Written evidence submitted by Universities Allied for Essential Medicines

 

Introduction

The following paper was written by members of the public health advocacy group, Universities Allied for Essential Medicines (UAEM). As an organisation, it is our aim to advocate for the maximal public health impact of pharmaceutical products in order to fulfil the universal human right to health. This includes challenging political, legal and economic barriers preventing access to essential medicines (particularly to individuals and communities in developing countries), while calling for the development of pharmaceutical agents which respond to unmet public health needs. This includes products for neglected and tropical diseases, as well as new antibiotics and incremental advances on existing medicines which the pharmaceutical industry has so far failed to deliver.


The inquiry by the UK Parliament Scientific Select Committee into R&D funding presents an opportunity for UAEM to bring to light evidence in favour of a change in the traditional pharmaceutical R&D regime in such a way as to stimulate innovation and improve access, so that public health benefits may be delivered to all. This is also an opportunity for the UK Government to be a world leader in shaping a new model for pharmaceutical R&D which is both better-suited to future health challenges and better able to deliver on the UK’s continuing commitment to upholding human rights around the world


Executive Summary

 

 

Background

  1. The pharmaceuticals sector is the largest performer of R&D in the UK.

 

1.1.                                      It is responsible for 28% of all R&D expenditure in 2011 (worth £4.9 billion), and attracted 40% of UK overseas R&D funding in 2011 (NAO, 2013).

1.2.                                      This expenditure was mainly concentrated in two corporations (GlaxoSmithKline and AstraZeneca).
 

  1. UK Government investment in Public Research Institutions has decreased just as its funding for R&D conducted by business has increased.

 

2.1.                                      Between 1995 and 2011 the government departments have reduced their investment into R&D undertaken by Public Research Institutions by 46%, contributing to a drop of 19% in Public Research Institution R&D value.

2.2.                                      In parallel, government funding for R&D by UK business has increased by 19%, on a backdrop of increased UK business research value of 34% (NAO, 2013).

 

  1. A significant proportion of UK government funding for business R&D is indirect, provided in the form of tax relief.

 

3.1.                                      Tax relief increased significantly between 2007 and 2011 from £857 million to £1.09 billion. The majority of this growth came from claims made by large companies.

3.2.                                      Tax relief programmes have been successful at leveraging more private sector investment than otherwise would have occurred (HMRC, 2010).

  1. Public Sector Research Institutions in the UK have a history of excellence and efficiency.

 

4.1.                                      UK research is rated as most productive in the G8 countries with more papers and citations per pound spent. It is also of top quality, accounting for 14% of the most highly-cited articles worldwide (BIS, 2011).

4.2.                                      The Laboratory of Molecular Biology, for example, has won 13 Nobel prizes since being established (BIS, 2011).

 

  1. The traditional pharmaceutical R&D regime is characterised by a market-driven research agenda (MSF & DNDi, 2012) with little-to-no collaboration between research entities, beyond philanthropic partnerships, mergers and acquisitions (Juliano, 2013).

 

  1. In this model, the final market price of the product is linked to the cost of R&D. This means that investment decisions made by pharmaceutical research entities, as well as the research agenda, are determined more by expected market returns than by public health need (Pugatch et al, 2012).
     
  2. This cost-price linkage underlies the following problems:

 

The end-products of pharmaceutical innovation are often prohibitively priced

      1. The current pharmaceutical R&D method is predicated on treatment of physiological responses to diseases, rather than one focused on understanding underlying disease mechanisms (PwC, 2007). This has contributed to the high rate of candidate attrition in drug development  (5,000-10,000 failures for every successful candidate) as well as a longer duration for the overall process (10-15 years from lead compound discovery to market approval), pushing up costs (PhRMA, 2007).
      2. These high costs and high risks have historically been borne by individual research entities. In fomenting a competitive intellectual property environment, this pattern has had two effects:
        1. Pushing up prices through the provision of at least twenty years’ market exclusivity for innovations. With World Trade Organization TRIPS legislation, this market exclusivity is increasingly being enforced around the world (‘t Hoen, 2002). This, along with infrastructural barriers is known to limit access to pharmaceuticals in both developed and developing countries (‘t Hoen, 2002; Angell, 2004);
        2. Corporate secrecy leading to duplication of effort by competing pharmaceutical companies, wasting financial and human resources while amplifying the cost of research failures (Hirschler, 2011).

