Prevention of Trade Diversion (Key Medicines) (EU Exit) Regulations 2020
(3 years, 5 months ago)
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Lord Grimstone of Boscobel
That the Grand Committee do consider the Prevention of Trade Diversion (Key Medicines) (EU Exit) Regulations 2020.
Relevant document: 26th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, I hope that the Committee will be unanimous in support of these regulations and their objective. I have no reservation in saying that these regulations perform a laudable function. They ensure that pharmaceutical companies in Great Britain can continue to produce and sell certain medicines to developing countries at a low cost to help fight key diseases such as HIV and malaria without the potential drawback of these medicines being reimported into Great Britain for sale at a price lower than the domestic market price.
As noble Lords will recognise, many of the poorest developing countries are in urgent need of access to affordable essential medicines for the treatment of communicable diseases. These countries are heavily dependent on imports of medicines because local manufacturing may be limited. Price segmentation between developing and developed countries is necessary to ensure that the poorest developing countries have access to essential pharmaceutical products at heavily reduced prices, while also ensuring that fair market prices in wealthier markets incentivise drug development and investment.
Pharmaceutical manufacturers will produce large volumes of pharmaceutical products at reduced prices for the developing world only if they are assured that these products will not find a way into developed countries’ markets. These regulations correct deficiencies in legislation to establish a procedure that identifies the products, countries and diseases covered and prevents the reimport of such products through seizing and disposing in accordance with national legislation.
These regulations were laid in draft before this House on 2 September. They are made under powers in the European Union (Withdrawal) Act 2020. The Committee knows that, given the context, those powers are limited. All that they allow is the correction of technical deficiencies in existing EU law that, by the operation of the Act, were retained in UK law following withdrawal. These regulations correct such deficiencies by, for example, replacing references to the European Union, its institutions and legislation with the appropriate UK references.
This statutory instrument follows the affirmative procedure because it transfers to the Secretary of State a power that currently sits with the European Commission. That is a power to amend the list of pharmaceutical products under the regulations and the criteria for products to remain on that list. This statutory instrument also replaces the requirement that pharmaceutical products, packaging and connected documents should be affixed with an EU logo with a power for the Secretary of State to make regulations providing for marking, labelling or other identification requirements. This relates to a logo more appropriate for the UK now that we have left the European Union. I beg to move.
Lord Lansley (Con)
I thank noble Lords for the opportunity to participate in this brief debate on these regulations. I do not dissent from anything that my noble friend Lord Grimstone of Boscobel has said about the regulations, although I have one or two questions about the manner in which we are proposing to adopt them and incorporate them into UK practice.
I particularly wanted to come to say a word about the regulations themselves. Tiered-price products—which is, I think, in a sense what we are talking about here —or the concept that developing countries can have greater access to medicines in circumstances where the price can be lowered is a very important objective. Indeed, it is in the EU regulation, in these terms:
“to encourage pharmaceutical manufacturers to make pharmaceutical products available at heavily reduced prices in significantly increased volumes by ensuring through this Regulation that such products remain on the … markets.”
That is an entirely laudable objective, as my noble friend rightly said.
Of course, this regulation was established with, I think, initially three principal disease groups in mind. One was HIV, the second was TB and the third was malaria. Of course, where TB and malaria were concerned, there were relatively few requirements for those drugs in the most developed countries, so, in fact, the scope for diversion was relatively modest. However, the scope for diversion in relation to HIV products was potentially much greater.
I want first to say that my noble friend did not offer a view about the long-term future of the regulation but, of course, back in 2015 the European Commission undertook an independent evaluation of the regulation. At that time, the evaluation took the view that trade diversion from poor countries into high-income countries was still largely theoretical. It did not find that much evidence of it. The question is, why did it not? On the face of it, you would find low-price products. Partly it was because of the disease groups it was looking at, but it is also because, notwithstanding the regulation, there are mechanisms by which many pharmaceutical companies are able to segment their markets.
They do so by way of second brands, different branding in different markets, different packaging and often different formulations, which make it very difficult for people to try to divert product. Of course, product traceability is an essential part of pharmaceutical marketing, so one hopes it makes it increasingly difficult for these products to be diverted. Of course, some of these products can be counterfeited or falsified, and those who want to make illegal profits are perhaps more likely to go down that route than simply through diversion. Indeed, many of the supply chains we are talking about are becoming more secure; organisations such as the Global Fund and Gavi are making supply chains more secure over time.
