Print Friendly, PDF & Email

Insights into Editorial: A right time to shift pharma gears



We are living in the shadow of the COVID-19 pandemic anxious about our families, our friends and ourselves, depressed by worldwide suffering and anxiety, upset by knowing that once more the poor and marginalised are worse affected.

Medicines are among humanity’s greatest achievements. They have helped attain dramatic improvements in health and longevity as well as huge cost savings through reduced sick days and hospitalizations.

The global market for pharmaceuticals is currently worth Rs.110 crore lakh annually, 1.7% of the gross world product (IPFPA 2017).

Roughly 55% of this global pharmaceutical spending, Rs.60 lakh crore, is for brand-name products, which are typically under patent.

Rules and practices of health care around the world have been better suited to this outbreak?

  1. In India, the profit-maximising monopoly price of a new medicine is much lower, but similarly unaffordable for most citizens.
  2. In the United States, thousand-fold (100000%) mark-ups over production costs are not atypical.
  3. To be sure, before such huge mark-ups can yield any profits, commercial pharmaceutical innovators must first cover their large R&D costs, currently Rs.14 lakh crore a year, 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.
  4. Consider the Health Impact Fund as a plausible institutional reform of the current regime for developing and marketing new pharmaceuticals.
  5. Commercial pharmaceutical research and development (R&D) efforts are encouraged and rewarded through the earnings that innovators derive from sales of their branded products.
  6. These earnings largely depend on the 20-year product patents they are entitled to obtain in WTO member states.
  7. Such patents give them a temporary monopoly, enabling them to sell their new products without competition at a price far above manufacture and distribution costs, while still maintaining a substantial sales volume.

Funding R&D and Concerns: There are three main concerns:

We should evidently continue funding pharmaceutical R&D, it is worth asking whether our current way of doing so is optimal.

First, innovators motivated by the prospect of large mark-ups tend to neglect diseases suffered mainly by poor people, who cannot afford expensive medicines.

  1. 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&
  2. 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.

  1. Consequently, most people around the world cannot afford advanced medicines that are still under patent.
  2. This is especially vexing because manufacturing costs are generally quite low.
  3. 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.

  1. Firms earn billions by developing duplicative drugs that add little to our pharmaceutical toolbox and billions more by cleverly marketing their drugs for patients who won’t benefit.
  2. These large R&D investments would be much better spent on developing new life-saving treatments for deadly diseases plaguing the world’s poor.

To address these problems, proposal of a complement to the present regime:

The Health Impact Fund as an alternative track on which pharmaceutical 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.

Health Impact Fund: On funding to Registered Products:

  1. The Health Impact Fund could start with as little as Rs.20000 crore per annum and might then attract some 10-12 medicines, with one entering and one exiting in a typical year.
  2. Registered products would then earn some Rs.17000-Rs.20000 crore, on average, during their first ten years.
  3. Of course, some would earn more than others by having greater therapeutic value or by benefiting more people.
  4. 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.
  5. Non-contributing affluent countries would forgo the benefits: the pricing constraint on registered products would not apply to them.
  6. 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.
  7. 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.

Benefits of Health Impact Fund:

  1. Such projects would predominantly address communicable diseases, which continue to impose devastating disease burdens mainly upon the poor.
  2. 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.
  3. Pharmaceutical innovators would thus have been much better prepared to supply or develop suitable medicines for containing the COVID-19 outbreak.
  4. The Health Impact Fund would make an important difference also by rewarding for health outcomes rather than sales.
  5. For selling a medicine, it helps, of course, 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.
  6. With exorbitant mark-ups, 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.

For achieving health gains with their product, innovators need different strategies:

They need to think holistically about how their drug can work in the context of, or in synergy with, other factors relevant to treatment outcomes.

They need to think about therapies and diagnostics together, in order to identify and reach the patients who can benefit most.

They need to monitor results in real time to recognize and address possible impediments to uptake or therapeutic success.

They need to ensure that high-value patients have affordable access to the drug and are properly instructed and motivated to make optimal use of it with the drug still in prime condition.

In sum, a reward mechanism oriented towards health gains rather than high-mark-up sales would lead to a sustainable research-and-marketing system that is better prepared for fast and effective responses to outbreaks of unknown diseases, such as COVID-19.

Issue of government risk can be eliminated:

  1. Participation of commercial pharmaceutical firms is crucial for tackling global pandemics. They are best suited to develop and scale up provision of new vaccines and medications fast.
  2. 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.
  3. 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.
  4. Nowhere is this focus on results, which the Health Impact Fund would encourage in innovators, more important than in the domain of communicable diseases.
  5. Collaborating with national health systems, international agencies and NGOs, such a firm would seek to build a strong public-health strategy around its product. Its highest goal would be complete eradication.
  6. If it succeeds in year seven, it can enjoy the world’s gratitude and collect three additional handsome reward payments for investment in its other research projects.


Applying this point to a new disease like COVID-19 is complicated by the fact that we lack here a well-established baseline representing the harm the disease would have done in the absence of the new medicine to be assessed.

For malaria, such a baseline can be established on the basis of a stable disease trajectory observable over many years.

In the case of a new epidemic, one must rely on a modelling exercise that estimates the baseline trajectory on the basis of obtainable data about the spread of the disease and its impact on infected patients.

This surely is a challenging undertaking which cannot yield precise or uncontroversial results about what damage the epidemic would truly have done if the vaccine or medication in question had not appeared.


Insights Current Affairs Analysis (ICAN) by IAS Topper