 

 

7.2                                        R&D costs are spiralling while there is a simultaneous decline in innovation

      1. Whilst the demand for new effective medicines continues to rise with a growing and ageing population, the pharmaceutical industry has failed to capitalise, with increases in R&D spending not being reflected in the number of new molecular entities (NMEs) being granted FDA approval (PwC, 2007).
      2. The number of NMEs has remained at a long term average of about 15-25 per year over the last few decades. The ‘innovation crisis’ is not one of the numbers of NMEs being approved but rather of the quality of them (Light & Lexchin, 2012).
      3. The pharmaceutical industry has turned to developing greater numbers of ‘me-too’ drugs, which provide little or no additional clinical benefit over pre-existing compounds. They are seen as less risky from a financial perspective given that their development is based on known precursors for a known market, and once approved they would acquire the same level of intellectual property protection as ‘breakthrough’ products considered more likely to fail during clinical trials.
        1. Because me-too products occupy a space previously monopolised by truly innovative patented products, their production is also associated with aggressive marketing efforts in order to compete. These costs are often passed onto the consumer (Correa, 2002);
        2. As little as 10-15% of drugs approved since the mid-1990’s offered important therapeutic gains (Light & Lexchin, 2012)
      4. This has seen the research agenda skewed away from one that seeks to address the burden of disease requiring novel therapies, and as such constituted a market failure in particular for drugs such as antibiotics, vaccines and neglected tropical diseases.

 

7.3                                        The pharmaceutical R&D pipeline is emptying

      1. The development of compounds on the basis of previous research successes rather than on comprehensive understanding of disease mechanisms has contributed to an emptying R&D pipeline, as research lines based on fertile precursors are becoming exhausted (BVGH & BIO, 2012).
      2. Increasing R&D investments have led to diminishing returns in terms of new drugs developed (Scannel, 2012). As a result, a ‘patent cliff’ is looming where approximately USD 78 billion worth of drugs will see their patents expire between 2010-2014 with few new blockbuster drugs being released to recoup this loss (Juliano, 2013)

7.4.             A crisis in antibiotic resistance is imminent

      1. There is now widespread resistance to final-line antibiotics in healthcare-acquired infections.  There is resistance to carbapenems in over 50% of cases of A. baumannii (a cause of pneumonia) and resistance to third-generation cephalosporins in 8-11% of E. coli cases (Shlaes et al, 2013)
      2. This has been precipitated by frivolous R&D and marketing efforts, with an excessive focus by pharmaceutical companies on the development of broad-spectrum agents and sales to a poorly-regulated agricultural market (Nathan, 2004).

 

Changing Environment

 

  1. The global political-economic landscape of the pharmaceutical industry is changing.

 

8.1                                        The US / EU share of the global pharmaceuticals market is declining, while the share held by emerging economies is growing

      1. Between 2005 and 2015, the US and EU share of the global pharmaceuticals market is estimated to decline from 68% to 50%, while the share of 17 emerging economies will grow from 12% to 28% (CEWG, 2012).
      2. This presents an opportunity for the UK pharmaceutical industry to capitalise on new investments from overseas.

 

8.2                                        New actors are becoming prevalent in the pharmaceutical R&D arena

      1. Biopharmaceutical SMEs are contributing to 48% of scientifically novel product approvals worldwide (BVGH & BIO, 2012).
      2. Product Development Partnerships (PDPs) have been responsible for 70% of NMEs developed since the late 1990s (Moran et al, 2005), funded largely by philanthropic organisations and governments.
      3. Higher Education Institutions are playing an increasingly important role in undertaking R&D in the UK, seeing an 86% real term increase in R&D funding between 1995 and 2011 (NAO, 2013).
        1. Universities were the source of over a quarter of all new drugs approved by the FDA between 1998 and 2007.
        2. 30% of the ‘priority’ drugs, those anticipated to provide substantial benefit over currently marketed drugs, were generated in universities. (Kneller, 2010)

 

8.3                                        Philanthropic funding has declined since the global financial crisis

      1. PDPs have announced that they cannot continue to be heavily reliant on philanthropic funding (Moon, 2009). New investments need to be harnessed from the private sector. This may be achieved through changing the way in which public sector funding is provided (see below).

