The cost of medicines is on the agenda this week at the World Health Organisation’s annual policy meeting, the World Health Assembly, in Geneva.

Non-governmental organisations and certain middle-income countries continue to argue that market-based drug development – reliant on intellectual property rights (IPRs) as its primary incentive – makes medicines too expensive. It fails, they say, to provide cures for those most in need but who can’t pay, such as people in developing countries.

On the fringes of the assembly, NGOs and academics talk excitedly about a new model for drug development, in which research and development (R&D) costs are “de-linked” from the final price of a drug.

In practice, this would gradually erode intellectual property rights, and expand the role of academia and the public sector in drug R&D. Resulting taxpayer funded drugs could be distributed free or very cheaply and policymakers could prioritise research on the most pressing diseases.

Would a world of publicly funded R&D usher in a new era of cheap medicines to solve the world’s biggest health problems?

The idea’s proponents say that most new medicines already come from the public sector. In a 2015 commentary in the New York Times, Nobel Laureate economist Joseph Stiglitz wrote, “As it is, most of the important innovations come out of our universities and research centres, like the National Institutes of Health, funded by government and foundations.”

It is certainly true that in the United States, the Federal Government is the biggest funder of basic research, via the National Institutes of Health, which disperses grants to universities and other research institutions for early-stage research.

But it is a leap to argue that because publicly-funded universities play an important role in early research, they also have the skills, resources and motivation to undertake the commercialisation of that research.

Taking a drug through clinical trials to regulatory approval takes on average 10 years and costs between US$1.2 billion and US$2.6 billion. It’s a risky business: only one in 10,000 promising drug compounds ends up as a marketed medicine.

Universities simply don’t have the specialist skills and facilities – such as chemical formulation and toxicity testing – to navigate a drug through the clinical trials required by regulators to approve a drug as safe for the market.

Navigating the drug regulatory approval process is costly and demands broad technical and commercial skills, which are concentrated in the private sector. This is why around 80-90% of recently approved drugs were developed entirely in the private sector, according to a study in the New England Journal of Medicine.

Those drugs with publicly funded origins typically come from universities taking advantage of intellectual property laws (such as the Bayh-Dole Act in the United States) to license their early discoveries to the private sector for commercialisation. Countries such as China now also have such legislation, hoping it will bolster local innovative industries, while similar proposals are under discussion in India.

But asking universities to move from basic research into full-fledged drug commercialisation would require enormous subsidies to build technical and commercial capacity, and manufacturing and distribution systems. Universities would be diverted from their core purpose, to advance knowledge.

As it stands, private industry rightly shoulders most of the financial burden and risk of drug development. IPRs – particularly patents – are the key incentive, because they give investors certainty that they can fund risky projects while standing a good chance of getting a return.

They are just as important for small R&D companies as they are for large: evidence shows that the existence of a patent signals to venture capitalists that an early drug idea has potential, helping them to make more informed investment decisions.

Given that early stage biomedical research is highly risky, patents ensure a continued stream of investment, enabling the best ideas to move up the R&D pipeline and eventually to market.

Removing patents from the innovation equation without a workable replacement would be hugely disruptive. The damage would be worse if policymakers committed to a “delinkage” agenda are pinning their hopes on an ill-equipped public sector and academia to conduct considerably more drug R&D.

Instead of utopian attempts to effectively nationalise drug R&D, policymakers concerned about innovation and access to medicines should focus on more practical solutions.

The mandatory clinical trials process is where most drug development costs are incurred, for instance, but regulators have overseen an unwelcome increase in complexity in recent years.

Import tariffs and taxes on drugs remain high in many countries. And too many countries, particularly in Asia and Africa, have dysfunctional healthcare systems that leave patients to shoulder the costs of all their healthcare – meaning even cheap, old drugs are unaffordable to millions.

These are practical areas that could be reformed now. The delinkage agenda under discussion in Geneva this week, while well-intentioned, is a distraction.

 

PHILIP STEVENS

Senior Fellow

Institute for Democracy and Economic Affairs