While I appreciate his remarks about an elephant providing us with a mouse this evening, I should not like anyone in the Chamber to think that I am speaking against the Government. Rather, I hope that I shall be able to speak up for British industry of which the pharmaceutical industry is to me an important part.

I was intrigued when I had the opportunity to read the report of the Select Committee on Science and Technology which concerned innovation in British industry. I think that no one in the Chamber will disagree with the many quotations to be found in the document from all corners of the earth driving home how important innovation is for industries in countries like ours. If one is developing an industry with low labour costs in the Far East, making running shoes, or even motor cars with robots, that is one thing. However, to produce new pharmaceutical compounds one needs a fascinating, complex network of infrastructure. One needs schools producing certificate-holders competent in the sciences, especially the practical sciences: chemistry, physics and biology. Later, one must find graduates competent in physiology and pharmacology as well as medical graduates to help test the new medicines. These are all part of an intriguingly complex network of the division of labour which cannot be produced quickly in developing or recently-emerging countries.

To my mind, one of the important attributes of the pharmaceutical and other similar industries to us as a people is that we start in a fairly highly competitive position. In my notebook there are quotations from people in, for example, Japan making the point that if one is to try to keep ahead in technological industry, one must not let one's lead lessen. It is difficult to get it back. The cutting edge is intellectual creativity. If we lose the people carrying out the cutting-edge work in laboratories or trials, woe betide us! It is like a good jazz band, it takes a long time to get a good jazz band together to go into the future.

I grew up in the Midlands. My school friends were all busy in the competitive industries producing motor cycles and motor cars. When I qualified medically, I did not find it difficult to become interested in the development of new pharmaceutical products. I must declare my experience and background. While I was professor of medicine at Guy's and later at Cambridge, I carried out a large number of trials on new products for the pharmaceutical industry in conjunction with the opportunities offered by the National Health Service. Many of the people who did that work were university research scientists and research doctors. I have been honoured by being chairman for six years of the Medicines Commission which is at the core of the Medicines Act 1971. That Act was concerned with the efficacy and purity of the medicines we produce in this country. It emerged from that terrible catastrophe: thalidomide. That is a catastrophe which has undoubtedly brought the whips and lashes on to the pharmaceutical industry ever since the 1960s. I shall return to that in a moment when I refer to the statement which the noble Lord, Lord Hacking, mentioned.

I am still consulted, I am proud to say, by pharmaceutical companies in the United States and this country, as well as France and Germany. So to some extent I am in the thick of it. I suppose that means that I hold dear the efforts that I find my friends and colleagues pursuing in their attempts to bring better and safer drugs to the patients of whom I used to take care and whom I still look after as a doctor.

Another feature of which I wish to remind the House on the pharmaceutical industry in this country is how often the leading edge work has sprung from British science. I do not need to remind noble Lords about Fleming, Florey and the whole avalanche of antibiotics which have grown up worldwide which came from these islands.

Noble Lords should also know that the molecular biologists who grew out of Cambridge (where I live and work now) provided the pharmaceutical industry worldwide with ways of looking at drug developments and drug actions which were quite unheard of 30 years ago. Perhaps I may go one step further and strike a blow for the physics department at Cambridge because it was the work of the Braggs, father and son, with X-ray crystallography which evolved the means whereby pharmaceutical research laboratories can work out the shape of the surface of the cells of the body. This is truly important.

When I was first a medical student and antibiotics came out, until endocrinology marched through the practice of medicine, from insulin through to the steroids, we dealt all the time with events outside the cells of the body, usually on the surface of the cells. It is much easier working and checking the safety of one's products if one is working outside the cells than working on the problems that face the medical profession, pharmaceutical scientists and research workers at this stage. We are now concerned with trying to get our pharmaceutical products into the cells. In Alzheimer's disease, there are great tangles of molecules. We do not know exactly how they arrived there, nor how we will manage to get rid of them. However, the molecular biologists have shown us what they look like, and there are prospects that we may be able to find compounds which will get into the brain cells and remove them.

AIDS is a fabulously difficult problem because it involves a virus that has not only got into the cell but also into the nucleus of the cell and right into the main chemical of our hereditary processes. It is extremely difficult to envisage ways and means of getting at the virus and eliminating it.

