Healthy Skepticism Library item: 16374

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Report

Cruddas J, Gannon Z
A Bitter Pill to Swallow: Drugs for people not just for profit
: Compass − Direction for the Democratic Left 2009 Aug 29
http://www.thepharmaletter.com/file/3233/new-report-on-uks-big-pharma-highlights-productivity-crisis.html

Abstract:

Executive Summary
The pharmaceutical industry has long been regarded as one of the jewels in the crown of the British economy. It is an industry in which Britain has excelled. But like all other sectors its performance needs to be assessed. It was not long ago that the financial services sector was viewed as even more competitive and world leading. But it has crumbled because of lax regulation. We don’t want to see the same fate befall the pharmaceutical industry. The danger signs are there. Profits and pay are up but productivity is down. Under the threat of flight, companies are lightly regulated in the pursuit of short-term profits driven by the bonus schemes of top executives. In a normal private sector company this would be solely the concern of the shareholders.

But this is not any ordinary sector. Just like the banks, the pharmaceutical companies are too important to fail. Their products determine whether people live or die and what quality of life they have. They aremuch closer to being essential utilities than they think. The argument in this report is not that the pharmaceutical industry should be nationalised but simply that it must be more effectively regulated, so that all stakeholders – the public as well as the private investors – get a better deal. Like housing, transport, gas, electricity and now financial services, some things are too important to be left to the whims of themarket. The pharmaceutical industry should start to be viewed more as a utility and less as part of the casino economy which wreaked havoc with our banks. This does not mean being anti-business – far from it – but it doesmean being pro-society. The current structure of high costs, high profits and a lowrate of innovation is unsustainable. Regulation and intervention is required to save the pharmaceutical industry from its own worst enemy, itself.

The pharmaceutical industry grew in the 1980s to become a commanding symbol of ‘the new economy’ and the power of the market to innovate. But it is failing tomeet our needs for safe and innovative drugs. The pharmaceutical industry is and will continue to fall short of delivering its raison d’être of producing drugs that improve our health.

Since 1991 the NHS drugs bill has grown by over £7.5 billion. This growing cost is not just the case in the UK, as expenditure on pharmaceutical products has grown faster than the gross national product in all European countries.1 At the same time, pharmaceutical companies remain incredibly profitable, with some companies seeing annual profits of between 20% and 30%. Despite these rising costs and profits, innovation is declining; if this decline continues our ability to fight increasingly complex diseases will almost certainly be reduced.

During the late 1980s, nearly 60 new molecular entities were released onto the market each year,2 but this figure had halved to amere 27 by 2007 (see table 1). Between 1993 and 2003 only 152 of the 359 drugs licensed, less than half, offered potential clinical improvements on already existing drugs (see table 2). Meanwhile our drugs bill is skyrocketing. Why are we paying more for less?

This structure of high costs, high profits and low rates of innovation is unsustainable not just for society but also for the industry. One city analyst said, ‘For the first time in history, the industry will have negative growth in 2011.’3 Just like in banking, the market is failing for pharmaceuticals.

It has been estimated that in order to sustain current levels of growth, firms would need to introduce one new product each year that would make on average £2.7 million for each 1–1.5% share the firm has of the world pharmaceutical market. Therefore, a company the size of GlaxoSmithKline (GSK), which is one of the largest of the UK-based pharmaceutical companies, would need to release closer to seven such products each year; however, in 2008 only three of GSK’s products were approved by the Food and Drugs Administration (FDA) for the US market and in the UK only four products were awarded licences by the MHRA, one of which was a Paracetamol product and all of which were me too drugs4 – this is less than half that needed.5 None of the major companies is close to reaching the necessary targets to maintain growth.

The profits that previously sustained the oligopolous pharmaceutical industry are under threat: – Blockbuster drugs account for 60% of the estimated £136 billion in sales of the ten leading pharmaceutical companies;many of the patents on these products will expire in the coming years.6 – Between 2006 and 2011 $40 billion (circa £22 billion) in global sales by the top pharmaceutical companies will be lost.7 – 80 drugs that currently account for about 25% drug sales will lose their patents between 2007 and 2011.8

The industry is no longer innovative. Much of the innovation is found in the public sector. The majority of drugs that are therapeutic advances have their roots in publicly funded research;9 70% of new molecular entities that have entered the market over the last decade were discovered in publicly funded science.10

This decline in innovation and rising costs raises further concerns as the companies try and squeeze more from less through increasingly dubious methods that bring little benefit to the patient or the taxpayer:

First, bias is created through the industry’s control over clinical trials. The industry designs, manages, funds and therefore controls the majority of clinical trials. These clinical trials are used to make licensing decisions and influence prescribing practices. Trials sponsored by the pharmaceutical industry have been shown to contain bias in favour of the industry sponsor.

