A right time to shift pharma gears
#GS2 #Health #GS3 Research&Development
Commercial pharma research and development (R&D) efforts are encouraged and rewarded through the earnings that innovators derive from sales of their branded products. To be sure, before such huge markups can yield any profits, commercial pharmaceutical innovators must first cover their large R&D costs, including the cost of clinical trials needed to demonstrate safety and efficacy, the cost of capital tied up during the long development process, and the cost of any research efforts that fail somewhere along the way.
What are the concerns with R&D?
- First, innovators motivated by the prospect of large markups tend to neglect diseases suffered mainly by poor people, who cannot afford expensive medicines. The 20 WHO-listed neglected tropical diseases together afflict over one billion people (WHO n.d.) but attract only 0.35% of the pharmaceutical industry’s R&D (IFPMA 2017, 15 and 21). Merely 0.12% of this R&D spending is devoted to tuberculosis and malaria, which kill 1.7 million people each year.
- Second, thanks to a large number of affluent or well-insured patients, the profit-maximising price of a new medicine tends to be quite high. Consequently, most people around the world cannot afford advanced medicines that are still under patent. This is especially vexing because manufacturing costs are generally quite low. Every year, millions suffer and die from lack of access to medicines that can be mass-produced quite cheaply.
- Third, rewards for developing and then providing pharmaceutical products are poorly correlated with therapeutic value. Firms earn billions by developing duplicative drugs that add little to our pharma toolbox — and billions more by cleverly marketing their drugs for patients who won’t benefit. These large R&D investments would be much better spent on developing new life-saving treatments for deadly diseases plaguing the world’s poor.
Solution – Health Impact Fund
- To address these problems, it is proposed to complement the present regime – the Health Impact Fund as an alternative track on which pharma innovators may choose to be rewarded. Any new medicine registered with the Health Impact Fund would have to be sold at or below the variable cost of manufacture and distribution, but would earn ten annual reward payments based on the health gains achieved with it.
- The Health Impact Fund could start with as little as ₹20000 crore per annum and might then attract some 10-12 medicines, with one entering and one exiting in a typical year. Registered products would then earn some ₹17000-₹20000 crore, on average, during their first ten years.
- Long-term funding for the Health Impact Fund might come from willing governments — contributing in proportion to their gross national incomes — or from an international tax, perhaps on greenhouse gas emissions or speculative financial transactions.
- Non-contributing affluent countries would forgo the benefits – the pricing constraint on registered products would not apply to them. This gives innovators more reason to register (they can still sell their product at high prices in some affluent countries) and affluent countries reason to join.
- The Health Impact Fund would get pharmaceutical firms interested in certain R&D projects that are unprofitable under the current regime – especially ones expected to produce large health gains among mostly poor people. With the Health Impact Fund in place, there would be much deeper and broader knowledge about such diseases, a richer arsenal of effective interventions and greater capacities for developing additional, more targeted responses quickly.
- The Health Impact Fund would make an important difference also by rewarding for health outcomes rather than sales. For selling a medicine, it helps if this medicine is known to be effective. But it is quite possible to sell a relatively ineffective drug or to sell a drug to patients who will not benefit from it or would benefit more from another. With exorbitant markups, this sort of thing happens often: firms seek to influence hospitals, insurers, doctors and patients to use their patented drug and to favour it over others.
- Participation of commercial pharmaceutical firms is crucial to develop and scale up provision of new vaccines and medications fast. At present such firms do, however, face discouraging business risks from governments who may — as some have done — use compulsory licences to divest them of their monopoly rewards. Health Impact Fund registration would remove this risk as states would have no reason to interfere with innovators whose profit lies in giving real and rapid at-cost access to their new product to all who may need it.