Pharmaceutical Industry (Hansard, 28 April 1977)

§ Mr. Ennals

The House will be aware that over the past three years the Government have been discussing with the pharmaceutical industry the cost of sales promotion, undesirable sales promotion practices and, more recently, the future operation of the Voluntary Price Regulation Scheme which controls the profits of companies working in the industry.

Despite the strong opposition of the industry, I announced last July that I would be disallowing as a cost for VPRS purposes any sales promotion expenditure this year in excess of 12 per cent. of sales. In 1974 sales promotion amounted to 14 per cent. of sales. I also announced that I intended to reduce the percentage I would accept by 1979 to 10 per cent. At the same time I said that I was considering exempting from this limit advertisements in certain types of journal. Objection has been made to this proposed discrimination and I have now decided that all journals should be treated alike. I will be discussing the implication of this with the industry. I hope that this restriction of sales promotion expenditure will lead to less glossy literature falling on doctors' doormats. I believe that doctors will welcome a more manageable post bag.

I am now able to announce that I have reached agreement with the pharmaceutical industry on the no less important matter of the quality of sales promotion material. It is now agreed with the industry that all advertisements except for a limited class of abbreviated advertisements will have to contain a list of specific information including the basic cost of the preparation to the NHS. Full advertisements will have to be in line with data sheets, which will in future have to be approved by the licensing authority. Data sheets will have to be placed before the doctor in any discussion with a company representative. This was recommended by the Sainsbury Committee in 1968 and this recommendation will now be implemented.

It is also agreed that samples other than those required to enable a doctor to recognise a preparation will be supplied only when a doctor has requested them in writing. And even then the cost of such samples will not be allowed against profits. Similarly, any gifts to doctors will be disallowed in calculating profits. The same would apply to any 392W hospitality given to doctors other than modest hospitality at independently organised medical symposia.

All advertising material will have to be approved by a doctor nominated by the firm, who will be personally responsible for certifying that it is correct and factual. Regulations will be made to prohibit the use of misleading graphs, govern the presentation of multi-page advertisements and prevent the misuse of such words as "safe". The industry has agreed to establish machinery to make a sample check of advertisements as they appear for conformity with the new and stronger code of practice. Two independent doctors will join the code of practice committee which adjudicates on alleged breaches of the code.

The new agreement will be reinforced by legal controls in new regulations made under the Medicines Act about which I will shortly be consulting the professions. This new agreement will much more effectively protect doctors from exposure to misleading advertisements or undesirable sales practices.

Parallel to this discussion of sales promotion, I have been having discussions with the industry on certain aspects of the Voluntary Price Regulation Scheme. Under the existing scheme, the average profitability of the industry has been steadily reduced. In 1969 the return on capital as shown in returns made to my Department was 21 per cent. By 1975 it had dropped to 15 per cent. This is no more than the average for British industry as a whole. Drug prices in Britain are now in general lower than for any other country for which we have information. No longer can firms get away with making exorbitant profits at the expense of the NHS.

Pharmaceutical firms now fully participate in providing the necessary information on their costs and profits at the end of each financial year. The main difficulty which has arisen is that excessive profits are not revealed until after the end of the year when they have been made. This can lead to difficult and protracted negotiations.

The changes in the prices regulation scheme which I have agreed with the industry include a new requirement for each company to submit a financial forecast at the beginning of each year, so that 393W I have advanced warning of unacceptably high profits. I will therefore be able to discuss corrective changes before, and not only after, the profits are actually made. I am satisfied that this new agreement strengthens my powers to ensure that the profits made in the industry are fair and reasonable. The scheme will in future be known as the Pharmaceutical Price Regulation Scheme.

The industry has represented to me that in these circumstances the original Clause 49 in the Patents Bill, which provides for the compulsory licensing of pharmaceutical products, is now unnecessary. It is argued that firms are being discouraged from investing in this country through fear that other firms may use this clause to obtain access to their patents. What is at issue in the new circumstances is primarily the distribution of profits between firms. I will, of course, still have powers under the new bill to use any patent for the service of the Crown. I am satisfied that the agreement which I have reached with the industry and the further important power already in the Bill make it unnecessary for the Government to propose the reinstatement of the compulsory licensing provision which was deleted in another place.

Now that the outstanding issues have been settled, I look forward to a significant improvement in relations between the Government and this very important innovative industry, whose continued success is vital for the National Health Service and for the economy of the country.