 

8.4                                        The changing global political-economy is rendering pharmaceutical companies more co-operative with novel initiatives

      1. The ‘patent cliff’ (BVGH & BIO, 2012) and emptying R&D pipelines (Hu et al, 2007) have made pharmaceutical companies more willing to engage in open-source initiatives (Mehen, 2011).

 

Solutions to Problems

  1. The UK Government can implement ‘push’ and ‘pull’ mechanisms to ‘de-link’ the cost of R&D from the pricing of the end-product (Pugatch et al, 2012).

9.1                                        ‘Push’ mechanisms relieve research entities of some or all of the financial risk involved in R&D. They may also be used to provide smaller research entities with the necessary start-up capital (Grace, 2010).

      1. Push mechanisms include:
        1. Direct financial stimuli, such as research grants;
        2. Indirect financial stimuli, such as tax credits;
        3. Collaborative business models in which risks are pooled, such as open source initiatives and product development partnerships (Pugatch et al, 2012)

9.2                                        ‘Pull’ mechanisms make the prospect of reward for R&D success more attractive (Grace, 2010)

      1. Pull mechanisms may be used to:
        1. Make the market more viable, in the case of Advanced Market Commitments and patents;
        2. Replace or supplement the market when it is insufficient to stimulate research efforts, in the case of R&D prizes.

 

  1. Pugatch et al (2012) recommended separating the stages of pharmaceutical R&D in terms of whom each is conducted by and which push and/or pull mechanisms are applied.

10.1                                    Contrary to the traditional ‘in-house’ model of pharmaceutical research, in which all the risk and effort is borne by a single entity, this approach is designed to mitigate the extent to which investment and research decisions are made according to expected market return.

 

  1.             The following discussion will focus on the idea that government funding may be used to induce partners to engage in collaborations, as a risk-pooling ‘push’ to encourage more productive and innovative R&D efforts.

 

  1. Push Mechanisms - Collaborative Business Models

12.1                                    Overview:

      1. Collaborations necessarily involve pooling of risk and resources, making the research they conduct more attractive to private sector investors (Munos, 2006).
      2. Collaborations furthermore bring together diverse research entities, promoting greater innovation (Munos, 2006).
      3. There is also a general correlation between industry investment in research and prior publically-funded research (Toole, 2007).
      4. Open-Source Initiatives, in the vein of the Linux computer operating system, have been increasingly pursued in pharmaceutical R&D (Hirschler, 2011). They have a number of advantages over the traditional ‘in-house’ R&D model:
        1. Present unprecedented potential for collaboration between diverse research entities (Masum & Harris, 2011)
        2. Avoid duplication of effort (Hirschler, 2011)
        3. ‘Bench-to-bedside’ R&D may be accelerated as the lessons learned by other research entities are shared (Hu et al, 2007).
        4. ‘Bedside-to-bench’ R&D, involving the discovery of novel applications of existing drugs in the field may also be accelerated (Munos, 2006).
      5. However, open-source initiatives are limited in their suitability for application to pharmaceutical R&D. By definition, they rely on the free sharing of knowledge. While this allows for prolific knowledge-generation at the earlier, low-risk and low-cost ‘knowledge-based’ discovery stages of pharmaceutical R&D, it may not be suited to riskier and costlier clinical phases of research due to the complexity of protecting IP and the associated assurances of returns on investments made by research entities (Munos, 2006).