So, the evaluation of the regulation back in 2015 did not arrive at the conclusion that the regulation had achieved much. However, it arrived at the view that the regulation was itself an important signal in relation to tiered pricing and the desirability of securing additional lower-cost, higher-volume pharmaceutical presence in developing country markets. It was also a backstop power. If there were not to be many of these other pharmaceutical industry initiatives that would enable these products to be available in those markets, this would create a mechanism by which that could be achieved. On the basis of that, the Commission renewed the regulation, and I think we are due to see the Commission come back to this, after a five-year period, in the latter part of 2021. So the first question is: will we review the regulation, or is our intention for the time being simply to carry on and wait and see whether the Commission proceeds with it?
I will make a general point. The Bill and Melinda Gates Foundation has done research and published its views, with which I very much agree. I take the view that value-based pricing is important for this country—I talked about this in our discussions on the Medicines and Medical Devices Bill. Actually, value-based tiered pricing in different markets across the world is an extremely important objective. It enables the expectation to be that pharmaceuticals are priced at different levels in different markets according, substantially, to the capacity to pay in those markets.
In the absence of that, we are at risk of what is called reference pricing, where everybody thinks that they should pay no more than other people. Very often, what they say is that they should not pay any more than the average; in fact, they all aim to be below the average. We know where such a policy leads us: to a downward spiral in pricing. The significance is that the present United States Administration have pursued the concept of reference pricing themselves, which creates perhaps the largest single threat to the long-term capacity of the pharmaceutical industry to undertake innovation and drug development. As such, as an objective, value-based tiered pricing is really important.
Finally, will my noble friend explain why it would not be simplest, from the industry’s point of view, to retain the EU logo? In this particular context—the one in Annexe V—this is not particularly indicative of the European Union; it is a winged staff with a set of stars around it. It would not hurt us too much to accept the same logo. To be clear: from the point of view of the desirability of making it possible for pharmaceutical companies to produce, the more we add cost and inconvenience, the less likely they are to use this regulation. Many do not do so as it is because of the additional bureaucracy involved, which is not great. We need to minimise the bureaucracy on this regulation.
Additionally, however, I was rather pleased to see that the Government will not try to reproduce the European Commission’s biannual reports. It is reasonable for them simply to review the products that have been put forward. Presumably, it will be the Government’s intention—I hope the Minister can confirm this—that the bureaucracy involved in putting a product into our regulation in parallel with the European Commission’s regulation will be kept to an absolute minimum because the benefits of having products in this regulation to the pharmaceutical companies can sometimes be quite modest. With that, I hope I have explained why I think that there is an interesting issue here, but I do not think it is completely obvious that we would keep this regulation for ever.
Lord Bassam of Brighton (Lab) [V]
My Lords, the Minister has said that these regulations will ensure that the tiered priced product system for certain medicines can operate effectively after the end of the implementation period. I am sure that we are all grateful for that because it is a very important regulation, as the noble Lord, Lord Lansley, has said. It is important because it aims to ensure that the poorest developing countries have access to affordable essential medicines for the treatment of communicable diseases, focused, as the noble Lord, Lord Lansley, said, on HIV/AIDS, TB and malaria.
Access to medicines for developing countries remains of critical importance for all nations across the world: it is in all our interests. While there has been huge success over the last 20 years in bringing down the numbers infected with HIV and dying of AIDS, we need to recognise that there are still just under 1 million deaths a year from both. We must continue with programmes like this.
Developing countries need to ensure that their citizens have access to the medicines produced by the pharmaceutical giants. The prices these medicines typically retail at in developed countries would put them out of reach for many if prices were not adjusted. Tiered pricing, which is used to make these drugs affordable to the poorest and most vulnerable, was a significant step when it was agreed, and it continues to be an important practice in pharmaceutical markets.
Without the regulations, Britain could also suddenly become a very attractive market for those wanting to exploit Brexit to export drugs meant for the world’s poorest to the UK at a higher price. For all these reasons, we recognise the importance of these regulations.
I too have one or two questions about the SI for the Minister. First, how many staff members does the Department for International Trade have who are specialists in access to medicines in developing countries or in medicines? What is the process for consultation between the FCDO and the Department of Health and Social Care, which has expertise in those areas?
We are in negotiations with Ghana, Kenya, Cameroon and Côte d’Ivoire to try to roll over trade agreements but those have not yet been completed. Is there any reason to be concerned that the export of drugs to those four countries, which could reasonably be sold into neighbouring and even poorer countries, might be affected if those crucial trade agreements cannot be rolled over?
