Oral evidence: Price increase for generic medications, HC 1184

Oral evidence, 4 July 2018.

Witnesses

Mark Burdon, Warwick Smith and Professor Karim Meeran.

Chair

Good afternoon and welcome to the Public Accounts Committee on Wednesday 4 July—an auspicious day in the United States and an auspicious day, hopefully, in this room, as we want to get some understanding of how NHS spending on generic medicines has an impact on primary care and particularly of what happened at the end of last year, when the price of some drugs rose dramatically, causing real challenges for pharmacies in providing patients with what they needed, but also putting CCGs into a cumulative deficit of some £250 million by the end of the financial year. We have been puzzling through what happened and we want now to delve into why it happened, but not that so much as looking forward to how it could be prevented in the future. We recognise that it is not just what happens in the UK that has an impact, but the global market. I am delighted to welcome our first witnesses—a pre-panel, really, to help us to get a bit of background and understanding before we question the Department. Professor Karim Meeran is a professor of endocrinology and deputy director of medical education at Imperial College London. A very warm welcome to you, Professor. Mark Burdon is the regional representative for the north-east and Cumbria on the Pharmaceutical Services Negotiating Committee, and Warwick Smith is director general of the British Generic Manufacturers Association. You all bring an interesting perspective, and I want to kick off with you, Mr Smith. Can you explain to us how generic manufacturers decide which drugs they are going to manufacture and how they change their minds—when they might shift production from one drug to another? What are the influences in that?

Warwick Smith

It is a complex process, but I will try to keep it short. Originator pharmaceutical companies develop a new drug. They get a patent on that for up to 20 years—more typically around 15. Once that patent expires, generic manufacturers can enter the market for the same product. Work needs to be done before they can launch the product. They need to develop it, to go through a regulatory process to demonstrate that it is equivalent to the originator product, and to get it authorised by the MHRA. Then they can launch the product on the market. The factors that they will take into account, in deciding whether to go through that process and make that investment of time and money, will depend on issues such as the size of the market, the price of the product and the relative complexity or simplicity of it. That can involve the manufacturing process or the so-called pharmacovigilance process of monitoring it in use. It can involve the clarity of the patents around the product, because some products will have 60 or 70 patents, and if you’re not sure that you have got all that right, you might find yourself in court. For the majority of products—unbranded generics, if we stick to that broader category—the arrangement that we have with the Department of Health and Social Care is that we can launch at a price lower than the originator’s price. Typically, for most products, competition will kick in quite quickly, and the market price of those products will fall, typically by 90%, up to 95%. So the argument around the economics and public policy of this is that you in effect pay off the investment for research into the new product over that 15-year patent period. Competition then comes in and you create the headroom for the next one. Why would companies pull out? The market changes a lot. You might find there are different usage patterns, so what has been a volume product becomes a niche product. Prices will change with competition. If companies cannot make a profit on a product, they will look to pull out of it. Some companies will market themselves on having a full portfolio, so will stay there forever. Again, our arrangements with the Department of Health recognise that for the majority of unbranded generics—there are exceptions—the market operates as a commodity market, on supply and demand, so frankly, if the price goes too low, some manufacturers will pull out, the price will go up and they will then come back into the market. There is research, which we had done some 20 years ago, comparing the prices of unbranded generics with those of commodities—copper and so on—and the shape of the graph is exactly the same. The amplitude of generic prices is a bit higher, but the shape of the graph is exactly the same as for typical commodities.

Chair

Just to give us a flavour of how quickly a company could decide not to produce a drug, if you have put in the investment to manufacture the drug as it becomes a generic and you decide to pull out because the price has dropped, how quickly, typically, would a company then be able to go back into that manufacturing? There are obviously industrial processes that have to be gone through.

Warwick Smith

Typically, you would be looking at six months.

Chair

Wow. So if a company pulls out and the price goes up, and that contributes to the price going up on the market, it would take six months potentially to add some correction—

Warwick Smith

Absolutely. The complexity is really one of supply chain, so beginning with active ingredients for the product, which may or may not be made by the finished-form manufacturer. Typically, these days, the main supply of active ingredient is from China and India. You need contracts with those manufacturers to find the active ingredient. You then need time on your own production line, or to contract out to another production line. It is those processes that take the time to enter or re-enter a market, which means of course that manufacturers do not take an easy decision to leave, because they recognise that the coming back has its pains as well.

Chair

That is why I asked the question.

Professor Meeran

Although you say six months, it tends to be about two years, because if you want to launch the same drug, you first of all have to prove it is the same to the MHRA and you then need to store it for a period to prove that it has got a shelf-life, so by the time it comes to market it is about two years. So if the price starts to rise, the company putting the price up has a two-year window at least before there will be any competition. That is one of the reasons why the competition is not working—because of the two-year window. If I were a new company thinking, “I can make some money on that in two years”, I know that in two years’ time they will cut the price so I will not even enter the market because I am going to lose my investment. I think that is a problem.

Warwick Smith

That two or three-year period is the sort of period that a manufacturer that does not have the product takes to enter the market; the six months is taken by a manufacturer that has a licence and has been in the market, but wishes to re-enter.

Chair

Either way, it is quite an issue. What do you think, Warwick Smith, caused the spike in some of the prices going up so dramatically at the end of last year?

Warwick Smith

I think the main reason—most people are clear on this, and I think it was in the NAO Report—was that three manufacturers, two of them scale manufacturers, in effect ceased manufacture because of a regulatory intervention that caused significant shortages in the market. It is worth recording thanks to the entire supply chain, not just manufacturers, because, in a relatively short period of time—I know at the coalface it feels longer—we have got back to the stage at which the work being done by the Department shows that there are no real shortages anymore. The market might be less fluid than it was, but the gap that was created seems to have been filled.

Chair

The graph in figure 4 shows the increase. As you said, there was a particular issue because of the regulatory element, but do you think that that could be replicated with other issues, such as pure competition? A company might decide to supply another country, for example, rather than the UK market. Or was it just a conflation of the normal market processes and that particular regulatory intervention?

Warwick Smith

I am on record as saying that we had a perfect storm, and one hopes that perfect storms do not recur frequently. I am too old to say that it will never happen or to give you a timescale, but regulatory action against four companies in total—two of our members who were scale manufacturers—is very, very unusual, so I would be surprised to see this recurring quickly. I have been in this role for about 20 years, and I have only seen this sort of disruption twice in that period.

Chair

Turning to Mr Burdon, you represent or are negotiating for pharmacies on prices. How did that impact on your members? Same question as I asked Warwick Smith: do you foresee this happening again?

Mark Burdon

I am a practising community pharmacist myself—I own a small group of pharmacies in the north-east—and I have not observed and am not hearing reports of patients going without medicines for any length of time, or indeed of patient harm. Much of that is down to the efforts of community pharmacists, who are applying workarounds—for example, the rationing and staging of supplies, or suggesting therapeutic switches to prescribers. Pharmacists of course have a duty to supply, which means that they cannot turn away prescriptions. However, our members—our pharmacists—are dispensing medicines often not knowing the price that they will be reimbursed for that medicine. Added to that is the financial pressure due to the Government funding cuts that came into force over a year ago. It is becoming untenable. The workload involved in sourcing medicines and communicating with GPs, patients and hospital consultants is vast. I was contacted by the Sunderland local pharmaceutical committee, which represents pharmacists in that area, and in their letter they say that, “Significant resources and time was spent by community pharmacy contractors to source stock and ensure that patients received their medicines.” We pick up thousands of reports through our office—the PSNC. What has helped us in our work as pharmacists has been the relationship we have with GPs. We contact them a lot. Our GP colleagues have been extremely helpful in helping to work with us and bring about solutions.

Chair

Does that mean someone will contact a GP and say, “We don’t have this drug. Can you prescribe something different?”? Is it as basic as that?

Mark Burdon

Yes. A very basic example would be when we cannot get the 20mg presentation of a particular drug, but we can get the 10mg one, so we agree that we will supply two of the 10mg tablets. On the other hand, it could be contacting an ophthalmologist when a particular eye drop is unavailable for an alternative.

Chair

So where you had shortages, your members were having to do that.

Mark Burdon

Yes, on a daily basis.

Chair

I will ask Bridget Phillipson to come in in a minute, partly because you have a geographical overlap, but we had some evidence from Mike Hewitson, who is a pharmacist, and he claimed that stock shortages were sometimes caused by rumours by wholesalers that resulted in a self-fulfilling prophecy, as pharmacists ordered several months’ stock at a time. Is that a scenario you recognise?

Mark Burdon

Yes, rumours can go about, and they create a situation where people panic-buy. That is to be expected.

Chair

Do you have any role in your body to make sure that you send out messages to people not to do that?

Mark Burdon

It is not really in our remit.

Bridget Phillipson

In terms of the impact on pharmacies, what was the response of patients to some of those challenges, in terms of the interactions they had in community pharmacies with your members?

Mark Burdon

Some of them were incredulous. I remember telling a particular patient that I could not get a certain drug, and the response was something along the lines of, “Well, you’re not much of a pharmacist if you can’t get it,” but generally, patients understood the situation. I can recall one case where a breast cancer drug was unavailable. We were able to get small supplies of it, so we rationed the product. We spoke to the patient and the patient’s carer and explained that we could give a week’s worth at a time, but we made every effort to fulfil the next supply, but of course that caused a level of anxiety and worry for patients.