Those matters are running around in my mind. I hope the Minister will not mind if I say that I was rather shocked by the comment in the statement that, The average period of protection for new chemical entities in the 1960s was around 13 years". The thalidomide tragedy occurred in the 1960s. I do not believe that is a good flag to nail to one's mast. It seems to me inevitable that it will take longer to find compounds to get into cells to deal with the new, complicated diseases that the noble Lord, Lord Hacking, referred to in his splendid speech. It is quite clear to me that far from looking back to a period of 13 years, we should be trying to find ways and means to enable these incredibly able young people with their computerised views of holes in the cell through which we can get our new medicines to have a good run, to come up with the kinds of products that we shall need in the future.

I very much hope that somehow the pharmaceutical price regulations scheme, the Department of Health, the pharmaceutical industry and those of us who are still concerned, or will be more concerned —when I said "still" I was thinking of myself—with the treatment of patients, will be brought together to try to find an extension to the fair deals which were struck between price regulation, the pharmaceutical industry and the Department of Health and Social Security as it was when I was chairman of the Medicines Commission. I detect a rather belligerent attitude as regards the desire to ensure that we take account of the considerable cost to the health service of pharmaceuticals. I hope that does not mean that there is a pejorative attitude towards the research and the innovation that the pharmaceutical industry will have to develop.

We have a complicated network which ranges, as I have mentioned, from school children to Nobel prizewinners and from general practitioners to brilliant research investigators who are not all necessarily physicians. I believe this country can strike the right balance here. I hope that ways and means to strike that balance will be achieved. I have just been listening to the fascinating debate on televising the proceedings of the House. In my brief sojourn in the House of Lords I have been fascinated by the will for people to work together for the common good. I sense that will on all sides of the House. I am sure that is the kind of spirit that must be exhibited as regards this complicated problem that lies before us.

Over the weekend I considered what remarks to make tonight. I did not know that we would have the statement. I hope the noble Lord, Lord Hesketh, will not mind if I exercise one or two of my little dreams. I am aware that the NHS costs some £25 billion to run, but an extra £1 billion have been pumped into it for the computerisation of general practice and for the increased management of the health service. I do not wish us to think that we shall be able to export those computers second-hand to help our balance of trade. I am not persuaded either that the management techniques that we appear to be learning from the Americans will be as potentially advantageous financially to the country as well-designed, new pharmaceutical products.

I know there is grave concern on all sides of the House about the cost to the NHS of drugs. I know that care has been taken in balancing that cost through the pharmaceutical price regulatory scheme. I knew the civil servant in the Department of Health and Social Security who was largely responsible for those negotiations. He is almost a legendary umpire. I believe that he has, regrettably, been moved away from that work for the moment and is now involved with the problems of virgin births. That latter matter may be more important in the long run; but I am anxious to do all I can while I am on my feet this evening to encourage fair pricing for the products that we use.

In general terms, I am strongly in favour of government helping British industry. When the time comes for your Lordships to debate the Select Committee report of the noble Viscount, Lord Caldecote, on innovation in industry, I shall listen to the discussions, and I shall be on tiptoe to hear how the debate progresses. There is no doubt that over the past 10 years we have not done terribly well as regards research and development. The figures that the noble Viscount and his colleagues will set down will show how well other countries have done, and how they have, through their governments, increased investment in research and development, whereas Britain is the only major industrial country, according to the Caldecote committee, to devote a diminishing proportion of the gross national product to research and development.

I am for British industry and I am for the pharmaceutical industry. I have a nightmare in which the West Germans, the French, the Americans and the Japanese run our pharmaceutical industry off its legs. I like the pharmaceutical industry as an industry because it is a clean industry. I know it has had a terrible problem with thalidomide; but apart from that dreadful blot on its escutcheon, which legend has it is due to a marketing decision and not to a scientific decision, there is nothing to be deplored. Pharmaceutical plants usually contain a workforce which is half female and half male. Many of the staff are young people. The research workers are full of enthusiasm and are well aware that they have some much tougher problems to solve than was the case in my day when we were puzzling over the best way to manage the problems of people with diabetes.

One can see that the Minister will have to stonewall a little, like Stonewall Jackson, after the release of the Government's statement. We did not realise that the statement was going to be made just before this debate started. I hope the Minister will do all he can to encourage those of us who want to encourage the pharmaceutical industry to look forward not to shrinking but rather to developing some technique for extending the patent protection, particularly when people have hard therapeutic nuts to crack.

7.27 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Lord, Lord Hacking, for raising this matter, even though the debate was strangled at the outset by the fact that a statement was made by the Government in another place this afternoon. I must say straight away from this Dispatch Box that we shall need a certain amount of time to digest the contents of the statement. I am unable this evening to make any considered comments on the matter.

