Medicines for the Many: the longer-term impact

This is the fourth article in our general election series on Labour’s “Medicines for the Many” policy. To view the previous articles, click here.

The most radical aspects of Labour’s medicines policy are its long-term proposals. Medicines for the Many recognises the current health innovation system is based on awarding intellectual property rights on new drugs, but cautions “it is important to recognise that these rights are not absolute”.

De-Linkage

At the heart of Labour’s long-term proposals is the introduction of an innovation model based on “de-linkage”. The current pharmaceutical innovation model sees pharma companies re-coup significant up-front research costs through the prices it charges on products successfully brought to market. A de-linked model aims to incentivise R&D through mechanisms other than financial returns on the end products. Labour’s current proposal would see upfront grants or subsidies paid to researchers, who would then be rewarded with prizes, market entry rewards or “open source dividends” (with a jury deciding which entities should get the credit for the invention at the point of market entry). Under this kind of de-linked system any discoveries would be openly licensed to generic manufacturers with prices close to the cost of production, significantly reducing the overall value of the market.

Although financial modelling is not provided, Labour’s analysis assumes the savings made by the government on the final sales prices will “more than compensate for the increased up-front investment in R&D”. This warrants further consideration. Labour’s analysis is based on a global annual market for pharmaceuticals of “almost $1 trillion”, while the industry “only” spends $156 billion on R&D. But the figures come from different sources and may not be directly comparable. The Business Research Group, which values the market at $934.8 billion in 2017 makes no estimation of global R&D spend. The ABPI, which reports R&D spend at $156 billion suggests this represents 20% of worldwide sales, which would value the market at $780 billion. Meanwhile, Labour recognises that the bulk of the UK’s drug spend is on patented medicines. The policy document references a 2018 report of the National Audit Office, which puts the branded:generic breakdown of NHS spending as 72:28.[1] Foregoing the profitability of branded medicines would reduce the overall profitability of the market, making it less likely profit alone could “compensate” for increased up-front R&D investment.

Any move to a de-linked model would take more than one government term to implement, and would potentially require buy-in from international trading partners. Labour’s proposals recognise a transitional period would be necessary and suggests reducing patent terms while “non-price incentives” are gradually introduced. Labour will use any transition period to consider how much would need to be spent by a government to incentivise biomedical research, having identified four possible incentive mechanisms:

(1) grants on early-stage biomedical research;

(2) grants on early-stage biomedical research with conditions attached to ensure that research outputs are kept as open source;

(3) subsidies for clinical trials on drugs to treat diseases where innovation is a priority; and

(4) market entry rewards for drugs that provide a significant advancement in medical benefits over existing treatments.

As part of this policy, Labour also intends to introduce policy mechanisms which would “deter or strictly limit” pharmaceutical company share buybacks on the grounds that this would drive increased resources into R&D.

Public control of the pharmaceutical innovation and supply chain

Labour’s other long-term aim (whether as part of a move to a de-linked system or not) is to develop a “mission oriented” approach to health innovation in the UK, allowing the government to set the agenda for drug development. This would include the establishment of a publicly owned, democratically controlled pharmaceutical company that would “reshore” the UK generic industry and boost job opportunities in the UK. However, there is an apparent discrepancy between the policy’s overarching aim of ensuring UK citizens get access to quality medicines at the most affordable prices possible, and the desire to promote publicly subsidised industry in the UK.

The UK already has a highly competitive generics market, and any state-run company would be competing in this unforgiving environment. A diversified field of suppliers means the risk of supply shortages is reduced and there is a risk that introducing a state-run company could reduce this degree of competition and diversity of supply. The policy addresses nowhere the increasing complexity of medicinal products, which would pose a very significant manufacturing challenge for such a state-run company. Even this simple, practical problem would inevitably necessitate a two-tier market where only a subset of products could be produced domestically. Such a marketplace has the potential to completely disrupt the current Labour policy plan.

The final article in this series will consider some of the strengths and weaknesses of the current patent and data exclusivity system, and consider what changes, if any, should be made to prevent abuses and promote access to fairly priced drugs.

[1] Although prescribing guidelines require some generics to be sold under a brand name, the report is referring to “new medicines”, which still have patent protection.