Bridget Phillipson

We have seen coverage about the potential move to online pharmacies and the prospect of market entrants. What assessment have you made of the likely impact of that on community pharmacies? Is it an inevitable consequence of where we are? How can community pharmacies respond to that?

Mark Burdon

PSNC represents all community pharmacies in the country, including some of those distance pharmacies. Our position is that as long as the competitive market remains, that is in the best interests of patients and the NHS. We support the broad range of different providers. For instance, a distance supplier may be advantageous or convenient for certain patients.

Bridget Phillipson

In terms of where you see things next year, what is the situation likely to be then? Will any additional changes need to have been made?

Mark Burdon

If there was an easy solution, we would have found it. PSNC has a constant interaction with the Department of Health and Social Care on the operation and the improvements to the price concession system. Progress is not easy because of the complexity associated with this particular mechanism, and the number of stakeholders involved, including the NHS. We hope we can prevent a recurrence of the situation we saw in 2017, but it has proven to be really tricky. Despite our best efforts, we have not found a solution that works. Just to add to that, this is not just a UK problem; it is a worldwide issue. When I talk to colleagues in North America and Australasia, they tell me they suffer similar problems with stock shortages. They have not been able to find a satisfactory solution either.

Anne Marie Morris

Professor Meeran, I am going to ask you for your view in two respects—first, as a practising clinician and, secondly, as an academic who has written quite a bit about generic drug pricing and the need for reform. Can we start with your role as a clinician? Can you explain, for the benefit of the Committee, what the impact on the patient is of generics and the way we manage them in this country, and the specific situation we found ourselves in in 2017, with the hike in prices and drug shortages?

Professor Meeran

It is surprising that you say 2017, because this has been going on since about 2010 with different drugs. I know it has really come to a head, but it is not a new problem. It happened with phenytoin in 2012, when Pfizer, who were selling it for £2.80 for a month’s supply, pulled out. Another company, Flynn Pharma, took it on and put the price up to £67 a month from £2, and the NHS spend went up from £2 million to £50 million. We had been doing that, and then in 2016 the Competition and Markets Authority recognised that there was clearly a problem and fined them. Three weeks ago, the CMA lost an appeal, which essentially means it is okay. Competition clearly is not working if the CMA cannot intervene. In terms of patients, if you are an epileptic, phenytoin is a drug that you need. There are alternatives, but the things about patients with epilepsy is that they are stable, and if you are forced to switch brand or drug, you might destabilise someone’s well-controlled epilepsy. That is the kind of thing that worries patients if a drug suddenly disappears. Of course there are lots of other anti-epileptic drugs we could use, but if you are stable on one drug, it is not right to force a change. We have to do that sometimes because the drug is not available or the price goes up. There was an interval between the low price and the high price when it was not available. What happens is that one company pulls out, then there is a little panic as the supply disappears, then after a short interval we get another supply at a higher price. That is a big issue for patients.

Anne Marie Morris

How many patients are affected by this, typically?

Professor Meeran

In the case of phenytoin, it is a huge number.

Anne Marie Morris

Huge is?

Professor Meeran

In our hospital, there will be easily 200 patients. I don’t know how that would expand out nationally. If the budget has gone from £2 million to £50 million, that gives you a feeling for how much it is used. The drug I work with is a steroid called hydrocortisone, which is essential for patients who have got no adrenal glands.

Chair

Figure 8 on page 24 covers some of this stuff.

Professor Meeran

Hydrocortisone was sold by Merck for about £1 a month. They pulled out in 2008, and then by 2010 it was £50 a month from Auden Mckenzie. I then started writing things in journals, because it was my drug—we were using a lot of it. It got a lot of publicity in various newspapers, but despite that the price kept on going up. The company was not affected at all by the negative press, and there was no competition at all.

Anne Marie Morris

In terms of your patients, were you able to have any advance warning about what might be going on? Was there any general communication between those of you in endocrinology? Could you see it coming? Was there anything from the Department of Health?

Professor Meeran

What is really fascinating is that I was unaware of the price rise, so I kept prescribing it. My pharmacy had an overspend, and I was unaware of it. I became aware of it when we had a patient who was not NHS-entitled and was brought in as an emergency. I said to her, “You need some hydrocortisone,” and she couldn’t afford it because it was £100 a month. I was really shocked. I said, “There’s an error down there in the pharmacy,” but, no, it was £100 for a month’s supply, rather than £1. I then looked into it, and that is when I started doing all this work.

Anne Marie Morris

Do you think there is an argument that we are not well prepared for these sorts of crises, and that there needs to be better communication, whether it is from the pharmaceutical piece to the practitioners, or whether it is from the manufacturers or NHS England. Somebody, somewhere must have a clue that there is going to be a problem well in advance of it hitting you. You are trying to prescribe something to the patient, which means that the pharmacy has to prescribe something at an abominable price.

Professor Meeran

That is absolutely right. It is happening at the moment with another drug, called Pregnyl, which is now not available.

Chair

What is Pregnyl?

Professor Meeran

Pregnyl is an injection that men with infertility need, if they have got pituitary failure, to introduce spermatogenesis so that they can have children. That drug, HCG, or Pregnyl, as it is called, disappeared about four months ago. It is just not available. There is no licensed alternative, so we are now being forced to use an unlicensed preparation—we have got permission; we are importing it from Italy—called Gonasi, which is not the same drug and is much more expensive. That is an issue, and that is happening now.

Chair

So despite that shortage, no manufacturer is stepping up to do that.

Professor Meeran

No. There is no one else who is making any Pregnyl.

Anne Marie Morris

Do you think, in terms of advance warning, that is better coming from the pharmaceutical association or from the manufacturers, or from NHS England? Who is likely to have the information first?

Professor Meeran

I suppose the manufacturers. I phoned up the company that make Pregnyl and they said they have stopped making it as a commercial decision. It was a planned stop, and they are not planning to restart it. I hope someone else comes into the market and makes it.

Chair

And presumably, Mr Smith, they do not have to tell anyone when they stop making it. They just decide to do that; or, ethically, do they alert people like Professor Meeran and colleagues?

Warwick Smith

Manufacturers do need to notify the regulator if they are withdrawing a product from the market.

Chair

So there is a communication gap there.

Warwick Smith

And we have what have just stopped being voluntary arrangements and become statutory arrangements with the Department of Health and Social Care that we are required to notify the Department if we have a shortage, or impending shortage, if we can see it coming ourselves, of products.

Anne Marie Morris

Mr Smith, I know this is a new regulation under the Health Service Medical Supplies (Costs) Act 2017, which has only been in force—

Chair

It is not coming in yet—it is going to become mandatory.

Anne Marie Morris

It is now—1 July. So in a sense it is quite hard for you to work out exactly what the impact will be, but, as I understand it, the obligation is six months’ notice. I suspect that for some drugs, given what we have heard about the time to get another business to do it, that is really not enough. Also, as far as I can see, there is not much by way of penalty if you do not say to the NHS “I am stopping production”. I guess my question to you is what on earth the NHS is supposed to do. Presumably it has some idea—I would like to think—of the key drugs we must have. What can it do, given its global market of supply and demand, to make sure that drugs that are crucial for Professor Meeran and his patients are actually going to be available?

Warwick Smith

I think it is important we distinguish between different circumstances that lead to these occurrences; and, to an extent, we have conflated a number. So for the vast majority of generics competition keeps the market price down at below £1, so competition does work. There have been some products where the competition authorities are investigating and, forgive me, while those investigations are under way I cannot really comment on those, but there can be reasons for significant price increases. There might not be—I do not know. We need to see the outcome of those investigations. I do not know the circumstances of the last product that Professor Meeran mentioned. What I would say is that most shortages—again, for the majority, I am talking here about shortages that happen rather than decisions to withdraw from the market—occur because of third party events. So smaller shortages were dealt with in the past: Mumbai port went on strike for a week. There were no supplies of active ingredients coming from India. That created a small shortage. Typically, our own quality mechanisms show that we are unhappy with a batch, so that batch is junked, and we remanufacture. So small shortages, if I can put it that way, occur without any warning for manufacturers, for anyone, as much as pharmacy or patients. Just in passing, I do not really think it matters, the size of the market; I think if we fail to serve one patient that is a failure, and I do not think we should say “How many patients are being served by this medicine, or not?” Our job is to produce high-value, high-quality products for patients. If we fail in any one of those three points, frankly we have failed.

Anne Marie Morris

But then there is a challenge, isn’t there, because it is a global market and you are the UK manufacturers association? There is a whole global production system producing all these medicines, and you have to look at what they produce that we use, and what you produce and we use, in terms of meeting the need. What can the Government do, or what advice can it give you, to try to ensure that we are well aware of what UK plc’s patients need, whether it is manufactured by your members or by others, so that you, as the UK manufacturers association, can do something about this and Professor Meeran and his patients are not left short?

Warwick Smith

Most manufacturing these days is done at least on a regional basis, if not on a global basis. Most of my members are part of global or European businesses; they are not UK businesses. The Chair touched in her introduction on the point that being part of that global market means that UK subsidiaries have to get supplies from a European operation. Typically, companies will manage that by looking at the level of demand. If there is a shortage, frankly, price in a particular market will come into play. There is a direct relationship between prices and the degree of shortages. Countries that have higher prices tend to get fewer shortages. That is partly to do with resilience, and it is partly due to distribution decisions. That is very different from a manufacturer taking a decision to withdraw from a market. That would typically be, as Professor Meeran said, where they cannot get a price that makes the manufacture of a particular product economically sustainable. That can be discussed with the authorities. If it is a branded product and price is controlled, it can be discussed with the authorities and arrangements can be made. If it is an unbranded generic, we can put the price up. That does lead to criticism, and I am aware of some companies that have decided to withdraw from the market rather than take that criticism.