I start with the usual platitude with which the noble Lord, Lord Hacking, will be familiar. We want to strike a reasonable balance between a proper return to the pharmaceutical companies and a proper cost to the National Health Service particularly, and to the users of drugs. That platitude is taken up in the government statement. I am sure that all noble Lords would assent to that platitude. The problem is how such a balance can be struck. I shall not discuss the question of patent protection in any great detail, but there are some peripheral issues on which I wish to consult the Minister. I hope that having given him notice of some of the issues, he will be able to reply to them.

I understand that as the statement was made in another place this afternoon, the Minister cannot elaborate on it other than possibly to expand a phrase into a sentence or to use the rhetorical genius that he sometimes has in making what may appear to be rather vague statements into rather more precise statements. I shall come back to what the noble Lord, Lord Hacking, said on that subject in a moment.

Perhaps I may first ask the Minister what is the legal basis for the proposed European regulation. The Government do not take a view in the statement as to whether the proposed regulation is proper in the sense of whether it should come under Article 100(A) of the Rome treaty, which would place it within the ambit of the single European market and make it subject to a qualified majority rather than unanimity, or whether it should more properly come under Article 101, which would make it a subject for unanimous judgment.

Furthermore, there seems to be some doubt as to whether the whole question of extension of patent protection should not properly be dealt with under an amendment to the European Patent. Convention, which again would make it a matter for proper discussion by individual member states. It is my understanding that a number of member states have already expressed reservations concerning the legal base for the proposed regulation. Indeed, I am informed that the German government have written to the European Patent Office in Munich indicating that they believe that the European Patent Convention is the right way to enact what the Commission has in mind. Of course any such amendment to the convention, if adopted in United Kingdom law, would require full parliamentary discussion and debate. Therefore, there is a question as to whether a regulation such as that proposed by the Commission is the right way to proceed, and indeed whether it is legally the proper way to proceed.

My second question concerns the effect of Directive 87/21 which effectively stopped licensing authorities referring to original patent holders data in giving access to generic producers. Directive 87/21, as your Lordships will recall, was not subject to United Kingdom legislation; it was implemented by administration. That is perfectly proper. I am bound to say that when I was being briefed on this subject I thought that European directives had to be translated into the legislation of the member states. However, it appears that it has to be legislated only if it is contrary to the existing legislation or there is a gap in the existing legislation. It appears that the directive to which I referred, which gives a certain degree of protection to patented products, was not the subject of parliamentary debate or legislation.

The third question that I would put to the Government is the same question as the noble Lord, Lord Hacking, put in his opening speech. Have they got their arithmetic right? Is the protection allegedly afforded, according to the government statement (which I saw only at ten to five this afternoon) what the Government pretend it is? Does it simply restore the situation as it existed in the 1960s? Is the protection for 13 years, 15 years or five years? We have no clear idea. On the basis of a very brief study of the statement I share the doubts of the noble Lord, Lord Hacking, as to whether the arithmetic is right.

I do not want to say more about what the Government have said today because I want to move on to the position in the United States and Japan. It is common ground among all those who deal with the subject that we want to be roughly on all fours with the United States and Japan. The Government have made that quite clear and the noble Lord, Lord Hacking, made it perfectly clear in his opening speech. We would broadly endorse that.

In the United States the legislation is governed by the Waxman-Hatch Act, which resulted from a negotiated compromise between the demands of multinational pharmaceutical companies and the generic sector. In simple terms, it extended the nominal patent life by granting multinationals effective patent protection for the longer of 17 years from the date of the grant of the patent or, for a product approved after 1984, for five years of marketing exclusivity. However, and this is the important point, once the patent has expired all states in the United States allow and several require the pharmacist who dispenses a product to substitute a cheaper generic product, if available, when the patent is expired and if the patented drug has been prescribed by the doctor. The United States Act also encourages generic competition after patent expiry by using abridged application procedures. Therefore, in the United States there is what I would regard as fair patent protection. Nevertheless, there is encouragement for generic manufacturers to get into business once the patent has expired.

In Japan a law permitting patent extension was enacted in 1988, broadly on the same principles as the Waxman-Hatch Act although there are some differences in detail. Monopoly protection is given for the longer of 20 years from approval of the patent or 15 years from publication, whichever is the shorter, or a maximum of five years marketing exclusivity.