Second, there is a significant degree of contact between the pharmaceutical industry and medical professionals. The pharmaceutical industry invests heavily to influence doctors. While the Department of Health invests nearly £4.95 million in postgraduate education for doctors, the pharmaceutical industry spend over 300 times as much: £1.65 billion. Influence by the pharmaceutical industry can alter the prescribing habits of doctors, which can result in increased costs to the NHS and unnecessary risks to the patient; it demands effective regulation.

Third, pharmaceutical companies are increasingly seeking to exert influence through patient or advocacy groups in the UK. For the company the ‘strong ties can advance corporate goals and brand objectives’,11 but for the patient group they can limit independence and objectivity. This degree of influence is rife in patient groups. In a study of patient groups that disclosed financial information, 83% had received funding from the industry.

Without appropriate intervention the pharmaceutical markets will continue to fail not just the taxpayer and the patients but their shareholders too.

Effective regulation must now be a priority. This report supports five priority policy proposals, which are described below.

Policy 1: Make a greater investment in publicly funded science.
Hypothecate savings made through introducing greater value-based drugs pricing for an additional £1 billion of funding for publicly supported science research by 2010-11, increasing the total funding for publicly funded science from £1.7 billion to £2.7 billion. Some of this money has already been raised through changes in the pricing system announced in 2007.These changes should now go further. Money could be raised through the savings made from introducing a value-based pricing system, which are estimated to be £500 million per annum. Although much can be made of Alan Johnson’s12 achievements in regards to price cutting, this report argues that this still fails to incentivise therapeutic innovation actively. Therefore the report argues that beyond the obvious arguments for price cuts, the most pressing issue at this time is the cost of drugs in relation to their relative therapeutic efficacy.This report supports the Office of Fair Trading’s proposals for reforming the Pharmaceutical Price Regulation Scheme (PPRS). This would link therapeutic efficacy to price; in the short term it would reduce the NHS bill, and in the long term it would provide the right incentive for drug companys’ research and development (R&D) investments. This would be a step towards ensuring efficacy and therapeutic innovation.
In recent years the government has taken steps to ensure the UK remains at the forefront of drug development. This has included increasing funding on health research, which is estimated to stand at £1.7 billion by 2010-11.This report supports using the estimated saving made through the introduction of a value-based pricing system, which by 2011 could be £1 billion, based on estimated savings of £500 million per annum assuming the scheme was introduced in 2009. This would effectively increase funding by 60% and put total government spending on health research at £2.7 billion – nearly equal to the industry’s estimated investments in R&D. The government must now take action to guarantee that therapeutic innovation will continue, through investing in publicly ponsored research. This not only improves the scientific base, and our potential to make therapeutic breakthroughs, but also can encourage investment in the UK by the drugs industry.

Policy 2: Make clinical trials open to public scrutiny
Independent scientific information is essential for the future of modern healthcare and the future of the pharmaceutical industry. For this reason it is essential that all phase 3 trials be carried out independent from the industry.These could be funded through an industry levy. This proposal was initially put forward by Professor John Abraham from Sussex University in his book Science, Politics and the Pharmaceutical Industry,13 as it would ensure independence and allow greater scrutiny and accessibility to the necessary clinical trial data. Further, any trial used for licensing must have been registered before it was started, as is currently done in the US. This could also be combined with a ‘guilty until proven innocent’ approach on all industry-sponsored clinical trials.

Policy 3: Educate doctors through public funding
For doctors, independence, transparency and freedom from bias are essential.This report has highlighted how through industry funding and influence this is impossible.This report would therefore support greater investment in independent education for doctors and other medical professionals. The current spending by government on information for doctors stands at about £5 million. This report argues that this needs to increase to £10 million, as doctors currently struggle to deal with often conflicting advice.The report would also support other measures to limit industry influence, such as banning or limiting industry contact with doctors. As of July 2009, Massachusetts and Vermont have introduced new legislation banning pharmaceutical companies from lobbying doctors, through providing free lunch and gifts; this report supports similar legislation in the UK.

Policy 4: Review progress made since 2005 Health Select Committee report
The 2005 Health Select Committee report was the largest of its kind. Enacted over eight months, it explored the reality of the pharmaceutical industry and proposed a series of sensible policy proposals, including strengthening the power of the Medicines and Healthcare Products Regulatory Agency (MHRA), curbing intensive marketing by the industry, and adopting a national drugs policy. However, for this report to be most effective we believe that a review of the progress that has been made since its publication is essential and would therefore lend support to such a review.

Policy 5: Control pay and bonuses
Control pay and bonuses so that executive rewards and share options do not disfigure the product market as they did in financial services. Compass will be calling on the government to establish a pay commission to adjudicate on pay in key industries such as the pharmaceutical industry and the financial sector.