Mark Burdon

To add to that, from a pharmacy point of view, I know that we have some of the very cheapest generic medicines in the world in the UK. These are high-quality medicines. From our perspective as pharmacists dispensing these medicines, the system generally works very well. It is an effective and efficient market. We dispense over 1 billion prescription items a year, with cost savings, we estimate, in the region of over £10 billion over the last decade. We believe it is important that we protect this competitive market where we can. From a public health perspective, there are benefits. Millions of patients are provided with vital medicines in this country that they could not get if they were very expensive. For example, millions of people are on statins—treatments to reduce high blood pressure. The system is delivering large-scale improvements in population health. When I qualified as a pharmacist in 2000, a statin was £30 a box. It is now less than £1. Consequently, the people who were previously treated with statins typically had a particularly severe type of hyperlipidaemia. Now we can treat vast swathes of the population using effective medicines for a very, very low cost. Overall, it is a functional market.

Chair

But if the cost went so low that manufacturers did not stay in the market, could there be a false economy, in a sense?

Mark Burdon

It is important to reach a balance between medicines being too expensive and being so cheap that suppliers are driven away from the UK market.

Chair

Professor Meeran, you have looked into what could be done. Obviously, as Anne Marie Morris highlighted, there have been changes in the law to make manufacturers tell the Government when something is being reduced, but the sanctions are not necessarily there. What do you think would make things better? The Government cannot completely manage this market—it is global. What would make it better?

Professor Meeran

When I qualified as a doctor in 1980-something, a lot of hospitals made a lot of their own drugs. This was a long time before the MHRA were as involved as they are now. The WHO have made a list of essential drugs for any healthcare system. Hydrocortisone and phenytoin are on that list. Drugs like that should be very cheap. There is no research and development in generic drugs, because they have been researched and developed; they now just have to be manufactured and sold. The cost of those drugs should be a lot lower. I know you say the mean cost in the UK is low, but there are too many exceptions. If you have 10 drugs, of which nine cost £1 and one costs £600, it is the £600 drug that will have the major effect on our mean spend. All of the drugs on that list should be very cheap to make. We should look at whether we can make it within the health service and have a body that makes it, and not to make a loss but to break even. We do not actually know the cost, and it is difficult to work out how much it is. We import stuff from China and India. Why don’t we make it in the UK and sell it and use the NHS as a bulk buyer rather than go through wholesalers, because the wholesalers are splitting the NHS? Essentially, if I prescribe an expensive drug, the company often offers the hospital discount rates if I prescribe drug x rather than drug y, but when I go to the general practice to continue the drug, the price is much higher. If the NHS did all the manufacturing of just those essential drugs—not new drugs or developing new things but just that small list—I think we could save money.

Anne Marie Morris

Professor Meeran, you are not the first person to suggest that to me. It is about manufacturing our own or it is about bulk buying our own where it is absolutely critical. Physically, how would we do it? Where could we do that and how should we fund it?

Professor Meeran

The funding won’t change. Instead of the hospitals buying it from another company, they would buy it, let us say, from NHS plc, and NHS plc is very large. It is on many, many sites. We could, for example, have one trust that started to make hydrocortisone and another trust that started to make phenytoin, and just the essential drugs on the WHO list. We could have such a supplier that was not driven by the market and would not lose money. Let us say Guy’s and St Thomas’ were making hydrocortisone for the country, for the NHS, and for all the GPs and hospitals, then all of the other trusts in the UK would purchase it at the cost price from that trust. Then another trust might make phenytoin. We would have a system across the NHS that would be very secure, because they would give us plenty of—

Chair

Have you looked at what the cost would be?

Professor Meeran

Others have done that. I think for the New England Journal someone has read what I have written and looked at the American market, and they have worked out that it would cost $200,000 per drug to start, if it was generic, without any investment in research and development, because these are drugs that have been researched and developed.

Chair

I think Great Ormond Street produces its own patient nutrition, whereas other hospitals buy that in privately. That is one specific example. Do you know of any hospitals that produce certain things, and do you know what the relative costs are?

Professor Meeran

There are drugs such as magnesium glycerophosphate that we get from St Bart’s. They make it locally. It is very cheap to make. Magnesium is something that is difficult to make in that particular format and not well absorbed.

Chair

So they make it and they have had to absorb the set-up costs themselves.

Professor Meeran

They seem to have. They basically sell it to all of us at a very low cost.

Anne Marie Morris

What about the ingredients? Will there be any challenges in trying to get the ingredients?

Professor Meeran

That might be a problem because people seem to import a lot of them from overseas. But we should think about investing and making them ourselves. Many drugs are also made in the UK and many are made in Italy, or elsewhere in Europe, and imported.

Anne Marie Morris

So we have the capacity, the ability and the knowledge to make this a reality. It is just about the Government’s will to make it happen.

Professor Meeran

I think so. The Wellcome Foundation was originally a drug company, Burroughs Wellcome, and they used to make drugs for the NHS. They have disappeared now, but the Wellcome Trust gives lots of money to research. That is an example where it can happen.

Anne Marie Morris

Is this something that in any event we ought to look at doing more of, given that with Brexit we still don’t know the future and currently many of our drugs are manufactured and distributed across the sea in other parts of Europe?

Professor Meeran

I think it would be very wise to have a UK source entirely sourced, manufactured and sold within the NHS.

Chair

Would you assume that the NHS would have to buy it from that source? Mr Smith is representing people who would also be trying to compete with the price that the NHS might come up with.

Professor Meeran

Competition should work. I am not against competition. I would be happy if they could make it and sell it at a price cheaper than the NHS. I don’t think anyone should be forced to buy it.

Chair

The NHS could decide to pull out of the market. This is my point. If you are going to enter a market as the NHS, you will either have a monopoly purchaser—some of the NHS bodies—or you will be competing with Mr Smith’s private sector members who have slightly different motives. Your motive is to provide medicine, but you know what I mean.

Professor Meeran

I think the overall effect will be that drug prices will fall, which I think will be good for the taxpayer.

Chair

Mr Smith, do you want to comment on what you have heard?

Warwick Smith

I have one correction and a couple of points. Actually, manufacturers do have to undertake research and development to bring the product to the market. It will take 12 to 18 months, and £2 million to £5 million, rather than the longer period that originators producing a new chemical entity will need to commit, but there is a significant investment at that point, when they come to the market for the first time. The bottom line here is that by common consent—all the various publications and research documents that you read—we have if not the cheapest then among the cheapest generic drugs in Europe. The market depends quite a lot on active ingredients coming from India and China in particular, and there is a particular concern about the lack of alternative supply. There are many finished-form manufacturers operating in the UK—

Chair

It seems that we have got a market here. Whether or not Professor Meeran’s idea takes root, you have still got all the challenges that are outlined, which seem to be outside the control of the NHS, or indeed any purchaser.

Caroline Flint

What you were saying, Professor Meeran, was very interesting, but if it is such a good idea, why has it not got more traction?

Professor Meeran

That is a very good question. I think we have too much faith in competition, and competition is definitely not working, because you can see in the case of hydrocortisone that there is a company in west London that has launched a supply of hydrocortisone for £9 a month and it is not being bought because of various regulatory issues. Auden Mckenzie’s price of £100 a month has come down to £32 a month, but the company selling it for £9 a month is not selling any because—well, I can’t explain it. I can’t explain why the wholesalers are not buying the cheapest products.

Caroline Flint

Have you got an answer, Mr Burdon?

Mark Burdon

Yes. Just to provide some clarity, the competition in the market on hydrocortisone itself has worked and the price has dropped over the last—

Professor Meeran

Not to £9, though. I know that company is making it for £9, and it is not selling any. It is very good—I have seen it on the internet. They have published; they have launched. It was very well planned. Lloyds and Boots are only buying it from the other manufacturers at £32, which is the tariff, when they could buy it for £9 and save a lot of money for us.

Chair

Mr Burdon, have you got pharmacies tying themselves into long-term purchasing deals with some manufacturers?

Mark Burdon

No, the system works by a level of retained margin within the system of £800 million. We have put a lot of detail into our submission to the Committee, which explains things. It would take quite a long time to go through it all—

Chair

No, we have got the details here.

Mark Burdon

Essentially, the competitive market and the diligent purchasing by community pharmacy is what drives the price down over an extended period of time. I think that we have to take the long-term view and accept that occasionally there will be blips here and there, but overall in the long term the competitive market should work, and it largely does work, to protect the interests of the taxpayer.

Caroline Flint

I am not sure whether you answered Professor Meeran’s question—it is quite interesting to watch you discuss it among yourselves, actually. He asked why this particular drug was not being bought at a lower price—

Mark Burdon

I am. In my case, I am buying it at a lower price and these prices are then monitored and measured and taken into account when the total drugs spend is calculated. The downward pressure is happening. Professor Meeran’s experience is one thing, but my experience of purchasing and procuring these medicines is that we are buying the cheaper medicine.

