121.  Paragraphs 14 and 15 of Chapter 2 of this Report describes the rewards and incentives proposed under the Directive to stimulate the research and development of medicines[53]:

• six months extension of market exclusivity known as the SPC extension;
• two years of additional market exclusivity for orphan medical products; and,
• ten years of data protection for off-patent medicinal products granted by the PUMA.

122.  The ABPI told us (pp 25-26) that the incentives outlined in Article 36 (relating to the six month extension) were "essential to the whole process and must be supported" as a stimulus to research for licensed medicine. They also fully supported incentives for research into off-patent medicines through the PUMA procedure which should help European companies to develop niche markets. They added (pp 26-27) that if Europe was seen to be less competitive in this respect than the USA it would be very difficult to encourage ABPI members to carry out paediatric research in Europe. The ABPI also supported a robust review of the incentives after ten years.

123.  The Royal College of Physicians of Edinburgh (pp 29-31) supported the SPC extension and orphan medicinal products proposals, but questioned how much of an incentive the six month SPC might be for industry.

124.  The BMA (pp 27-28) agreed that the relatively small market for paediatric drugs was a disincentive to investment which might necessitate an extension to patent cover. It believed that the Commission's Proposals struck the right balance between targeted investment in children's health and commercial reward.

125.  The Royal College of Paediatrics and Child Health questioned the two years of extended market exclusivity proposed for orphan medical products
(pp 28-29).

126.  In the MHRA consultation[54]:

• A paediatric research consultant[55] suggested that six months SPC extension might not be enough to cover research costs (except for certain products likely to be widely used) and suggested that 9 months might be more appropriate.
• The Guild of Healthcare Pharmacists also questioned whether the six months SPC extension would be sufficient in all cases and supported the Proposal for a full review of the proposed incentives.
• The Bio Industry Association believed that the six month SPC extension would be fair. A variable extension would be a significant barrier to innovative bioscience research.
• "Which?" (formerly the Consumers Association) believed that the proposed incentives were appropriate but was concerned about the potential impact on the generics market, which would need to be reviewed.
• The National Patient Safety Agency was concerned that the proposed incentives would be insufficient to encourage development of paediatric formulations from established medicines. It suggested that the MHRA and NHS should collaborate to identify existing medicines of this type and to commission work to help to develop standard strengths and formulations for these proposals.

127.  The European Federation of Pharmaceutical Industries and Associations (EFPIA) (p 62) sent us a position paper outlining their support for the Proposal, including the proposed fixed-term extension for intellectual property protection. But it pointed out that in some circumstances SPC protection might not be available or might expire before the approval process was completed. Consideration should be given to ways of overcoming potential anomalies.

128.  Professor Chantler told us (Q 22) that price controls in Europe were a matter of great controversy within the pharmaceutical industry, and a cause of tension between the USA and the rest of the World. He understood that the generic pharmaceutical industry was unhappy about a six month extension. Having spoken to others, his view was that six months seemed appropriate. It had been shown to be sufficient in the USA.

129.  He understood that the Government had suggested a variable extension, depending on the nature of the product and its use in children, but that this had failed to attract sufficient support in other Member States.

130.  In his view, the data exclusivity offered by the PUMA proposal was also very important in his view and it would amount to marketing exclusivity where a new formulation could be produced.

131.  He thought that the additional two years of market exclusivity proposed for orphan drugs was fully justified given the need to develop drugs to treat rare conditions (QQ 24-27).

132.  The Minister[56] told us that, in earlier discussions, the UK had put forward an alternative proposal which linked the SPC extension to sales. The Government believed that would be fairer to products with a low volume of sales and avoid excessive products profits for "block-buster" products. But this had attracted little support from other Member States and the Government were unable to find a workable way of implementing such a mechanism in 25 Member States.

133.  The Government had therefore supported the fixed six months SPC extension at the Health Council, as had most Member States. But 5 Member States had favoured a shorter SPC extension, given the strength of generics market in their countries. The UK had also pressed for a review of the economic impact of the Regulation in ten years, which had been agreed.

134.  We asked whether a review of the economic impact after ten years was adequate[57] The Minister replied[58] that, having failed to secure support for the Proposal for a variable SPC extension based on sales volume, the Government had had to re-examine their position. One of the major stumbling blocks to an alternative model was the lack of real information about the possible impact on the health budgets of Member States.