I want to get that firmly on the record so that there is no misunderstanding about the situation which exists in the United States and Japan. The point about the United States which I want to stress, without taking up too much of your Lordships' time, is that once a patent has expired there is what is known as generic substitution. Some of the effects of generic substitution can be quite dramatic. There is no doubt that when a generic product is allowed to be prescribed and to be dispensed by the pharmacist it can lead to very substantial cost savings.

In the United Kingdom at the moment there is no such thing as generic substitution except within the hospital system and except on something called the white list which has been in existence since 1985 and which provides government reimbursement only for those drugs on the list all of which are drugs using the generic name. If we look at the difference between the price of the generic product as a percentage of the brand price once the brand is out of patent we come up with the following figures. Where a branded price is 100 the generic price is anything between 57 per cent. at the highest and 5 per cent. at the lowest. I have taken a sample of 12 drugs which have come out of patent and for which there is a generic substitute.

Therefore, assuming that all other things are equal, the savings for the National Health Service would be very considerable if generic substitution were allowed once the patent had expired. The last point that I wish to address is that made very cogently by the noble Lord, Lord Butterfield. We all agree that there should be a proper climate of research. We all agree that there should be proper protection, not just for those people who, as the noble Lord, Lord Hacking, said, are already making profits, but for those people who develop drugs for the important, difficult and complex medical problems to which the noble Lords, Lord Butterfield and Lord Hacking, referred. I am not entirely convinced—I say this directly to the noble Lord, Lord Hacking—that that is a function of how much profit existing pharmaceutical companies are making at the moment on their present products. However, I am convinced by what the noble Lord, Lord Butterfield, said; namely, that it is very much a question of the proper climate for research and that it is no good trying to penny-pinch in academic work in the universities and in trying to cut down on research activity where the results of that activity may never be seen, but, if they are seen, they have dramatic results.

For instance, if we compare the number of new chemical entities marketed over the years with research and development expenditure in the UK pharmaceutical industry in 1987 prices, we find that there has been a steady progression in R and D expenditure. It has gone up substantially between 1960 and 1989, the last year for which I have any data. New chemical entities were very high in the 1960s, fairly high in the 1970s, high in the early 1980s, went down in 1984–85 and came up again in 1988–89. It is not a straight correlation. It is important—this is where I join with the noble Lord, Lord Butterfield —to make sure that there is an adequate availability of trained research staff, that the academic infrastructure is properly maintained, that taxation incentives for research are provided by government, that salary levels for academics working together with industry are adequate and that there is the proper availability of sophisticated equipment.

I have taken up too much of your Lordships' time, particularly because I have been unable for various reasons to address the proper problem that the noble Lord, Lord Hacking, raised in his Question as we have been faced by a government statement to which I have been unable to give a considered response. Nevertheless, I hope that the noble Lord, Lord Hesketh, will accept that there is more to this than simple patent protection. Patent protection is certainly part of it, but the health of a proper pharmaceutical industry, be it branded, patented or generic, depends very much on the quality of the research staff and the infrastructure of academic research which we need to encourage. I hope that the Minister will reinforce that message this evening.

7.44 p.m.

The Minister of State, Department of Trade and Industry (Lord Hesketh)

My Lords, I am sure that we are all grateful to the noble Lord, Lord Hacking, for introducing his Unstarred Question. First, may I apologise to your Lordships' House for the sudden element of confusion that entered into affairs before we reached the noble Lord's Question and at the same time perhaps I may try to assure the noble Lord, Lord Williams, that, although not wishing to extend the range of the debate, I shall endeavour not to be repetitive.

It is fair to say that all of us in the House this evening miss the presence of the late Lord Lloyd of Kilgerran who, I am sure, would have made a great contribution to tonight's debate.

The Commission's proposal for a Council regulation is aimed at improving the protection of innovation in the pharmaceutical sector. The regulation would do that by extending the period of protection afforded to patented medicinal products for both human and veterinary use. In giving the Government's response, we support the motivation behind the Commission's proposal and we fully recognise the importance of patent protection for pharmaceuticals. Medicines are costly to develop and often easy to copy. The innovator must have an opportunity to secure a fair return for his or her invention. The phrase patent term granted under the European Patent Convention and the national laws of the United Kingdom and most other Community states is 20 years from the date of filing for the application for a patent. In practice, the patent term for pharmaceuticals is eroded because of the time that is needed for companies to carry out safety testing and to secure the necessary authorisation from the licensing authorities. That reduces the effective patent life of approved medicinal products.