At the moment, the pharmaceutical companies which are exporters have to apply to the Secretary of State to have a product listed under the EU regulation. What consultation, if any, has there been with developing countries or experts on access to medicines to encourage pharmaceutical companies to seek listing under these regulations? What are the processes for encouraging pharmaceutical companies to provide drugs for the treatment of other diseases, such as cancers? Rates in developing countries are rising fast in these diseases, so this becomes more important.
Finally, what arrangements are being developed for tiered pricing of Covid vaccines? As the Covid pandemic spins out, access to those treatments and vaccines that will become available in the marketplace will clearly be important. We must do all that we can to ensure developing nations have access to the medicines they need at affordable prices, and all that we can to help protect millions of people to avoid illnesses that are eminently avoidable, right across the world. We therefore support these regulations.
Lord Grimstone of Boscobel (Con)
My Lords, I thank my noble friend Lord Lansley and the noble Lord, Lord Bassam of Brighton, for their contributions to this debate. I am pleased to acknowledge that they also support the reasoning behind the existence of regulations such as these; as I said, I completely concur with that. Let me respond briefly to some of the important questions that were raised directly by the noble Lords.
My noble friend Lord Lansley asked about the logo. Indeed, it is a rather fine logo; for those who have not seen it—I hope noble Lords with a classical education will not mind if I no doubt mispronounce this—it is the winged staff of Aesculapius, with a coiled serpent in the centre of a circle formed by 12 stars. Obviously, there is a relationship between this and other EU logos but it may be important in future, more so than just a sense of “Why can’t we have our own logo?”, to distinguish drugs that have come from the European Union and are subject to its regulations. Who knows, those may over time move differently from our regulations. We therefore need a logo of our own.
That is why the SI contains a power for the Secretary of State to make regulations providing for the marking, labelling or other identification requirements for tiered-price products as the Secretary of State considers appropriate. Obviously we would do this only in consultation with the manufacturers, and new labelling or other identifications will be provided for in future regulations after consultations with stakeholders.
It is perhaps a shame, given the benefit of these regulations, that only one pharmaceutical company takes advantage of them at the moment. The noble Lord, Lord Bassam, asked whether the Government should be more evangelical about the regulations. I suppose my answer is that in a sense the regulations are neutral. They are there for a pharmaceutical company to take advantage of when it makes an application. I am not sure it is the role of the Government to proselytise and evangelise about the regulations, but maybe the mere existence of this debate today will encourage others to raise these points and ask the valid question, “Why are these regulations not made more use of?”
The need for member states to report to the Commission is not relevant to the United Kingdom after withdrawal. This instrument provides for the Secretary of State to review from time to time whether a product listed as a tiered-price product fulfils the requirements of the retained regulation. How that will work is that information on imports and Border Force activity will be collected, reviewed and, where appropriate, made public by the Government as part of standard procedure. We will remain accountable to Parliament in relation to this in the usual way.
As I said, manufacturers or exporters of pharmaceutical products who wish their product to be added to the list have to submit an application to that effect. The noble Lord, Lord Bassam of Brighton, quite properly, and with a great deal of perception, asked what expertise there is in my department, the Department for International Trade, to handle applications in this area. I am happy to reassure the noble Lord that, although DIT has the role of approving these applications, we will work very closely with the Medicines and Healthcare products Regulatory Agency, the MHRA, which of course has the required expertise to assess any medicinal information provided by manufacturers or exporters, to ensure that all considerations are given appropriate weight.
My noble friend Lord Lansley asked about reporting under these regulations. As he noted—having, as always, done his homework very carefully—the last report was published in October 2015 by the European Union. As my noble friend said, the report said that although the net benefits of the scheme are small, what you might call the signalling impact of these regulations is very large, and it came to the conclusion that there was an economic justification for maintaining the regulation. My understanding is that the next report by the EU will be published towards the end of 2020. We await that to see whether it comes to a similar judgment.
The regulations set a requirement for the Secretary of State to publish a report before the end of the period of five years, beginning with the date on which this instrument comes into force. Because we are about to get a report from the European Union, I believe we will not be rushing to do a report of our own under these regulations. We will allow time to pass to assess how these regulations are used, and then we will bring a report forward in due course within the required timescale.
I hope that I have managed to answer all noble Lords’ questions in relation to this short debate, but of course if either of the noble Lords who spoke today wishes to approach me subsequently for any further information or clarification of the points that I have made, as always I will be delighted to do so. On that basis, I commend these regulations to the Committee.
The Deputy Chairman of Committees (Baroness Barker) (LD)
That completes the business before the Grand Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.