 

12.2                                    Product Development Partnerships (PDPs)

      1. A type of public-private partnership, the PDP is a virtual non-profit organisation which outsources activities to partners in the academic, NGO, public and private sectors, using funding and other contributions from public and in-kind private sources (Grace, 2010).
      2. Multiple avenues of innovation are pursued simultaneously, with a portfolio of pharmaceutical R&D projects managed by the PDP and consulted on by an independent committee of scientific experts.
      3. Their main functions, then, are the following:
        1. Link expertise from different spheres;
        2. Provide public funding;
        3. Provide technical oversight;
        4. Manage a portfolio of research projects.
      4. They operate with the objective of developing health products of a specific type (e.g. drugs or vaccines) and, in some cases, for a specific disease area.
      5. Advantages:
        1. Harness the inputs of diverse entities, allowing the optimal utilisation of their respective resources and unleashing otherwise untapped potential, including:
        2. Unprecedented up-scaling and commercialisation of novel academic discoveries using the capital and experience of private sector actors;
        3. Navigation of new and unfamiliar markets by private sector actors, with the aid of field-experienced NGOs;
        4. The partnership model allows for the development of in-roads for the training of the next generation of human resources in pharmaceutical R&D (Grace, 2010).
        5. Virtual administrative structure keeps overheads low (Munos, 2006).
        6. Project focus allows for rapid decision-making unfettered by conflicting business interests (Munos, 2006; Juliano, 2013).
        7. Outsourcing tasks to Contract Research Organisations (CROs) bypasses the need for out-of-pocket expenditure on start-up capital, reducing costs (Hu et al, 2007).
        8. Historically, PDPs have been able to operate on very small budgets compared with ‘big pharma’.
          1. For example, the cumulative spend by the Medicines for Malaria Venture between 2000 and 2005 was USD 100 million, 90% of which funded actual research (Munos, 2006).
        9. Builds research capacity in developing countries (Juliano, 2013).
        10. Some PDPs offer private sector actors intellectual property over the results of their contributions in order to secure their input, with the opportunity of developing more commercial applications for new technologies (Pugatch et al, 2012).  
      6. Disadvantages:
        1. The model has so far failed to demonstrate its sustainability, with the majority of projects coming from shelved pharmaceutical company projects (Munos, 2006).
        2. Continued reliance on philanthropic funding is unsustainable (CEWG, 2012).
        3. The PDP model has yet to be applied to an area other than neglected and tropical diseases (Munos, 2006).

 

12.3                                    Non-profit Drug Development Corporations (NPDDCs)

      1. This is a novel partnership model proposed by Rudolph Juliano (2013), in order to adapt the PDP model so that its benefits may be applied to R&D outside of NTDs.
      2. The model he describes is as follows:
        1. Partners from the academic, NGO and biopharmaceutical sectors form a joint venture virtual organisation (a ‘Board of Directors’, as shown in Figure 3), responsible for the management of a portfolio of research projects (in the same vein as PDPs), which may be outsourced to contract research organisations (CROs). CROs may also be partners.
        2. A governmental funding body sets the research agenda (according to public health need), and invites applications for grant funding from different, competing NPDDCs.
        3. Applications will contain meticulous details as to the contributions of and division of labour between different partners, the share ownership and intellectual property arrangements concerning the resultant technology, as well as conventional research proposals concerning the line of inquiry to be pursued.
        4. Contributions of partners need not necessarily be financial. Pharmaceutical companies, for example, could donate access to chemical databases or human resources on a pro bono basis, while universities could offer faculty research time (Juliano, 2013).
        5. Grant funding will be allocated on the strength of these applications.
      3. Multiple NPDDCs may be recruited by government to pursue the same, or different, research goals in parallel.

 

 

 

12.4                                    Advantages:

        1. Corporate entities may be induced to join these partnerships with the prospect of different income streams in the form of government purchases, as well as royalties from licensing of products to manufacturers of generics.
        2. Government may set the research agenda, encouraging drug development to meet public health needs.
        3. Financial reward for investment by government allows for the refilling of public coffers, contrasting with tax credits which constitute a one-way flow of public finances.
        4. NPDDC business model is in line with ethos of BIS’ Catapult initiative, in developing a deeper relationship between academia and industry.
        5. Academic partners stand to make greater financial returns on the work that they contribute to commercially-viable knowledge.
        6. Fostering a deep relationship between academia and industry allows for the development of graduate career prospects.