135.  The review had been timed for "within ten years" of the introduction of the Regulation because it would be several years before products that were eligible for the incentives would be available on the market. Until a fair number had been marketed for a reasonable time it would not be possible to make a realistic assessment of the economic impact. On average, paediatric clinical trials could take three to six years, followed by about a year to complete the regulatory process.

136.  In some Member States delays of up to three years could occur between the granting of market authorisation and the completion of negotiations for pricing and reimbursement between Governments and drug companies. The economic effect of the SPC extension could not be measured until the end of the patent life of the product concerned.

137.  Consequently, the effect of the Regulation could not be adequately measured until a significant number of products on the market produced a sufficient volume of sales data. Nevertheless, the original review clause requiring the Commission to publish a general report within six years of the entry into force[59] of the Regulation remained. If the volume of products eligible for incentives appeared by the time of that report to be more significant than the Government currently expected, Member States could call for a full economic review earlier than at the end of the ten year period. The Government would carefully consider that possibility when the Commission reported.

138.  We pressed the Government further on the likely effectiveness of the proposed incentive arrangements. We were told (QQ 64-65) that incentives and rewards had been the most controversial aspect of the proposal. The length of the proposed SPC extension had been much debated and raised complex intellectual property issues. But the Government believed that these were the right kinds of measures: they were reasonable and implementable and were likely to command Council support. The six months SPC extension was measured and proportional. It was broadly supported by industry and by experience in the USA. The PUMA proposal was an adequate incentive for medicines that were no longer in patent. Nor was the requirement for paediatric testing likely to delay adult drug trials unduly
(Q 66).

139.  We asked the Government about generic products manufacturers[60] and the position taken by some other Member States over generic products. We were told (QQ 67-68) that Member States had differing views about the likely effect on generics producers. A balance had to be struck between downward pressure on medicines expenditure and the need to provide proper incentives and compensation for innovative producers who carried out tests. The Council had accepted by a very significant majority the Commission's view that a six month SPC extension was "the right way to go". The Government took the view that this was the most realistic and reasonable way forward through the European decision-making process.

140.  On orphan medicinal products, the Government told us that only two Member States took issue with the additional exclusivity proposed (Q 67). Again this was because of the likely effect on generics producers. But the prevailing view was that six month extension would not be enough. Two years extension to market exclusivity was "the simplest and most workable way of giving them their incentives" (Q 70).

ASSESSING BENEFITS AND COSTS

141.  In September 2005 the Government produced an updated Partial Regulatory Impact Assessment (PRIA)[61] which attempted to analyse the probable benefits and costs arising from the Regulation.

OFF-LABEL PRESCRIBING

142.  The PRIA's assessment of benefits starts with the assumption that the Proposal would lead to less off-label prescribing. It argues that drugs that have not been tested as suitable for children run the risk of either causing adverse reactions or being ineffective.

143.  The PRIA's Risk Assessment quotes British Pharmacological Society estimates that 25-30% of all European children receive an off-label prescription every year. But it notes that these figures only relate to hospital in-patients and out-patients, an estimated 3.4 million of whom receive off-label prescriptions every year.

144.  A table (unsourced) claims that in England an estimated 20,000 paediatric out-patients, and 11,000 paediatric in-patients, suffer adverse drug reactions each year. It is not clear whether this means total adverse reactions or only reactions to off-label drugs. But the PRIA cautions that clinicians are "generally" less likely to report adverse reactions to off-label prescriptions.

145.  These figures appear to relate to patients of all ages. No breakdown is given for the proportion of adverse reactions in children. But the PRIA does point out that "children" (defined as those under 18) "can not be considered a single population". No assessment is made of how serious (and thus costly) any of the adverse reactions recorded might be.

146.  The PRI mentions "evidence of a significant amount of off-label prescribing in a Community setting" (presumably meaning by GPs and Community health clinics). But no figures are given to indicate what is meant by "a significant amount" and the PRIA reports inability to find any assessment of associated adverse reactions.

