Why would the government make its own drugs?

Labour’s policy makes Big Pharma nervous, but health economists see it as relatively uncontroversial.

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Since cystic fibrosis was identified as a disease in 1938, doctors have worked to alleviate its symptoms, which include debilitating, persistent lung infections. But a cure for the disease, which is caused by a genetic mutation, remained out of reach.

Then, in the early years of this decade, hope began to emerge in the form of ivacaftor, a new “precision” drug that helped improve the chemistry within the sufferer’s cells. It was not a total cure, but patients spoke of being able to breathe normally for the first time.

This hope, however, came at a price. After ivacaftor was approved for use in the US, it was sold – under the trade name Kalydeco – for more than $300,000 per year, for the rest of the patient’s life.

The NHS is currently negotiating with Vertex, the American pharmaceutical company that developed ivacaftor, to bring another drug based on it to patients in the UK. It has been negotiating for three years. Vertex says that, to recoup the costs of developing this drug, which is called Orkambi, it must charge £105,000 a year per patient. The NHS says it can’t afford to pay. Meanwhile, desperate parents are paying to import the drug from Argentina for their children. MPs on the Health and Social Care Committee have received more than 300 requests to intervene.

Perhaps the most popular policy announced by Jeremy Corbyn at the Labour Party Conference at the end of last month was the intention to use “compulsory licensing” – making or importing the drug without the patent-holder’s consent – to bring drugs such as Orkambi to NHS patients in an affordable way. A state-run manufacturer would be set up to produce such drugs where necessary. A poll, conducted by ComRes on behalf of the PR firm MHP, gave the policy an 86 per cent approval rating.

Not everyone was on board, however. The Sun decried “Soviet-style rules on drug firms”. The Telegraph agreed that this “drastic regulation... would stifle research and development leading to fewer options for patients”.

And while Labour delegates, as a group, can be relied upon to be suspicious of Big Pharma, this is an industry that employs nearly 70,000 people in this country in well-paid, sustainable, satisfying work. In 2015, the pharma industry paid £8.6bn in taxes. The sector supports a wider “life sciences” industry that contributes an estimated £30bn a year to the economy. This is not something the British economy can afford to lose, especially now.

As the industry tells it, the biggest challenge to Labour’s policy is that, without intellectual property, companies have no incentive to do medical research. While the Association of the British Pharmaceutical Industry (ABPI) conceded that “the situation on Orkambi is rare, but it is clearly unacceptable”, it also argued that “the seizure of new research... would completely undermine the system for developing new medicines”.

But Professor Karl Claxton, a health economist at the University of York and a founding member of the Technology Appraisal Committee at the National Institute for Health and Care Excellence, thinks such a policy would actually benefit research in the long run. Without such regulation, he explains, pharmaceutical companies are given perverse incentives “to invest a lot of money in very high-cost developments, with marginal and very uncertain benefits”. A clear symptom of this, he says, is the huge sum invested in parallel research by different companies on the same drugs and diseases.

Pharmaceutical companies, he argues, need “a clear signal of how much the health system can afford to pay for the benefits of any development they might invest in”. Without this information they can waste billions developing the same drugs as their competitors. Meanwhile, “healthcare systems around the world are then confronted with incredibly high-cost medicines”, and are forced to choose between marginal benefits for a few patients, or reduced outcomes overall.

Claxton was involved in the creation of a similar policy in Canada, now passed into law, in which the national government tells pharmaceutical companies what it can afford to pay for the benefits of their products, in order to inform investment and research. In rare instances, “when an originator manufacturer refuses to sell, but we know that they could sell at the rebated price and still make a profit”, the government would decide to view the situation as “non-use of patent”. In many countries, the failure to use a patent, trademark or other intellectual property can be used as a means to revoke it.

But for any government to have “a credible threat” in this situation, Claxton says it would need “a generics manufacturer that will be willing to take up that compulsory license”. And to be able to make that happen, the company would probably need to be publicly owned or managed.