We have already provided some improvements in protection. The 1977 Patents Act increased the term of protection for patents in all fields from 16 to 20 years, recognising that inventions generally were becoming more complicated and taking longer to commercialise. In the field of pharmaceuticals particularly we protect the data which the research-based companies produce at great expense in order to obtain a product licence. It is not available to others until the originator has had at least 10 years' exclusive marketing.

Nevertheless, the question is whether the period of protected marketing life is eroding to the point where the industry cannot obtain a return commensurate with the substantial research and development costs. Both the United States and Japan have accepted the need to guard against further erosion and already provide for the extension of patent term for pharmaceutical products.

Against this background, the Commission proposes additional protection for medicinal products which have taken a long time to bring to the market. The additional protection that it proposes is in the form of a certificate referred to as a supplementary protection certificate. The effect of the certificate would be to extend the period of protection to compensate for the patent life lost in obtaining marketing approval. The Commission proposes that the period of extra protection should be equal to the amount of patent life lost minus four years, subject to a maximum extension of 10 years. That arithmetic sounds complicated, but the broad result is that most medicinal products would enjoy a total of 16 years of useful protection.

It may be easiest if I show that by an example. If it had taken a company 12 years to get a European licence after the original patent date, it would currently have a further eight years of patent protection. Under the Commission's proposal, it would receive a supplementary certificate of protection of a further eight years to bring the protected life up to 16 years. In practice, products receiving their first European marketing approval within 14 years of their patent date would receive 16 years' protection.

We fully accept that companies should be protected from so severe an erosion of their market position as to undermine a proper return on their investment. We therefore support a safeguard against unlimited erosion of protected marketing life. There is no dispute on the principle. We also want to see a level playing field—on all fours, as the noble Lord, Lord Williams, said—as between the Community, the United States and Japan where, as I have said, there is already provision for patent term extension. But the Commission's proposal also needs to be considered in the wider context of the pharmaceutical industry as a whole. The market of exclusivity which goes with an extended period of protection would delay the entry of competitors into the market. Because the patent and hence the proposed certificate restrict what competitors may do to prepare for marketing, it may be some time after expiry of protection before competitors are really in business.

Lord Hacking

My Lords, I would ask my noble friend to help the House on one particular point. When he speaks of competitors, is he referring to delaying other competitors in the research and development industry, or is the competition to which the noble Lord is referring with the generic industry?

Lord Hesketh

My Lords, I was referring to the generic industry.

This could result in the cost of drugs being higher than it would otherwise be. We believe we need to strike the right balance between a proper reward for the innovator and the encouragement of a competitive market. We must also take into account the considerable cost of pharmaceuticals to the National Health Service which amounts to some £3 billion annually. Here, the present Pharmaceutical Price Regulation Scheme operates to control the profits that pharmaceutical companies may make and counters the effects of higher prices. For veterinary medicines the position is different; they are bought and paid for by farmers and pet owners and their prices are wholly determined by the market.

The question of precisely what the period of protection should be is complicated. In the United States where the patent term is 17 years from the date of grant, when calculating the extension account is taken of all of the time taken processing the product licence application but only half the development time leading to the application. The extension is also limited to a maximum of five years, and the maximum effective life of an extended patent is 14 years. In addition, there are special provisions to allow the generic companies to enter the market rapidly as soon as that period is over.

In Japan, the effective life of a patent starts at publication. The patent term is 15 years from grant or 20 years from the date of application, whichever is the shorter. They also allow a maximum extension of five years, but the maximum effective life of an extended patent is 15 years. A recent press report from Japan on a number of products receiving extended patent protection since 1988 showed an average protected life of just under 11 years and an average extension of fewer than four years. Consequently, exact comparisons are not possible owing to the different procedures for granting patents and calculating the patent terms in both the United States and Japan.

Nevertheless, it is apparent that the Commission's proposal which would give a maximum extension of 10 years and a maximum effective life of an extended patent of five years would be more generous than the United States or Japanese system. It goes beyond what was needed to create a level playing field. In judging the right period of extension we need to look at the historical evidence of effective patent life. The average period of protection for new chemical entities in the 1960s was around 13 years. More recent evidence on the products that matter in terms of company profits shows a similar overall position. However, we accept there is evidence of a further decline in the past decade for all products. Notwithstanding that, the level of research and development remains high in the present situation.