Professor Meeran

Can I just come back on that?

Chair

Yes, Professor, and then I will bring Mr Smith in.

Professor Meeran

Charing Cross Hospital gets all its drugs through Lloyds Pharmacy; that is its wholesaler. I went to our pharmacy and asked, “Can you buy this cheaper drug?” They replied, “Well, Lloyds is only selling us—only supplying us—the more expensive option, so that is the one we are going to get. We can’t get the one made by GENESIS Pharma.” They are going through the wholesalers, who are controlling it.

Chair

I am impressed, Professor Meeran, that you actually know the price of drugs, because most of us will know doctors—I speak as someone from a family of doctors—who very often, certainly in the old days and certainly even now in hospitals, would not know the price of a drug that they are prescribing. Do you think there is a gap there, so that if more clinicians were challenging this and saying there are alternatives, and looking and pressurising, as you are now doing, would that help, as one of the aspects of this very complex picture?

Professor Meeran

I think it would be very helpful. I only know this because I have looked into this area—not just for today; I have been working on it. You are right. I only discovered it when the patient told me that they couldn’t afford it, as I described earlier.

Chair

Do you think there should be prices on everything that is supplied in an NHS hospital, even to NHS patients?

Professor Meeran

That has been suggested. I have heard it being suggested in Parliament, in fact.

Chair

A consultant told me that in America, because of the way it is funded—it wouldn’t be the same for us—everything has a barcode so you know exactly what a patient is costing. That would be anathema in a health service that is free at the point of delivery, in a sense, but would something like that, which enabled you to record what the costs are and make judgments about whether a drug is the right one, help?

Professor Meeran

I think you need to be a bit careful. It is important that we know the costs, but patients all believe that good things aren’t cheap and cheap things aren’t good. That is an important thing to bear in mind before you publish the prices too widely.

Chair

That is just for clinicians to know. I am not asking you to cast aspersions on your fellow clinicians, but do you think that in a typical hospital most consultants at a high-up level, when they are prescribing or guiding junior doctors and nurses on what to administer to patients, would know the costs? Would they have any idea?

Professor Meeran

I am absolutely sure that they do not. On my ward rounds, I regularly ask people. We look things up when we prescribe them, and last week I discovered to my horror that dexamethasone had gone up fiftyfold. I was unaware of that, but it happened four years ago. We don’t know the drug prices we are paying every day.

Caroline Flint

I am interested in the clinical side. Perhaps you can’t answer about GPs, but how much do clinicians choose drugs because the drug rep has been to see them and said, “This is a good drug. We want you to use it”? How much transparency is needed to ensure that people are not sadly influenced by a particularly tempting promotion? I am trying to choose my words carefully.

Mark Burdon

Can I answer that one, please? From a primary care point of view, clinical commissioning groups monitor the prescribing of medicines. Very detailed information is made available to GPs. In my experience as a community pharmacist, I frequently point out to GPs when something is expensive, and so does the CCG. It has IT solutions that pop up and tell them to prescribe something that is a bit cheaper. Perhaps the problem in secondary care is rather different from primary care, but a huge amount of data is made available to us, and it is used to drive down costs.

Caroline Flint

Do you believe that, compared with, say, clinicians working in hospital, GPs are more aware of the cost of every drug they are prescribing?

Mark Burdon

GPs are very aware of the cost, yes.

Caroline Flint

And is there enough transparency at a local level so that other GPs, other organisations or even MPs can look across the piece and see the difference between one practice and another on particular types of medication for common ailments?

Mark Burdon

Yes, there is data—I can write to you, Chair, if you want the web link to it. A lot of information is publicly available. I practise in primary care, so I can’t comment on the hospital sector, but I am guessing that there are also systems in place to monitor efficient prescribing in secondary care.

Warwick Smith

The two systems are very separate. I was going to make a similar point. In secondary care there is a tendering system by NHS England, and the tender award prices are made available on their website. It is easy for clinicians to see, but I agree that, in primary care, GPs are more responsive. To make one further point on the recent discussion, I am slightly frustrated, because I can’t talk about the products that are before the competition authorities.

Chair

We have got three examples of recent ones.

Warwick Smith

We would never defend what has been called price gouging—in other words, putting prices up for no good reason. I can’t say any more than that until those cases are resolved. If you want an idea of how the market works, we looked at the actual sales prices of the majority of products before, during and after the recent turbulence. The average factory gate price—what my members are actually charging—at the beginning of last year was 93p. It went to a peak of £1.13 at the height of the disturbance, and it is now back to 99p. So you can see that competition does kick in when that turbulence goes away. There will always be outliers. The competition authorities have always been there. Our arrangements with the Department of Health on pricing have always agreed that that backstop is there. What we have now with the new legislation is the ability for the Department to get better information and interrogate individual product prices more readily and effectively than they have done before without automatically going to the backstop of the CMA. I think that is very important.

Chair

I will have a question for you all on data in a moment, before we finish, because we do need to move on, but Ms Phillipson is next.

Bridget Phillipson

I want to turn again to the issue of GPs. Mr Burdon, you have talked about prescribing, but equally we hear about patients being given repeat prescriptions and ending up with relatively large quantities of medication that they do not really require. What more needs to be done to bear down on that? When patients need their medication reviewing on a regular basis, where does the responsibility for that rest?

Mark Burdon

Ultimately it is the GP who prescribes the medicine, but the community pharmacist can have input in a number of ways, such as through the medicines use review service, which has been operating since 2005. There is also the new medicine service, which came in more recently. Our position is that community pharmacy could do more to help patients to understand the use of the medicines that they take and how those medicines can be used best.

Anne Marie Morris

Mr Smith, I am interested in what you say, because the new regulations that require this transparency came in only at the beginning of this month. I am not convinced, from all that I have heard, whether it involves hospital doctors or GPs, that the information that you talk about is readily available. My question, however, is this. Even if these new regulations make that information available, it is limited, because it comes in blocks. That is one thing. Secondly, as far as I can see, to make your members divulge it, there really isn’t much of a penalty. Thirdly, unless there is an obligation to buy cheapest, all the information in the world is not very useful, particularly when you have things that are off tariff—specials and some of the generics.

Warwick Smith

I can’t really talk about specials, because they are not within my remit. My members, with one or two exceptions, have already been providing the data voluntarily to the Department of Health, which is how they calculate the category M tariff reimbursement price.

Anne Marie Morris

But that is fixed over a period of time. It is not as if there is a general flow of information so that a prescriber knows.

Warwick Smith

Well, that information flows four times a year; it is quarterly. There are provisions in our current voluntary arrangements to make that monthly or even weekly if things are happening in the market that make that a more sensible way of behaving. My members have about 85% of the market. We have been providing that data already. We welcome the new powers, because they will bring into that mix companies that have not been providing the data voluntarily. I think that is important. I think the Department will now be able to track, almost, individual products throughout the supply chain, so they can see what is happening at the different stages, which is important. They will be able to see if product is going “missing” within the supply chain, which is important. The bottom line comes down essentially to two facts. Overall, we have the most competitive market in Europe and the lowest prices. For outliers, we needed better systems to deal with them. We thought the Department had the powers; they felt they didn’t. They have now reassured themselves that they have those powers, and we can use those going forward, so I think you will find that the sorts of issues we are talking about, for the very small number of products that have gone to the CMA, will be able to be resolved more easily, administratively, by the Department, and if they can’t be, they can still go to the CMA. So it is a much more efficient way of dealing with these outliers, and in a way that does not prevent manufacturers from increasing prices to stay in the market if that is the choice; that can then be assessed.

Chair

Well, there is a difference between increasing a price by 10p and increasing it five-hundredfold or in fact several-thousandfold, as we saw in some cases. Professor Karim Meeran has highlighted what he thinks could be one of the solutions. You might want to add something else. We have the Government witnesses in front of us next; what couple of things do you think Government could do to make sure this does not happen again? Can it do anything, or is it powerless in this global market that we have discussed?

Professor Meeran

We need to look at the competition. I don’t think the sector would say, “There will always be outliers.” If you have 800 drugs for £1 and one cost £1,000, the mean is still £1, but the outlier vastly increases the total budget, so the outliers are the problem. I don’t think you can say that we have got the best market in the world on average.

Chair

What do you think that the Government can do about that? We have heard your treatise on NHS manufacturing. I think Moorfields—there are other examples—does that as well. Is there anything else that Government could do?

Professor Meeran

We seriously need to think about making it in the UK and in the NHS.

Chair

And clinicians knowing the price would be helpful.

Professor Meeran

Make sure we are aware of the price, yes.

Mark Burdon

The current system obviously on the whole works; it provides a competitive market that delivers some of the cheapest medicines in the world, so I think we have to protect that in the longer term. From a pharmacy perspective, my colleagues are saying that they need better access to information and more timely pricing data. Further honing of the system we have at the moment is absolutely necessary, but that work is already under way between PSNC and the Department.

Warwick Smith

Transparency—shining a light on everything that is going on, so if something is going wrong, we can do something about it. That is the most important thing. Overall, the UK is a net exporter of medicines but a net importer of generic medicines, and that is simply because we cannot make them cheaply enough here to compete with prices that come out of other markets, be they central Europe, India or China. I’m afraid that that is just the commercial reality, unless there is some public policy decision to change that.

Chair

So there is no provider of last resort in the UK if the market dries up in India, China or wherever.

