Relevant Document:
Second reading debate playback
The Health Service Medical Supplies (Costs) Bill received broad support in its
second reading debate in the United Kingdom’s House of Commons today, as parliament members across parties encouraged the end of a loophole allowing drug manufacturers to exploit monopoly power in certain unbranded generic drug markets.
The
bill will have an impact on Concordia International, which came under fire in the U.K. specifically for the practice of price increases on certain drugs and has recently seen the resignation of its CEO after shoring up liquidity with a recent debt issuance.
Philip Dunne, conservative MP and Minister of State at the Department of Health, particularly noted the “remarkable degree of consensus” during the debate regarding provisions in the bill that would limit exploitative pricing of unbranded generic drugs. Upon passing the second reading, the bill will be committed to a public bill committee, whose membership will be published in Votes and Proceedings and posted on the
page tracking the bill’s progress under “Commons Public Bill Committee.” The soonest this can happen is the Thursday following second reading of the bill, according to the page tracking the bill’s progress.
The bill aims to address the practice of drug manufacturers buying the production rights to off-patent drugs, producing and marketing them as unbranded generics, then significantly increasing prices in uncompetitive markets. On numerous occasions throughout the proceeding, parliament members specifically cited alleged pricing abuses by Amdipharm Mercury Ltd., or
AMCo, the portfolio of drugs now owned by beleaguered pharmaceutical company
Concordia. AMCo has consistently subjected drugs to steep price increases, indicating the existence of a business model in which companies profiteer off reimbursement schemes at the expense of the National Health Service and taxpayers, conservative MP Kevin Foster said during the proceeding.
At issue is the
disparity between the statutory scheme and the voluntary pharmaceutical price regulation scheme, or PPRS, which are the two regulatory plans governing drug reimbursements in the United Kingdom. The disparity, which allows companies with mixed portfolios of unbranded generic drugs and branded drugs to evade price controls by joining the PPRS, has created an incentive for drug manufacturers to leave the statutory scheme and join the PPRS with the purpose of exploiting the loophole, the MPs said. This has forced the NHS to purchase unbranded generic medicines at “grossly inflated prices,” since only competition currently regulates the cost of generic drugs per the PPRS, or otherwise transfer patients to medicines that are not the first preference, the MPs said. In effect, this has put more pressure on an already strained, taxpayer-funded NHS budget, the MPs said. The members of Parliament repeatedly referred to the practice as “profiteering.”
While competition is generally effective at controlling generic drug prices, the practice of exploiting monopoly positions in uncompetitive markets cannot remain unchallenged, the MPs said. While the Competition and Markets Authority, or CMA, is pursuing its own investigations of alleged market power abuses, the U.K. government must use the legislative framework to close the loophole to prevent future abuses and ensure fairness between the pharmaceutical industry and the NHS, the MPs said. At the same time, a balance must be struck with the understanding that pharmaceutical companies must raise and then invest huge amounts of money to develop new treatments, they said. Of the 166 companies subject to the PPRS, 17 would be affected by the effort to close the loophole, the MPs said.
During the proceeding, specific mention was made of the 28% hit taken by Concordia’s equity as a result of the bill’s introduction, which also sent the company’s 7% notes
tumbling. Concordia is subject to the PPRS via its branded drugs. Labour MP Justin Madders spoke of Concordia’s AMCo portfolio and how its business strategy has been described as “specializing in the licensing and development of off-patent products,” which can be code for “establishing and abusing a dominant market position,” he said. Concordia took on additional debt to purchase AMCo from private-equity firm Cinven in October 2015. Around that time, management said that 88% of the top 20 products by revenue generation in the AMCo portfolio were estimated to have two or fewer competitors. A 2014
annual report regarding AMCo, published by Cinven, details through the following graphic the business strategy of purchasing off-patent drugs, then raising the price to grow revenue:
Through AMCo, Concordia has significant exposure in the U.K. Concordia’s international and in particular the U.K. businesses have been among the company’s only bright spots amid unanticipated competition and lagging sales in the United States.