Taking all those factors into account, we have concluded it would be reasonable to introduce a safeguard such that, provided the overall patent term is not unduly extended, industry will be able to count on having 13 years of protected life rather than the 16 inherent in the Commission's proposal. We also consider that the maximum extension should be five years rather than 10. Those figures would be more in line with the United States' 14 and five years and Japan's 15 and five years—provisions which would prevent further erosion of the present effective patent term.

Therefore, during negotiations we shall be seeking to amend the Commission's proposal to limit the extension to five years. Within that extension we shall also seek to ensure a 13-year protected life of those products benefiting from an extension.

Finally, we think there is a case for reducing the period of extra protection if the proprietor has not been diligent in obtaining marketing approval. In the United States law already contains such a provision. Discussions on the Brussels proposals are continuing. I recognise that the formula that I have indicated may not be the only way of achieving the right balance between safeguarding the proper interests of the industry and the taxpayer in maintaining competition in the market.

Before concluding, perhaps I may address two or three points of a technical nature which were raised. The noble Lord, Lord Butterfield, quite rightly referred to the important work of the pharmaceutical industry and the relationship between industry and academia. The Government recognises the complexity of research and the difficulty of dealing with some of the diseases to which the noble Lord, Lord Butterfield, referred. That is why we support the principle of patent protection and why the PPRS is continuing to take significant account of companies' research costs when controlling the price and profits of today's medicines.

The noble Lord, Lord Hacking, at the very start of his words this evening referred to what he considered to be the UK's lukewarm approach. I think it important to repeat that the United Kingdom Government accept the concept of protection against severe erosion. But the circumstances in this country are different from elsewhere. It may be relevant that both France and Italy have had more directly controlled prices for products which need to secure agreement for reimbursement purposes and limited competition from generic products once patent protection has ended.

The noble Lords, Lord Hacking and Lord Williams, referred to the evidence of patent term erosion. The available evidence produces slightly different answers depending on whether one is looking at all new introductions or those which turn out to be the most important in terms of sales and profits. Data suggest that the industry achieved about 13 years' average effective life for all new chemical entities in the '60s and that this has declined to between eight and nine years. However, looking at successful products, Professor Redwood showed an average effective life of patented products in the top 100 of around 13 years in 1980 and also in 1988.

The noble Lord, Lord Williams, referred to Council Directive 87/21. That gives 10 year marketing exclusivity while not full protection. It delays the ability of competitors to use the original company's research data when applying for a product licence. Indeed, it is part of a series of actions which has improved the protection of intellectual property rights. The existence of such protection is a factor in considering our position. The question is how much further one should go on top of the protection already achieved. We believe that our approach strikes a reasonable balance between the proper protection of the industry's interest and the maintenance of competition from generic producers.

The noble Lord, Lord Williams, asked whether there should be an amendment to the European Patent Convention. We think that strictly the proposal does not need an amendment to the convention, but we would certainly support an amendment to it if it put the matter beyond doubt.

The noble Lord also asked why the instrument being made was under Article 100(A). There have already been laws on supplementary protection certificates enacted in France and Italy. The European initiative is needed to avoid unharmonised laws growing up around Europe, and it therefore falls within the powers conferred by Article 100(A).

What is the position of the European discussion? It is important to remember that the proposal is subject to a qualified majority. France and Italy have supported the proposal and introduced their own national legislation, to which I have just referred. Germany has accepted it in principle but raised a number of questions in relation to the European Patent Convention, to which the noble Lord, Lord Williams, also referred. The need for transitional arrangements has suggested a rather different form of protection from that proposed by the Commission. On the other hand, Spain has argued that the Commission has no competence in this area. Discussions in Brussels are continuing. and we should not expect a final decision or position before the end of this year. The United Kingdom Government will continue to take account of those discussions in Europe.

Lord Hacking

My Lords, before the Minister sits down, perhaps I may remind him that in my speech I asked him whether he would keep this matter under review. I should like particularly to ask him, in view of his comments at the end about the process through the Commission with the qualified majority and the difficulties that can be perceived, whether Her Majesty's Government, having decided upon their position on this issue, are also willing to introduce their own legislation in this country pending the final resolution of that EC process.

I ask that question because of the matters on which I addressed your Lordships earlier; namely, the late arrival of the United Kingdom Government and the EC to deal with this patent protection, problem when the United States has had such protection since about 1984 and the Japanese have had it effectively since about 1986. I wonder whether the Minister can help me on that point.

Lord Hesketh

My Lords, it is perfectly true to say that future legislation is a matter discussed through the usual channels rather than on an ad hoc basis from the Dispatch Box.

House adjourned at eight o'clock.