The Labour Party’s election manifesto presents something of a mixed bag for pharmaceutical companies.
In broad terms, the party’s pledge to increase total R&D expenditure to 3% of GDP by 2030 (compared to 1.69% in 2017) should mean more funding is available for cutting-edge research. Labour wants the NHS to be at the forefront of developments in the fields of genomics and cell therapies, suggesting some of this funding may be targeted at those specialisms. The Party has also expressed its support for the prescribing of medicinal cannabis, where clinically appropriate. However, other aspects of the manifesto will concern both originator companies and generic manufactures.
Compulsory licensing
The Party’s pledge to prevent patients being “held to ransom by corporations” by taking measures to reduce drugs prices will be of considerable concern to rights’ holders. In order to achieve price reduction, the Labour Party has said that it will establish a state-run generics company, and avail of measures such as crown use licensing and the Patents Act “research exemption” to secure access to generic versions of patents medications.
Crown use licences are provided for under the Patents Act 1977 (the Act) and can be used by any government department (or its authorised representatives) to do acts in the service of the Crown which would otherwise amount to patent infringement. This includes the manufacture and supply of medicines.
In its medicines policy document, Medicines for the Many, the Labour Party describes the Crown use licence as one which, “effectively enables a government to issue a licence to another manufacturer to produce a generic version of a patented drug at a lower price”. In fact, Sections 55(4) and 57A of the Act require the beneficiary of a Crown use licence to pay the rights holder compensation for any loss which results from the Crown use licence. But while in the short-term, any imposition of Crown use licences without adequate compensation is likely to result in litigation, a Labour-led government could amend the drafting of the Act to reduce or even eliminate the fees payable to rights-holders in connection with Crown-use licences.
Whether the Party would be willing to take such radical steps if elected remains to be seen. On a practical level there would almost certainly be implications for relations with key trading partners, including the US and EU member states. This is because the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) sets minimum standards for the protection of intellectual property and is binding on all members of the World Trade Organisation. Article 31(h) of TRIPS requires that, in the case of government-use licences, “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorisation”.
The Labour Party has argued that certain “TRIPS flexibilities” could be employed to allow the use of Crown use licensing, but although the Doha Declaration has recognised the role of compulsory licensing and similar measures in improving access to vital medicines in some of the least developed countries, it is not realistic to suggest the UK could do so without souring international relationships. The United States, European Union and Switzerland among others have a history of applying pressure where middle-income countries such as Brazil, Colombia, India and Thailand seek to employ compulsory licensing.
Conditions on public funding
Although Labour wants to increase the proportion of GDP spent on R&D, the Party also wants to impose relatively strict conditions on recipients of public funding. These conditions may include a commitment to making any products resulting from the research affordably available, granting open access to research, disclosing R&D data (including development costs) and reinvesting a portion of any profits into “productive innovation activities”, or a public innovation fund.
Implemented in the right way, closer monitoring and management of public sector investment could both support the pharmaceutical industry in the UK and maximise returns for taxpayers. Vertex, the manufacturer of Orkambi, received funding in the region of $40 million from a US charity, the Cystic Fibrosis Foundation (CFF). In return for its investment, CFF received a share of the royalties of Orkambi, which it sold in 2014 for $3.3 billion, and reinvested in funding new innovative treatments. Closer to home, the Institute of Cancer Research, London receives and reinvests royalties based on its investment in the discovery of the drug Zytiga. Arrangements like this have been in place for a while – as Labour itself recognises, early MRC work on antibody libraries generated significant royalty returns.
However, there is a risk imposing overly restrictive conditions on grant recipients could limit opportunities for the UK to realise productive profits from its scientific investments. Restrictions on profitability could drive research on potentially high value products to other jurisdictions and would also lead to reduced returns for any public innovation fund. Instead, it would make sense to focus on maximising the returns from public investment. This, which could be achieved through a centralised medical research agency, with oversight responsibilities to ensure adequate compensation has been received or continuing to support research with public funding through to later stages of the drug development pathway.
Restrictions on data sharing
The Labour Party is concerned by the sharing of NHS patient data with international companies and has pledged to restrict the exploitation of such data by tech and pharmaceutical companies. The highly sensitive nature of patient information means it is essential to ensure there are adequate safeguards in place before any such data can be shared with third parties. However, as the role of “big data” in research and innovation becomes increasingly clear, it is important to ensure any decisions are based on the best interests of the patient population, which of course include the identification of new treatments.
Taxation
The Labour Party’s has pledged to keep VAT at its current levels, but envisages an increase in corporation tax levels, although it says these will remain lower than the rates applied in 2010. Although the Party wishes to increase the number of pharmaceutical jobs in the UK, the proposed increases in income tax for those earning above £80,000 annually may make it harder, or at least, more expensive, for pharmaceutical companies to attract international experts to the UK.
Conclusion
The Labour Party’s proposals have the potential to radically change the face of the pharmaceutical industry in the UK. There seems to be a conflict between the Party’s desire on the one hand to promote the industry by increasing the number of pharmaceutical jobs and to support genomic and gene therapy research, and on the other to make public funding subject to strict conditions and significantly reduce the cost of patented medicines. Labour’s long-term proposals for pharmaceutical funding and patent protection would take more than one government term to implement, but pharmaceutical companies would do well to note the Party’s position that while the current health innovation system is based on awarding intellectual property rights for drug development, “it is important to recognise these rights are not absolute”.
Gareth Morgan, is a partner in the Intellectual Property Team at CMS, and Aisling O’Dwyer, an associate in the Intellectual Property Team at CMS