COST/BENEFIT ASSUMPTIONS

147.  The PRIA suggests that it would be "somewhat optimistic" to assume that all the branded products currently regarded as suitable for children will be tested and labelled under the Regulation. Nor does it expect adverse reactions in children to drop to quite the same level as found with adults. (It does not specify that level or say why the child reaction would be different).

148.  It also suggests that the Proposals should lead to more effective use of medicines because "currently it is possible that there is significant under- dosing in some situations leading to lack of efficacy, but there is no systematic evidence that allows us to quantify this".

149.  With these caveats, the PRIA sets out a series of possible cost/benefit assumptions. These take estimates of 50%, 25% and 10% effectiveness applied to Department of Transport figures for the average costs of treating mild and serious road accident victims as "a rough proxy" for the value of reductions in adverse reactions (presumably because no other relevant figures are available).

150.  For England, the PRIA claims this methodology would yield estimated annual monetary benefits of £245 million (50% effectiveness) £122 million (25%) and £49 million (10%). Corresponding EU-wide results are estimated to be £2 billion, £1 billion and £0.4 billion respectively.

151.  Quoting the Rand Europe study, on which the Commission's own Impact Assessment was based, the PRIA estimates annual savings for hospitals in England of between £3-12 million (on the same basis of 50% effectiveness), £2-6 million (25% effectiveness) and £1-2 million (10% effectiveness). Corresponding EU-wide hospital savings are estimated to be £27-96 million, £13-48 million and £6-19 million respectively. No explanation is given for the wide variation between these figures. Nor is the wide difference between hospital savings and total cost benefits explained.

BENEFITS FOR INDUSTRY

152.  The PRIA quotes the Rand study estimate that the proposed six-month SPC extension would enable the "innovative" (i.e.: research-based as distinct from generic) pharmaceutical industry to recover the costs of testing and make a profit of between 0.8 and 9.1 million euros per product, or between 63 and 205 million euros overall. The wide variation of the latter estimate is not explained.

153.  In an attempt to demonstrate the impact on business, the PRIA states that the pharmaceutical industry employs some 73,000 people in the UK and generates another 250,000 jobs in related industries. The ABPI is quoted as estimating that the UK pharmaceutical industry invested £3.2 billion in research and development in 2002-3. But the PRIA does not relate these figures to the cost recovery and profit estimates quoted above.

Costs

EMEA

154.  The PRIA again quotes Rand study estimates that processing applications under the Regulation would cost the EMEA an extra £126 million initially and between £12 million and £36 million a year in the longer run (as demand for retrospective testing of drugs already on the market is expected to decrease).

INNOVATIVE PHARMACEUTICAL INDUSTRY

155.  It quotes Rand study estimates that initially the Regulation would cost the innovative pharmaceutical industry between £97 million and £676 million initially and between £28 million and £434 million a year in the longer run. But the PRIA comments that these figures probably under-estimate testing costs. It quotes the ABPI as claiming that each Paediatric Investigation Plan would cost the UK industry between 20 and 30 million euros.[62]

GENERICS SECTOR

156.  According to the PRIA, the six-month SPC extension proposed could cost "the generics sector" (whether in the UK or the whole EU is not stated) between £23 million and £410 million a year in lost sales. [63] It adds, "we would not expect the SPC extension to result in fewer generic medicines".

COSTS TO THE NATIONAL DRUGS BILL/NHS

157.  The PRIA estimates that the six-month extension would cost the "drugs bill" (undefined) for England between £30 million and £120 million a year. (The Minister subsequently quoted[64] these figures as a cost to the NHS.) Non-NHS drugs purchases are not mentioned. No figures are given for Scotland and Wales (presumably because health services are the responsibility of the Devolved Administrations).

158.  The PRIA comments that it is not possible to know which products might qualify for the SPC extension, nor what financial effect the delay in introducing generic alternatives might have.

159.  We asked the Government about the reliability of some of these estimates and queried the utility of some of the very wide ranges of estimates quoted (Q 72). We were told that the Government had drawn on a variety of sources in compiling the figures. But it was impossible to tell how many medicines might "actually come through this particular gateway and how quickly". Nor could the sales levels and the cost for health services be predicted ("we do not actually know anything about that at the moment"). The ranges were simply indicative and inevitably had to be quite wide.