Warwick Smith

We have two scale manufacturing plants in the UK, one of which is not functioning at the moment. They do export, but we are living in a global market.

Chair

Interesting though it has been, I am not sure that we are all entirely reassured, but our Government witnesses are yet to come. I thank you, gentlemen, for your time. The transcript of this element of the hearing, and the next, will be on the website in the next couple of days, uncorrected. We will obviously send you a copy of our report, which is now likely to be after the summer recess, I’m afraid, because of timings. You are welcome to stay to hear the Government witnesses if you wish, but I ask you to vacate the table. Thank you. Examination of witnesses

Witnesses

Sir Chris Wormald, Steve Oldfield, Dr Bruce Warner and Dr Ian Hudson.

Chair

Good afternoon, and welcome back. We resume our hearing on NHS spending on generic medicines in primary care, on the back of an investigation by the National Audit Office into shortages and therefore price hikes towards the end of 2017. We heard from our earlier witnesses that that is not the only time this has happened. The NHS is just one player in what is a global, largely private-sector drugs market. We are going to get into the main session, but first I shall ask Caroline Flint to ask you, Sir Chris, about something to do with GPs, but I shall introduce the witnesses first. From my left to right, we have Steve Oldfield, the chief commercial officer at the Department of Health and Social Care; Sir Chris Wormald, the permanent secretary at the Department of Health and Social Care; Ian Hudson, the chief executive of the Medicines and Healthcare products Regulatory Agency, which we were hearing about earlier, and Dr Bruce Warner, who is the deputy chief pharmaceutical officer for NHS England. Welcome to you.

Caroline Flint

Sir Chris, there have been some newspaper reports about GPs telling patients that they can only raise one issue when seeing their GP; if they have another matter, they have to organise another appointment. That has happened to two relatives of mine in different parts of England. Are you aware of that?

Sir Chris Wormald

I can’t say I particularly was. It would be an issue mainly for NHS England to look at—I am quite pleased to go away and to look into those matters, but it is not one that I have come briefed to talk about.

Caroline Flint

Would it concern you were that practice starting to emerge in primary care?

Sir Chris Wormald

It would be a matter for NHS England, and the—

Caroline Flint

I appreciate that, but would it cause you concern?

Sir Chris Wormald

I am sure the criterion that NHS England would apply is whether there is an effect on patient care, and whether patients are damaged by that. That is how they come at those issues. I suspect they would need to look at the individual policies of those places and conclude whether they had appropriately balanced those patient care questions. My NHS England friend might want to comment, but that is how NHS England come at it. They always come at it on a case-by-case basis rather than generally. I will take the issue away and get you an answer.

Chair

Perhaps, Dr Warner, you will take it back to NHS England as well—unless you feel you have something to add. It is not quite in your purview, I fear.

Dr Warner

Yes, I will take that away and come back to you.

Anne Marie Morris

Sir Chris, we deal with a global market when we deal with generics. I am curious why we are so dependent on generics. We are more dependent in this country than many other countries are. We have heard about how expensive generics are to produce. That is why we are getting them from India and so on. Given where we are going—I am not going to move to Brexit yet—with all our manufacturing and distribution happening in continental Europe, given that we seem to love generics and we use more than anybody else, and given that 81% of drugs used in primary care are generics, isn’t there an argument for saying that we should be doing something about trying to manufacture them here?

Sir Chris Wormald

The starting point here is that the fact we have high use of generics is a very good thing, not a bad thing. Generics are considerably cheaper than branded drugs. We are regularly praised in international reports by the OECD and others for our success in generic substitution, which saves us considerable money. We certainly do not see the fact that generics are widely used as any sort of a problem.

Anne Marie Morris

You say they are cheaper, but we have just been hearing about the challenges with prices.

Sir Chris Wormald

Generics—the OECD has reported on this—account for about 84% of the volume of drugs in the UK and 35% of the cost. Branded medicines are the remaining 20% of the volume and 65% of the cost. That shows you the price differential between generics and branded drugs. There are two things here. Generics are almost always considerably cheaper than branded drugs. There is a separate question about whether they are as cheap as they should be in all circumstances, which came out in your pre-panel, but generics are on average massively cheaper.

Chair

There is cheap, there is medium, and there is ridiculously expensive. It is the 1,000% increases that—

Sir Chris Wormald

Yes. We have to distinguish between two things here. The first, which I thought came out quite clearly in your pre-panel, is the state of the overall market, which on average delivers us very cheap and stable drugs compared with our European colleagues. Indeed, our spend on generics in the year of fluctuations went down, not up. There is then the question—you discussed this with the pre-panel, too—of individual drugs, where you can see very big fluctuations, some of which are not explicable, for the reasons you mentioned, and some of which clearly need regulatory and other action. Our view of this, which will come out throughout the hearing, is that the market as a whole works very well in our favour, but you can see some very strange things in individual drugs. That is one of the reasons we wanted legislation to do the various things that the new legislation does.

Chair

And it is why we are having this hearing. It is those outliers that worry us.

Sir Chris Wormald

And it is why we are having this hearing. But you can have—

Anne Marie Morris

You still haven’t told me, Sir Chris, why we don’t manufacture more of them here.

Sir Chris Wormald

There are two things there: a lot of the ingredients come from abroad anyway—we have to import, simply because the individual ingredients do not exist here—and manufacturing in the UK is more expensive. You would have more control over your supply, but, just as in pretty much every other manufacturing market on the planet, it can clearly be produced cheaper in other places. So yes, you could have a policy of more domestic supply, but you would still have to import—you would still be locked into the global market, because that is where the ingredients come from—and you would have higher manufacturing costs. The idea that there may be some drugs that you do want to manufacture within the UK is clearly a possibility, but you certainly would not be getting them cheaper by manufacturing them in a high-priced western economy, as opposed to delivering the world market.

Anne Marie Morris

But is not the issue of continuity equally important? We heard from the preliminary panel what happens to patients who do not get these drugs.

Sir Chris Wormald

As I say, I thought your discussion with the panel brought out the balancing act that we do in this very clearly. We both want stability of supply and we want a good price for the taxpayer. We are continuously balancing those things. The concessionary prices is pointed to in the report. The reason we give a concessionary price is because we are worried about supply. We do take very defensive decisions, in that we don’t risk patient harm when we set a concessionary price. In terms of whether domestic supply helps you, it was actually NHRA on domestic suppliers that was part of the issue, so it certainly does not prevent those sorts of things. I think there is a second argument about domestic supply, but it doesn’t answer the question you raised.

Chair

We can come on to the separate argument.

Anne Marie Morris

Mr Hudson, you must have a better eye than almost anybody, in terms of the medicines that we buy, because you are licensing the ones that we manufacture here. Tell me if I have this wrong, but I presume that you also have to approve drugs, et cetera, that are coming into the UK, unless it is an EU one and therefore pre-approved. How do you take some sort of overview, to ensure that we get best value for money and security of supply in light of the emerging health trends? You must be as aware of that as anybody.

Dr Hudson

Our role within the agency is to ensure that medicines are of an appropriate standard of quality, safety and efficacy. Our role then is to ensure that products that are sold on the UK market are of appropriate standards, wherever they come from. We will license on behalf of the UK—unless, as you say, some will go through the centralised European procedure—the medicines that companies want to sell in the UK. Our role is not only in the initial licensing, but through the whole lifecycle of the product, from inspection and manufacturing licenses, through the supply chain and in wholesale dealers as well. We will work with the manufacturers to ensure that they comply, take action if necessary and, if there are problems, work closely with the Department in relation to managing supply issues, such that we can take a risk-based approach to do our upmost to ensure continuity of supply where there is a problem—on a risk basis.

Anne Marie Morris

But it is a very reactive process. Mr Wormald, is it therefore you, within the Department of Health and Social Care, who, given the current predicted state of our health economy, keeps an eye on which drugs we need and which ones we cannot do without, so that the Department of Health and Social Care can ensure that through Dr Hudson’s team we are importing, producing and manufacturing what we need, and there is no risk?

Sir Chris Wormald

Not quite. We have the oversight role that you describe, but that is not how we carry it out. This is a free-market system. In terms of what is needed, it is driven by the individual decisions of doctors in prescribing and of NHS England in its policies. What we do is look at the market, take information about where there are shortages, we give concessionary prices where necessary, we have conversations with suppliers and manufacturers where necessary, and we seek to balance the market. We have a market oversight role. What we don’t do is—

Chair

When it went badly wrong, did you see that coming?

Sir Chris Wormald

I will be clear about this, because we had identified in advance that there was a weakness in our information gathering and transparency powers, which your previous witnesses picked up on. That was why we had asked Parliament to pass the legislation that it did, to strengthen, perhaps—

Chair

So in short, you did not know that you were going to have this problem.

Sir Chris Wormald

I can tell you exactly what we knew. We began to see price rises in the summer of ’17, but at that point we could not tell the cause and therefore what the correct remedies were. Information flows, which at that point were voluntary, not statutory, came in in the autumn. We responded to the original problem through our normal mechanism of concessionary prices and allowing people to raise the price, and that did succeed in the sense that, as I think was reported, we do not have any cases of patient harm that arose from this. I think that is still true, Bruce: we have not identified any. So in that sense the system worked. It was very expensive. Our information flows came in in the autumn—therefore with really quite a delay—and at that point we could identify what the problems were and how they could be remedied. Most of that action was taken by Mr Oldfield, who is really fitted to do this. Then you see the number of concessions go down. So the problem was not that we created patient harm. The problem was that we spent quite a lot of money.

