Publicly Funded Drug Research

September 2017


Policy Issue

The pharmaceutical industry is charging ever higher prices for its drugs, making them unaffordable for individuals and public health care systems. While the U.K., unlike the U.S., negotiates drug prices with manufacturers, there have been some instances where it has been unable to reach an agreement on providing potentially lifesaving drugs to patients in the U.K. Even the negotiated prices are rising rapidly, taking up an ever large share of the National Health Service’s (NHS) budget.

The adequate provision of social care is a major issue facing the UK. A near crisis has been triggered by the failures of privatised provision, aggravated by the austerity inflicted upon the NHS.

However, it is not just a question of providing enough care but also about developing new and different forms of care. People’s expectations of living longer lives affects how they want care to be delivered.  Increasingly people want care delivered at home or locally in the community in a personalised way. 


What policy should a Labour government implement to reduce the burden on the NHS of overall expenditure on drugs without health-threatening rationing of drugs?


Analysis

It is government policy, not market processes, which cause high drug prices. Patent monopolies have the negative effects that free market oriented economists typically ascribe to government interference in the market.  Altering government policy would make drugs cheaper for the NHS and thus increase provision. 

Patent monopolies provide incentive for research and development of new drugs. The same purpose would be achieved by governments funding research directly. The research could be carried within the public sector (for example in the NHS or universities) or contracted to private companies, including those that now do patent-supported research.

Public funding would allow patents to be placed in the public domain facilitating production of generic drugs.  This would be internal to the UK and countries with which there are reciprocal agreements.  The UK government would derive revenue from patent rights in other countries.  In almost all cases this approach would result in drugs being available to the NHS at a low cost, because few drugs are expensive to manufacture. Patents and other government-granted monopolies make drugs expensive, not the cost of producing them.

In addition to the savings from having drugs sold as generics, there would also be the benefit to public health resulting from full and open information about the safety and effectiveness of the drug.  Patents give drug companies an incentive to misrepresent effectiveness of their drugs and to conceal evidence that is harmful to patients.

If the UK government financed research, findings could be fully public. This would include all the results of clinical trials (subject to confidentiality restrictions), which would allow physicians and other researchers to determine the best drug for specific patients.  For example, some drugs may prove more effective for women than men, or older people than younger, or lead to negative reactions for people with specific conditions.  Making clinical trial results fully public would lead to better prescribing decisions and better directed research on future drugs.

In a context in which the UK government alone directly public funded research it could act like a drug company in marketing its drugs overseas.  It could set prices comparable to what other drug companies charge for their drugs or consciously drive down prices. Marketing and negotiation could be contracted out to private companies.

Even a small number of new drugs made available at generic prices would be an incredibly powerful example. At modest cost the NHS could have state of the art drugs for treating cancer, AIDS, and other deadly diseases. This would generate pressure to have all drugs financed publicly.  Also, making the data from clinical trials fully open to the public will be a powerful precedent which could force the pharmaceutical industry to do the same.    

Patents and other forms of intellectual property have been a major factor in the upward income redistribution of the last four decades. If alternatives to patents can be developed in the pharmaceutical industry, they may be applied to other sectors.  If more progressive mechanisms can be developed to promote research and creative work, it could contribute toward reversing the rise in inequality.  

Policy Framework

NHS should buy the rights to promising drugs at the pre-clinical phase and pay for the clinical trials. It could also buy the rights to drugs at the first stage of clinical testing and pay for the larger and more costly phase II and phase III trials.  If these trials proved successful, new drugs could be on the market at generic prices in five to ten years after the testing has begun.  While there is considerable dispute about the cost of clinical trials, it is likely that the average cost for clinical trials for a successful drug would be in the neighborhood of 100 million pounds.

The savings and profits from other countries could easily dwarf the funds invested in purchasing the rights to the drug and the trials.  The savings would be from the new drug sold as a generic, as well as the price reduction impact on other drugs.  

The UK government could adopt a “copyleft” policy on the patents from its research whereby others are free to use the findings, as long as any subsequent patents were themselves subject to copyleft restrictions.  They would be fully open to any manufacturer that did not seek to patent an innovation in restriction of general access. 


    Dean Baker is co-director of the Center for Economic and Policy Research, Washington, DC. 

    This policy brief may be downloaded as a pdf here


    Social PolicyDean Baker