12.5                                    Disadvantages:

        1. As-yet untested as a business model.

 

 

 

Socially-Responsible Licensing (SRL)

 

  1. The prospect of Intellectual Property (IP) protection has historically been important in inducing the research efforts of pharmaceutical companies.

13.1                                    The patent system has been defended by pharmaceutical industry figures as being the main incentive for R&D, in the case of up to 65% of all pharmaceutical products developed (Mansfield, 1986).

13.2                                    As such, any efforts to encourage the formation of new partnerships must balance the interests of different partners. This includes managing IP in a way that neither compromises the aims of the partnership (in terms of public health benefit and cost-reduction), nor the co-operation of industry partners.

 

  1. Management of IP has an impact on accessibility of innovations.

14.1                                    IP barriers on publicly-funded research may be responsible for driving the cost of such medicines out of the reach of patients who need it, particularly in developing countries. IP barriers may also inhibit further technological development by researchers.

14.2                                    SRL is an important factor in ensuring affordable access to lifesaving medicines even during their patent protection in the developed world (Stevens & Effort, 2008; Anderson, 2007; Busang et al, 2011).

 

  1. SRL policies are unlikely to harm the value of technologies.

15.1                                    Gilead Sciences introduced SRL principles into its own practices. During this time Gilead’s stock price continued to climb, indicating that any loss of market share in the developing world didn’t diminish the stock value (Stevens & Effort, 2008).

 

  1. SRL practices are becoming implemented worldwide, but inconsistently and without government accountability.

16.1                                    Five UK Universities have signed onto various forms of SRL, and the practice is beginning to spread across Europe with universities in Germany and Norway also adopting SRL policies.

16.2                                    However, this method of policy-setting lacks consistency, and central government lacks any accountability regarding the management of IP generated under publicly funded research.

      1. In contrast, the Wellcome Trust requires grant recipients to consult the Trust’s own technology transfer department to ensure licenses comply with Wellcome Trust policy regarding humanitarian use. (Wellcome Trust, 2000)
      2. SRL comes in many forms including market segmentation, generics policies, and diligence/performance clauses with step in rights (Busang & Wolson, 2013)


 

Recommendations for Parliament

  1.             The UK Government, in changing how it funds R&D, should induce research entities to adopt collaborative approaches, particularly open-source initiatives and non-profit drug development corporations. Not only will this allow for more innovative R&D and a higher success rate at a lower cost than allowed by the market-driven model for R&D, but it will also allow government to set the research agenda according to public health need while ensuring greater returns for public-sector partners.

 

  1.             The UK Government should apply more stringent conditions on disbursal of its funding, in order to use it as a source of leverage to encourage more publicly-minded behaviours from research entities. For example, applications for research grants should include clauses requiring the open publication of findings (both negative and positive) and socially-responsible licensing practices (see 19).

 

  1.             Current SRL practices in the UK are insufficient. Current policy making does not provide consistency, transparency or accountability between institutions. A centralised policy instituted by research funders would hold greater power in license negotiations, therefore such policies should be set by Research Councils UK and government departments. Such policies should also be a condition included in grant applications.

 

  1.             Shifting funding for R&D from dedicated public institutes towards efforts aimed at business-led research risks their capacity to continue excellent research. Given the historic excellence of output from public research institutions, R&D support from government sources would be better spent supporting them rather than offering tax credits to companies.

 

  1.             If public R&D funding is sought by larger businesses, the government has an obligation to ensure that the public benefits from research undertaken (for example, through SRL and open publication of findings).

 

  1.             The UK Government already has the infrastructure in place to implement these suggestions. For example, RCUK may be well-placed to act as the gatekeeper for government R&D funds to NPDDCs.

 

August 2013

 

 

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