Chair

Yes, that is one of the reasons we are here to discuss it; but there is always the risk of patient harm.

Sir Chris Wormald

This is the point of why we asked Parliament for new powers: we ought in future to be able to use our new information powers to spot those trends and then investigate what is causing them considerably quicker. So can we guarantee that this issue won’t arise again? No, but can we say we ought to be able to spot it—

Anne Marie Morris

We have divided this hearing into three areas, and I will get on to the new regulation, but not after this little piece—it is going to be at the end. So I am dying to have a go, because I am not sure I agree that it is the solution to all our problems, but let me leave that.

Sir Chris Wormald

I am not saying it is the solution to all our problems, but I think it is helpful.

Anne Marie Morris

Would you consider this concept of manufacturing here in the UK those products which, absolutely, we need to ensure continuity?

Sir Chris Wormald

I don’t think there is any ideology in this. We will consider any solution. However, as I say, the issue here was cost, not patient harm.

Chair

This time. I think Ms Morris is highlighting—quite rightly—that there is a risk.

Sir Chris Wormald

This is the issue I am drawing. If your issue is cost then manufacturing in the UK is not going to help you; it is in fact going to make the situation more difficult, but—

Chair

But Ms Morris is highlighting it is both, isn’t it?

Sir Chris Wormald

I can much more see the issue around security of supply when you control that supply but, as I said before, given that you are still reliant on the world market to provide you with the actual ingredients that make the drug, that you happen put the drug together in the UK does not actually build in a huge amount more security, if the basic ingredient is still coming from India, or China, or wherever.

Chair

We are going to need a lot shorter answers, I am afraid—well, I am not afraid: we will. We have read the Report.

Sir Chris Wormald

Well, I’m sorry, but this is actually a complex market.

Chair

Can we just be clear: the problem was that the system failed for various reasons, and one of the challenges is what grip the NHS, the Department of Health, have on the market.

Sir Chris Wormald

No, I am sorry, but I don’t agree.

Chair

It failed in financial terms so it has cost CCGs £250 million at your own estimate, the Department’s estimate.

Sir Chris Wormald

No, that is not correct.

Chair

Well, sorry, that is an agreed Report and that is the figure that you have agreed.

Sir Chris Wormald

No. The cost of the drugs on which we gave concessionary prices went up by the amounts that were quoted by the National Audit Office, and we agree with all that. The actual cost of generic drugs to the taxpayer fell in that year by about 4%, so the overall market delivered for the taxpayer about the same volume of generic drugs at a cheaper price in that year.

Chair

So where is the £250 million that is—

Sir Chris Wormald

That is the cost of the concessions that were made on the specific drugs on which we gave concessions. We made a greater saving in the rest of the generic market than we lost in that, which is not to say we do not want to do better on the individual drugs, but the actual cost went down from, I think, about £3.5 billion to about £3.4 billion in that year. This is the distinction I am drawing—

Chair

I am going to ask Robert White, of the NAO, just to clarify, so we can be absolutely clear on these numbers.

Robert White

I think it is fair to say the budgetary pressure was felt most acutely within the local commissioning groups.

Sir Chris Wormald

Yes. Now, the budgetary pressure is the difference between what they forecast and what they had to spend. The total cost to the taxpayer went down by 4%.

Chair

That becomes the nub of it—what they forecast and what they spent, and they couldn’t be in control. CCGs individually cannot be in control of these prices. This is where you, Mr Oldfield, at the Department of Health, have a very important role to play to try to mitigate the risks, which is what we are really discussing today. Mr Oldfield, the price went up. The drugs just about continued thanks to some clever creative work by pharmacies and GPs, particularly, on the ground; but there was a risk to patients, though it didn’t materialise in any patient harm in the end. That risk was still there, and then the cost of these particular drugs went up. It sends out a bit of a signal that the NHS will keep paying for drugs, doesn’t it? It has to. How did you use your commercial clout as commercial director to try to ensure that the taxpayer was not being screwed for ridiculously high fees for some of these drugs that we have seen go up enormously in price?

Steve Oldfield

If I may just reiterate—

Chair

If you are reiterating, you can just say you agree with him.

Steve Oldfield

—what Chris said about the system not failing, but succeeding, I want to make it very clear that it did succeed, because we do not have any cases of patient harm and that fine balance between price and supply—

Chair

So the priority for you was patient harm, obviously. But in financial terms, do you feel it succeeded or failed?

Steve Oldfield

In financial terms, it succeeded in the sense that, as an overall generics drug budget or drug cost for the financial year, as Chris has said, the overall cost of the same number of drugs went down by 4%. As an overall system—as has been proven over the long term—the way the market is structured in the UK returns economic value to the taxpayer and ensures that patients get the drugs they need in the vast majority of cases.

Chair

Do you think it is acceptable that some of these drugs went up to the prices they rose to?

Steve Oldfield

That goes back to the conversation that was brought out very clearly by the Professor in the pre-panel. There will always be individual cases that require further scrutiny. I know you want to come on to the data later, but it is true to say that with the new powers in future we will have greater opportunity to delve into those individual cases. I want to reiterate that those are individual cases. The vast majority of the system works well.

Sir Chris Wormald

Just to be clear, we are not disagreeing with you on the individual cases. What we are saying is that we have an overall market, but—

Chair

We get that. You are putting a good spin on what is a challenging problem, and a problem that we are worried is not going to go away overnight, because even though the NHS is a big purchaser, they are only 2% to 3% of the market. Mr Oldfield, are the odds stacked against even the mighty Department of Health and Social Care and the NHS negotiating on those prices, because of the way the system is structured?

Steve Oldfield

No, because the market is structured in such a way that competition drives the prices down.

Chair

In this case, it drove it the other way for some drugs.

Steve Oldfield

No, it did not. It used the mechanism that is in place to allow prices to rise at a time when supply is under threat and therefore patient safety is under threat. You could see it potentially as a safety valve for exactly those cases: as we heard earlier, the vast majority of the problems last year were caused by regulatory interventions because of companies that had various issues with their manufacturing sites no longer being able to produce the drugs.

Chair

We know why it happened.

Steve Oldfield

I think that is brought out in the Report.

Anne Marie Morris

Let’s move on to the impacts of Brexit. Dr Hudson, we have talked before about where most of the manufacturing and distribution happens, and you have talked about our need to import most of our generics. Could you give me your view as to what we need to do to put ourselves in a good position to deal with the implications of Brexit, given that we do not yet know what the Brexit deal will be?

Dr Hudson

The Government have outlined their preferred position on Brexit, which is continued collaboration with the European medicines regulatory network, associate membership of the—

Anne Marie Morris

But we do not know whether that will happen; if we assume that that might not happen, what would you do if it did not? We need to know what would happen if there is no deal and no agreement and we do not have the consistency. That is what I am trying to understand. What contingency plans do you have in place?

Dr Hudson

The preferred position is that, but the agency is working on contingency for the different scenarios of a no deal, recognising that the preferred position is that continued collaboration. Indeed, in the Government’s announcing their preferred position the criteria were that patients should not be disadvantaged and products should be able to come to market, and indeed the UK should continue to play a leading role in public health globally.

Anne Marie Morris

Those are lovely principles, but what are you going to do?

Dr Hudson

We will ensure that we are as pragmatic as we possibly can be in ensuring that patients get supply, and continue to get supply, of good-quality medicines.

Anne Marie Morris

How are you going to do that?

Dr Hudson

We will work closely with the Department to ensure that the regulation is fit for purpose—but remember that this is a global industry, as we have already established, so we already have mechanisms for importation of drugs from all over the world. We will do our utmost to use the flexibilities that are there in the system to enable regulation—

Chair

Do you have licence to suspend any regulatory powers in order to allow, for example, a manufacturer to continue to manufacture a drug even if there is a concern, to make sure that there is no gap? Can you do that?

Dr Hudson

I’m not sure why we would need to suspend any regulatory powers. We have mechanisms within the regulation that allow us to allow manufacturing to continue.

Chair

That is what I meant.

Dr Hudson

If I look at some of the examples that are quoted as causing some of the problems last year, we will always take a risk-based approach in terms of our regulatory action, weighing up the risk of harm to the supply and risk of harm to patients, versus the risk of not having the product.

Sir Chris Wormald

We may be eliding two issues. There are clearly questions around our exit from the EU about how we do regulation, but of course the vast majority of our drugs, as we just discussed, are not made in the European Union anyway. When we are importing drugs from India and China that does not actually affect it. You have to decide how you are going to do your regulation. The Government have set out their preferred position. We would clearly have to do that ourselves, but where you ultimately get the drugs from is not affected. The thing that has been debated in the last couple of days, and which Simon Stevens discussed on “Marr” and at the Health Committee yesterday, is the practicals of an awful lot of our drugs coming through Dover. The contingency planning that he described, which the Department is leading, is about that practical bit. It is not the regulatory bit that Dr Hudson was describing. There are those two different themes.

Chair

But both have a role to play.

Anne Marie Morris

What we are saying, Dr Hudson, is that we import a number of our generics, which is what we are talking about today, from India, China and also, clearly, from Europe. What contingency plans have you made to import generics—as that is what we are here today to discuss—from other countries if, for the sake of argument, there are tariffs, it is not affordable, and so we are looking at other markets? What contingency plans have you made for that?

