Prevention of Trade Diversion (Key Medicines) (EU Exit) Regulations 2020

Lord Lansley Excerpts

Tuesday 10th November 2020 Grand Committee

[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.