160.  But the UK, strongly supported by most of the Council, had demanded a robust review of the economic and beneficial impacts of the Regulation. The timing for that review had not been finally fixed, but it would be somewhere between six and ten years after the start of operations under the Regulation (Q 73).

161.  We wrote to the Minister[65] registering our concern over the uncertainties surrounding the initiative arrangements and our disappointment over the inadequacy of the cost and benefit estimates in the PRIA. We hoped that the Department would try to refine more reliable figures. But we accepted, to some extent, the difficulties in doing so and acknowledged that it might well be some years before a clear picture would emerge of how well the arrangements were working.

162.  For that reason, we stressed that we attached great importance to the Government's efforts in pressing for a full economic review of the Proposal as soon as feasible. We expected the Government, in its Presidency capacity, to focus attention on this aspect in Council and secure a firm and unambiguous commitment from the Commission that such a review should form part of the general report required within six years of implementation. Failing that, the Commission should be required to explain to the satisfaction of the Council why it would be premature to do so at that stage and to ensure that a review was undertaken as soon as possible after that.

163.  The Minister replied[66] reiterating that the UK had pressed hard in negotiations for a robust review of the incentives. A full economic analysis would be undertaken at six years, provided that sufficient data was available. If not, it would have to be undertaken within ten years of the Regulation coming into force. We welcomed this assurance[67].

164.  We recognise the difficulties involved in trying to produce accurate estimates in these circumstances. But the ranges of figures given in the PRIA are so wide as to be meaningless, some of the assumptions are not fully explained and the validity of others is open to question.

165.  We were surprised that the PRIA included data from the Department of Transport, rather than using hospital data from the Department of Health, in attempting to assess the costs and benefits to the NHS.

166.  We recognise that the package of incentives and rewards proposed in the Regulation are a political compromise, based on the acknowledged need to provide incentives and the apparent success of the US model. But we conclude that they are essentially a leap of faith: it is impossible to judge from the information we have been given whether these arrangements are likely to provide the necessary incentives to industry, whether they are likely to be equitable and proportionate, or whether they may give rise to excessive profits, penalise the health services of Member States or create unacceptable disadvantages for the manufacturers of generic products.

167.  We accept that a political compromise is necessary for the time being to launch the Regulation in the hope that it will bring the desired benefits for the children of Europe at a reasonable cost. But we recommend that the Government should continue to press the Commission to ensure that a full economic review of these proposals is made as soon as possible.

168.  If the Commission are unable to provide such a review within six years of implementation, as required by Article 49 of the Regulation, we recommend that they should be required to explain to the satisfaction of the Council why it would be premature to do so at that stage and to ensure that it is done as soon as possible after that.

169.  We also recommend that our successors should subject that review to very rigorous examination when it is submitted for Parliamentary scrutiny.

170.  In the meantime, we recommend that the Government should make every effort to improve on the adequacy of the estimates of costs and benefits produced in the Partial Regulatory Impact Assessment as soon as it is practicable to do so and to submit the results to Parliamentary scrutiny.

54   pp 48-56 Back

55   p 49 Back

56   pp 32-34 Back

57   pp 34-35 Back

58   pp 35-56 Back

59   Article 49 of the Regulation Back

60   We noted from the Government's Partial Regulatory Impact Assessment of September 2005 that the British Generic Manufacturers Association had not responded to the MHRA consultation, although they had apparently told the Government informally that they wanted a shorter SPC extension, while the European Generic Medicines Association had argued that an extension of 3 or 4 months should be sufficient to cover the costs of paediatric clinical trials. On the other hand, we have seen a Press Release dated 29 September 2004 from the European Generic Medicines Association which says "although it may be acceptable in this case to grant an additional period of market exclusivity to compensate for additional costs, protection should be reasonable-reflecting the costs of the trials-and should not be unnecessarily expensive for health care budgets".  Back

61   pp 39-48 Back

62   The ABPI also queried some of the Government's estimates (pp 26-27) Back

63   As noted in footnote 49, the relevant UK trade association did not respond to the MHRA consultation, but has argued informally that the six-month extension is not justified. Back

64   pp 35-38 Back

65   pp 57-59 Back

66   pp 59-60 Back

67   p 60 Back