Dr Hudson

We are willing and open to work with the Department or the NHS when they are purchasing drugs. We do not purchase the drugs, but we have a regulatory regime that is permissive in the event of a clinical need. It is proportionate and ensures that patient need is taken into account. We have the regulatory tools to allow us to continue to import drugs if necessary.

Anne Marie Morris

That is very good. Sir Chris, given that you are in charge of making sure that we are still able to get the generics that we need, what plans have you made to think about importing what we need from other countries outside the EU?

Sir Chris Wormald

As Simon Stevens set out, we are in discussions with our colleagues in the NHS, in the industry and in the rest of Government about appropriate contingencies for disruption of supply. I will not tell you exactly what the plan is for a number of reasons—partly because we are still in those discussions, partly because there is no single answer and partly for various commercial reasons. It is clear that in any system where you are looking at how you would mitigate a disruption of supply, you would look at some of the issues that you have raised. Where are you importing from and how? What is your level of domestic supply? Crucially, what is your level of buffer stock, and what are the alternative treatments for anything that you are short of? Our plans would involve all those things. I am not going to set out for you today exactly the balance, but that is what we are—

Anne Marie Morris

I appreciate that you are not going to set it all out. Where are you going to get the data from?

Sir Chris Wormald

As you would expect, we collect a lot of data about where drugs are made and which drugs are crucial, and not just for leaving-the-European-Union reasons. We have done more of that, so we have an analysis of what we think we would need. The crucial thing that that shows is that, as I said earlier, there is no one answer. For example, you would look at a completely different solution for a drug or an isotope with a very short shelf-life than for one where you can have a large buffer stock. That is why there is not one answer. Unfortunately, you have to go drug by drug, and this is what we are doing with our NHS colleagues and others, asking, if there was to be a disruption of supply for any reason—I think it was mentioned in the pre-hearing that there was a disruption of supply because of a strike in a port in India—what is our response? That work is ongoing.

Anne Marie Morris

So you are ready, so that in March 2019 you will have a complete plan for where the drugs we need will come from.

Sir Chris Wormald

Given that it is a market and given the number of uncertainties that you have pointed to, I will not issue any guarantees about what will happen, but we think we will have appropriate—

Chair

Sir Chris, you rightly highlighted that there is a vast difference between those with a long shelf-life and those that would need what you might call “just in time” deliveries. Given what we are discussing with other parts of Government about the border, are you confident that just in time deliveries will still happen, especially if we leave without a deal? You are obviously planning for all scenarios.

Sir Chris Wormald

We are doing our planning not because we expect these things to happen but because, as you would expect, we do contingency planning for all scenarios.

Chair

Are you confident that just in time deliveries will still be possible?

Sir Chris Wormald

I am confident we will have a good contingency plan. As I say, I will not issue guarantees on particular things, for all the uncertainties that I have pointed to.

Chair

So you have a plan. Dr Warner, do you think the Department’s plan applies to NHS England, too?

Sir Chris Wormald

We are leading the creation of the plan, but NHS England is completely involved.

Chair

I am sure that Dr Warner is contributing. Are you confident that we can have just in time deliveries, so that pharmacies can get what they need to serve patients?

Dr Warner

Our primary concern is that patients get their supplies and that patient safety is not compromised in any way. We are working with the Department and with colleagues at the NHRA to try to make sure that does not happen in a number of scenarios. As Sir Chris said, that may depend on individual products and situations, but we are confident that things will work in all scenarios.

Chair

We are hearing a lot about scenarios and plans, but practically speaking, how will a drug with a short shelf-life that needs to dribble through at a reasonable pace so that patients get it when they need it, and that is manufactured overseas, get through border controls? How will it get from Europe across the channel or through our ports if we do not have a deal and we are not in the customs union?

Sir Chris Wormald

You will have to look at alternative ways of importing that drug. That is exactly what we are doing.

Chair

So have a special import control system. Mr Oldfield is nodding; perhaps he can give us more detail.

Sir Chris Wormald

As I was saying, I am not going to give the detail for the reasons I gave earlier, but the components—

Chair

Actually, I think patients want to know the detail. If a patient is reliant on a drug, perhaps to prolong their life or keep themselves very well compared with how they would be without it, and there is a risk to its supply, do you not think that patients need to know that you have a workaround? Can you not give us a little more detail? I do not see what commercial confidentiality issues there would be with the EU negotiations in saying that you have a plan to protect patients in case of no deal.

Sir Chris Wormald

As I say, I cannot give you further details, for the reasons that I set out earlier, but the risks you describe are exactly the reasons we are doing the contingency planning.

Chair

Mr Oldfield, can you give any more information?

Steve Oldfield

No.

Chair

You won’t now that he has said that. You are the permanent secretary, Sir Chris; I wouldn’t go against you if I was sitting next you.

Sir Chris Wormald

I have set out all I am going to say to you on this issue. I have set out that we are doing the contingency planning that Simon described.

Chair

To be honest, we get a bit weary because we are trying to ask reasonable questions and as a Committee we have a range of views on Brexit—we do not have an ideological position. We just want to know that a plan is in place. You say you have plans and you are aware of the risks.

Sir Chris Wormald

We are aware of the risks and we are doing the contingency planning that you would expect of us. I am not in a position to lay out the exact plan.

Chair

Okay. I am not sure what the risk is of laying out the clear plan.

Sir Chris Wormald

As I say, a number of things are still under discussion and some of them are commercial, so it is for exactly the reasons that I stated earlier.

Chair

You earned your knighthood with that last set of obfuscations, I have to say.

Sir Chris Wormald

I’m sorry, but those are the answers you are going to get, Chair.

Anne Marie Morris

On Brexit, clearly you have the issue about trying to find alternative supplies from other countries, but you also have replicating the supply chain for the manufacturing and distribution of drugs in the UK. Will you look at helping the drug manufacturers and producers based in the UK that currently manufacture and distribute in Europe, so that they will be able to do that here in the UK, quite apart from all the generics we will get from India and China?

Sir Chris Wormald

Just to be clear, we are talking about a transport issue, not a supply issue. We expect to be getting drugs from exactly the same manufacturers as we always have, most of which are not in the European Union. The question is how they get into the country, not where they are made. On the second issue, I don’t think we envisage there being any difference about how, as it were, the internal bit of the drugs market within the UK would work under any scenario.

Chair

What about UK exporters to Europe?

Sir Chris Wormald

Sorry; I may have misunderstood the question. Is your question on exporters to Europe?

Anne Marie Morris

How will you help those drug companies that export to Europe from the UK?

Sir Chris Wormald

That would be part of the wider trade discussions with the EU. That is not something that DHSC would do specifically; it would have to be part of the wider discussion. Sorry; I misunderstood the question.

Bridget Phillipson

On the medium to long-term impact of Brexit on pharmaceuticals and life sciences, the UK is obviously a very attractive place where lots of research happens, so what are you doing to mitigate the impact on the sector after Brexit?

Sir Chris Wormald

We are discussing this with the sector, as you would expect. The main actions that the Government are taking are set out in the life sciences strategy that we published as part of the industrial strategy. That is our approach to industry on this issue.

Bridget Phillipson

It is not just about the drugs themselves; it is about our involvement in research and clinical trials and the fact that the UK is a great innovator. We want to keep all that. How can we make sure that we do?

Sir Chris Wormald

That is exactly what the life sciences strategy is about. It covers all the aspects that you have just described. Steve, do you want to say a bit more?

Steve Oldfield

In fact, the discussion around the life sciences strategy is embedded in the new Life Sciences Council, on which sit industry representative bodies, the chief executives of most of the major pharmaceutical companies and Professor Sir John Bell, who is the Government adviser. There is not only a document called the life sciences industrial strategy; there is a forum and there is meaningful discussion about how it will actually happen. You are right: research, in particular, as well as advanced manufacturing, are some of the key elements of that strategy.

Bridget Phillipson

Will we continue to be governed by the clinical trials regulation and by issues around patents? Will that continue post Brexit? Will it be part of the roll-over?

Sir Chris Wormald

Patents is a world system, so it would apply to us—

Bridget Phillipson

But there is a European patents court, isn’t there?

Sir Chris Wormald

There is, but the patents system for drugs covers the world market. I don’t think that will change. Sorry; this is not my area of expertise. I will check for definite, but I don’t think the world patents system will be particularly affected.

Bridget Phillipson

A report I read talked about how, on leaving the European Union, if the UK isn’t covered by the unitary patent system, we would be denied access to Europe’s patent court, which could result in delays and more costly disputes around patents.

Sir Chris Wormald

I will check that question exactly. It is slightly beyond my knowledge. I will come back to you on that.

Bridget Phillipson

Just returning to some of the issues covered in the Report—

Chair

I think we will briefly go to Ms Flint before we move on.

Caroline Flint

I just want some clarification on the third bullet point of paragraph 3.8 on page 21 of the NAO Report. It says: “governments and insurers in other countries putting downward pressure on the price of generic medicines, resulting in lower returns and manufacturers withdrawing”. What prompted Governments and insurers to do that if the market was working and they felt that prices were kept down? Do you know which Governments and insurers that was?