Melissa Barber, a doctoral student at Harvard University who researches public health policy, points out that a government could also use compulsory licensing to import a medication. This, too, would have its benefits, in that it is “easier and more probable”, but also because at the moment, “a lot of drugs are only manufactured by one or two firms – if you have an earthquake where that factory is, you've got an issue”.

Barber also points out that compulsory licenses aren’t only used for medicines. “More compulsory licenses have been issued in the United States, probably, than anywhere else," she points out, and examples include "medical devices, industrial technologies, and military technologies”. These licenses have included software, petroleum technologies and tow-truck parts.

Dzintars Gotham, a researcher and consultant to the World Health Organisation, adds that the US and Canada have already used the threat of compulsory licensing, when it was necessary to force a manufacturer to alter the price of an antibiotic that treats anthrax.

Gotham, too, sees the Labour policy as relatively uncontroversial. While compulsory licensing of new drugs is uncommon in wealthier countries, he says, “it's completely in line with what the United Nations has been recommending for the last 20 years. It's comfortably enshrined in international law that governments can do that.”

UK law even has an extra provision, called “crown use”, in which the government may authorise anyone to make, import or use a product without the consent of the patent-holder, “for the services of the Crown”. The Crown in this sense means the state, not the monarch.

But while such abilities are legally established, Gotham says the idea that the government would suddenly begin manufacturing its own drugs across the board is “fearmongering”, and “unprecedented in any country in the world”. The more likely situation, he says, would be that “if NICE negotiates reasonably and in good faith with an originator for an entire year, and cannot agree on a price, NICE faces two options – either they give up, the UK doesn't have access to the drug and patients suffer, or they say, well, at this juncture we're going to use a crown use license.”

Karl Claxton says he wouldn’t necessarily expect the government to use this stick at all. His hope is that the “compulsory license option will be used never, or once”.

And it is not only patented medicines that are expensive. Where generics – medicines that have fallen out of patent– are made by one company, they, too, can be subject to huge price hikes. The cost of quetiapine, which is used to treat serious mental illnesses, rose by more than £110 per pill – an increase of over 7,000 per cent – from 2017-18, while at least 32 other drugs have had more than tenfold increases in price this decade. These are drugs that are more than 20 years old, on which the only cost is manufacturing.  “I think there's a really good case to say that we can't rely on market competition to get us the generics that we need,” observes Claxton.

Advocates of the policy also point out that the government has in many cases already paid for research. For example, the medicine on which the NHS has spent the most money overall is adalimumab, sold under the brand name Humira. Until its patent expired in October last year, Humira was used by around 46,000 patients in the UK at a total cost of over £400m a year (a lower-cost generic version is now used). For scale, the budget of the Manchester Royal Infirmary – the largest hospital in the country’s busiest hospital trust – has a budget of £380m.

But the technology behind adalimumab was developed in a laboratory owned by the British government’s Medical Research Council. That technology – monoclonal antibodies – is now behind six of the ten most profitable drugs in the world, supporting a market for drugs companies that is worth £90bn a year. The government pays once to develop medicines and again to use them – and they cost a lot more once they’ve been shown to work.

While both sides can argue the economics and the fairness of such policies, there are some policymakers – and not only on the left – for whom they are becoming inevitable. Ongoing medical crises have forced some governments to disregard patents, most notably South Africa, where the government has spent a decade fighting the pharmaceutical industry for access to cheaper generic versions of the retroviral drugs needed to treat HIV, which affects almost 20 per cent of the country’s adult population.

This is not a situation that policymakers should assume will be confined to the global south. Jim O’Neill, the former Conservative Treasury minister and chair of the government’s review of anti-microbial resistance, said in March that state-run “utilities” might be the only solution to the growing crisis. O’Neill’s 2014 review warned that antimicrobial resistance, if not addressed, could lead to ten million deaths a year by 2050 and cost $100trn. Crises of such magnitude are not solved by the market alone.

This article was amended on 11 October 2019 to reflect the fact that the patent on Humira expired in October 2018 and that a lower-cost version is now used by the NHS.

Will Dunn is managing editor of the New Statesman.