Steve Oldfield

I think particularly the United States market was in a state of significant change at the time. The United States continues to be the world’s biggest drug market, so what happens there has an automatic impact on what happens in the rest of the world. The United States has historically been characterised by relatively high generics drug prices and relatively diffuse supply chains. In 2016 we saw a consolidation of supply chains, with retail chains and distribution channels coming together in consolidation, thereby increasing their purchasing power and driving down costs. We also saw Government interventions to say, “We are paying too much for generics and, therefore, we want to pay less.” That put in enormous pressure on the generics industry. When the generics industry comes under pressure in the United States, it naturally looks to the rest of the world to see where there potentially may be more—

Caroline Flint

More money to be made.

Steve Oldfield

The differential commercial attractiveness of different markets becomes that much more important, when you cannot just rely on the US providing the vast majority of your—that is what the Report suggests: the pressure.

Caroline Flint

The Report also cites that the margin between wholesalers’ buying and selling prices also unexpectedly increased. How do you know that those pharmaceutical companies were not profiteering?

Steve Oldfield

I think that your question was specific to the wholesalers’ margins. I do not think we have any concrete evidence that wholesalers’ margins were increasing in a way that we could entirely explain. The picture that I would like to paint of what happened last year was already described by Warwick Smith from the BGMA as the perfect storm. The circumstances that came together created a huge amount of turbulence and confusion in the market. Trading, for example, between different parts of the supply chain typically tends to increase when there is turbulence in the market. Much of the turbulence was created initially, or triggered, by the regulatory changes and the fact that two of the major volume suppliers to the UK market—one of which, interestingly, is UK-based, with UK manufacturing—were unfortunately no longer able to produce, because of quality issues at their factory. The market became a much more turbulent place, where prices were going up and down more frequently than they would do under normal steady-state circumstances. It is entirely possible that in that there was a disconnect between different parts of the supply chain.

Sir Chris Wormald

We did change how we did concessionary prices in response to that.

Chair

We are not having that conversation. We need to move on to Ms Phillipson now.

Steve Oldfield

If the direction of your question is what we did about that, I would say that from November last year onwards, when we became aware of the changing relationship between the manufacturers’ selling prices, the wholesalers’ selling prices and the concessionary prices, we fundamentally changed the methodology by which we collected the data, so that we were no longer reliant on that wholesale bit, which was the bit we understood less, and we went back to the manufacturers’ prices and said, “We know more. We have better quality and extent of data from manufacturers, which we can collect in a timelier manner and set prices on the concessions based on those.” It was reassuring to see, now looking back with hindsight, that month by month, the concessionary prices came back down in line, not entirely to the pre-crisis level, but in that direction.

Bridget Phillipson

Can you just go back to the beginning? Could you explain to me the mechanism by which you became aware of there being problems within the system? How do you get to know that?

Chair

We need to keep answers a bit shorter please, if you can.

Steve Oldfield

In simple terms, last year CCGs started to report to NHSE that they were seeing pricing pressures on certain lines of generics. In September, NHSE came to the Department and reported that. The Department then started to work actively with all the partners, including the industry associations that were represented at the pre-meeting and other Government bodies and arm’s length bodies, to try to understand first, what was going on and secondly, what we could do about it.

Bridget Phillipson

Why was it not until November that there was an analysis of the possible causes of this?

Steve Oldfield

It wasn’t that there was not analysis, but we were, to some extent, hostage to the data collection system that was in place at the time, in that the data for scheme M, which is the tariff price-setting mechanism for a large basket of generic prices, is collected quarterly in arrears, if you like. So it wasn’t until November, really—well, end of October—that we had absolute insight into how the different parts of the supply chain were contributing to the problem. It was at that point that we had much greater transparency about where the prices were starting from and going to, and at that point we immediately took action. Over a three-day period, I personally met with other members of the Department; I personally met with the five main wholesalers to try to gain some insight. We had meetings or calls with the key generics manufacturers. From that, we were able to derive most of the hypotheses, which are summarised in the NAO Report, and then decide what we were going to do about this.

Bridget Phillipson

We have heard that there was no suggestion of harm to patients. Could we just hear how clear you are on that and how it is the case, but also about the impact on patients? Obviously, we want to avoid harm, but we also want to avoid distress to patients from having to return to pharmacies, or their carers having to return.

Dr Warner

We have no evidence of patient harm as a result of these price increases, and I think a lot of that is due to the work, which we should acknowledge, of the whole supply chain, including the community pharmacy sector, and their professionalism and diligence in putting patients first and making sure that patients do get their supplies. I would not say there has been no patient inconvenience. We have already heard that some patients have had to, perhaps, wait a number of days to get their full supply, and pharmacies have had to try different methods to make sure patients do get their supply. But as far as we are aware, no patients have been harmed as a result of that.

Bridget Phillipson

Sunderland’s local pharmaceutical committee has been in touch to say that its experience was as you describe. The vast majority of patients were understanding; others were unhappy about not having their full allocation and having to return. Often, unfortunately, the people on the ground who are responsible for providing medication felt the brunt of the frustration about the inconvenience. What will happen that is different next time to prevent this from being repeated?

Dr Warner

I think this will come up when we go on to talk about the Department’s new powers. The improved information will give us much more advance warning of this type of thing happening, so that will be different next time. We have always seen supply issues across the sector, particularly within community pharmacy. For as long as I can remember, although it has not been on this scale—absolutely not—we have always seen supply issues of one type or another, and pharmacies have become very adept at managing them and making sure that patients get what they need.

Bridget Phillipson

This is a separate but connected issue. We have seen coverage about the move towards online pharmacies and the impact that could have on UK pharmacies. I wonder what impact you anticipate from the entry of Amazon into the pharmacy market. There has been talk from the Government about moving pharmacies online. How do you think this will impact on the patient experience and on the sector more broadly? I don’t know whether that is a question for you or for Sir Chris.

Dr Warner

Well, we already have a mixed model market. As we heard from Mr Burdon of the PSNC, we already have distance selling pharmacies. Amazon are not in the market in the UK at the moment. Who knows whether they will be? It is a commercial sector and people are constantly striving to innovate and produce new models to provide the services that the NHS requires. We are seeing huge steps in innovation in automation, in the use of technology. Simon Stevens has already said on many occasions that we need to embrace those technologies, while making sure that patients have the best experience they can, and of course not all patients want to access services in the same way. Along with that goes getting best value for the taxpayer. There is a mixed model, and I don’t think anybody has suggested that the UK will move entirely to an online market, but it is a part of the sector that is with us already.

Bridget Phillipson

We already know that community pharmacies are facing a squeeze. Some of the work that they do in providing extra support to vulnerable patients will always need to be done. If you are someone who just needs the odd prescription, that’s fine; you might want to move to an automated or online system. But what about someone who has significant health needs? How do we make sure, given the pressures that exist in community pharmacies, that those people continue to get that additional support? We have already heard that pharmacies are very good at identifying and responding to that need.

Dr Warner

You are quite right. Pharmacies have come under pressure in the last year or so as part of that drive to get best value for the taxpayer. That mixed model is there to help to cater for different needs in different situations, while that drive for efficiency continues, so—

Bridget Phillipson

Could they be doing more to try to bring pressure to bear on the NHS budget more broadly? When I visit pharmacies, they say they want to do more to help to take pressure off GP services and A&E, yet that appears to be mixed in terms of the direction of travel. What do you think?

Dr Warner

We are about to enter another phase of negotiations with the PSNC, or the Department is, along with NHS England. That will form part of those negotiations.

Bridget Phillipson

Sir Chris, could we make better use of community pharmacies?

Sir Chris Wormald

There is a lot in what you say in all those questions. The number of pharmacies has gone up quite considerably in the last decade—it went up by 15% over 10 years. It has come down by about 2% since our funding changes, so clearly there have been pressures in the last couple of years, but that is part of an overall rise. Will technology affect this market? Yes. As with pretty much any market that involves technology, it is incredibly difficult to predict exactly how, but I suspect that the mixed model that Dr Warner describes is probably the way forward, for some of the reasons that you have mentioned, including people continuing to want the classic community pharmacy. Do we want pharmacies to do more in terms of health prevention and advice? Yes, but of course different bits of the NHS budget—as no one is better aware than the Committee—have to be balanced. That sometimes means tough decisions, as you know.

Caroline Flint

We have all seen media stories of things such as a cream that you can buy over the counter in a chemist for £2 but may cost a couple of hundred quid on prescription. Do you have a hit list, Dr Warner, of those sorts of products that you want to bear down on to stop that being the case?

Dr Warner

We are aware of the media stories around that particular product. Specials are a whole other arena of the generics market. By definition, they are special. They are bespoke products, quite often, for individual patients who are perhaps allergic to a particular ingredient in a bulk-produced proprietary brand. Individual medicines have to be made for those individual patients. It is quite difficult to talk about specific specials. On the whole, though, the specials market serves patients reasonably well. Over a number of years, we have seen the amount that we spend on specials as a whole go down.

Sir Chris Wormald

It has gone down quite spectacularly. It was £135 million in 2010 and £74 million in 2017.

Caroline Flint

So they are not that special.

Sir Chris Wormald

When we see individual cases, such as the ones we have described, we take them up. The Bill gives us further powers to do that, so—

Chair

We are going to move on to the Bill.

Sir Chris Wormald

Shall I just finish on specials, because it is very similar to the overall story? In the overall market, the numbers look good, but we want to follow up on things about individual products that we are worried about that.