When Health Policy Becomes Industrial Policy

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In his latest piece, Brendan Shaw casts his eye over why those drawing up health policies need to start incorporating issues of industrial policy into their long-term planning in order to secure investments into the right kinds of R&D and to help build a more open and collaborative innovation ecosystem.

 

“Scientists were close to a coronavirus vaccine years ago. Then the money dried up”

Malaria Deaths Could Double This Year Due to Shortages of Life-Saving Drugs and Equipment

“Deadly Superbugs Win as Wall Street Flees Makers of Antibiotics”

“Cancer patients hit by shortage of chemotherapy drugs”

 

What do all these headline medicine policy issues have in common?

They are, to varying degrees, caused by the regulatory and reimbursement systems not providing sufficient incentive to encourage companies to take the commercial and scientific risk in developing and supplying medicines.

Industrial policy matters for health policy

Understandably, the people who run health policy are usually focussed on the immediate here-and-now health needs of a country. Their focus is typically on what is traditionally understood as ‘health policy’ – health outcomes, medical statistics, epidemiology, public health goals, population studies, and so on. Sometimes they are less interested in the world of business and markets and some go so far as to actively criticise it.

But, as the examples above show, those making decisions about health policy need to be aware of the business and economic environment in which they are operating. Importantly, practitioners of health policy need to start incorporating issues of industrial policy into their long-term policy planning.

The latest mad scramble we have seen by many governments to secure medicines, vaccines and personal protective equipment during the COVID-19 outbreak is a case in point of a much broader issue.

 

Industrial and innovation issues in developing medicines and vaccines

Pharmaceutical companies make decisions about where to invest in developing new medicines based, in part, on their assessment of what payers and society will pay for developing new medicines in those areas. For example, one study by academics at Imperial College demonstrates the apparent mismatch between what medicines pharmaceutical companies are developing and the health needs of society. They argue that this is due to the absence of incentive mechanisms to promote R&D in riskier and less profitable disease areas.

Despite this, there are an increasing number of areas where pharmaceutical companies are investing significant amounts in non-commercial development of medicines. For example, international surveys repeatedly show that pharmaceutical companies are significant and growing contributors to R&D for neglected diseases in low-income countries, while the development of vaccines for diseases such as Ebola shows that companies can rapidly escalate development timelines in times of emergency. But more generally, over time pharmaceutical R&D responds to the incentives provided by those funding medicines and R&D.

The process to develop new medicines and vaccines typically takes a long time and is expensive. While this has been questioned, most comprehensive analyses show that it takes 10 to 15 years for companies to develop new medicines and, on average, somewhere between US$ 1.5 billion to US$ 2 billion to develop a new medicine.

With the time and costs involved, normally pharmaceutical companies cannot just develop a new drug within a few months of health experts suddenly realising there are unmet needs. The medicines we have available today are based on the strategic decisions of companies and payers that were made 10, 20, even 30 years ago.

Payers, regulators, funders and policy makers have a hand in this. They create the environment that sends signals to the private sector about what sort of medicines or devices should be developed. The decisions of these people materially influence the environment for science and innovation in new medicines.

 

Lessons from industrial policy

This is where industrial policy becomes important for successful health policy. There is a burgeoning amount of research and policy experience in the industrial and innovation policy field to show that customers are important. There are some salutary lessons for health policy practitioners that come from the industrial policy space.

In developing industrial policy to encourage innovation, there are several important policy conditions for such efforts to be successful. Things like a stable and predictable policy environment are important. Companies have enough uncertainty to deal with in the world these days without politicians and bureaucrats suddenly changing the rules of the game on them with no notice. Similarly, having a government purchasing framework that respects, values and rewards innovation has an important role in driving innovation and signalling paths for investment in R&D. Discerning customers that pay for valuable, new innovation tend to encourage firms to invest in innovation and R&D.

Encouraging innovative investments from multiple companies, supporting publicly-funded basic R&D, welcoming private sector R&D partners, and ensuring collaboration between public sector officials and private sector employees are also features of well crafted industrial development policy. Finally, building better communication, dialogue and trust between payers, policy makers, companies and the general public is vital but often overlooked.

 

Many of today’s major health policy problems are industrial policy problems

These are lessons that cut across many industries and sectors far removed from the arcane world of health policy, but health policy practitioners need to learn from them.

Why?

Because many of the problems confronting health policy today have come about, at least in part, because of a failure of decision makers in health systems to heed the lessons coming out of the practice of industrial policy. Cost cutting to save money in the short term leads to a long-term problem of lack of investment due to a lack of incentive created by health policy.

The low number of coronavirus vaccines prior to the COVID-19 outbreak and the recent scramble to secure medicines when international supply chains for medicines and personal protective equipment broke down in the midst of the pandemic stemmed in part from insufficient attention to long-term industry and business development issues in the health system. Previous research on coronavirus vaccines like SARS and MERS died out because those diseases receded after these outbreaks and there was little long-term priority or incentive to continue widescale development of such vaccines.

The lack of new antibiotics to treat the emerging global threat of antimicrobial resistance is another example. One of the reasons there is a dearth of new antibiotics available today and why industry research into new antibiotics has faltered over previous decades has been because regulators and payers did not have the incentives right to signal to the industry that investment in this area was important. Past years of neglect by both industry and payers have meant that the commercial viability of developing new antibiotics is simply not there. The Access to Medicines Foundation says that low profitability in developing new antibiotics leaves the world dangerously reliant on a handful of pharmaceutical companies. The more recent push to develop new incentives for antibiotic development and the recent bankruptcy of several biotech firms developing new antibiotics demonstrate that past market failures have not been corrected.

Moreover, drug shortages have many causes but one of them is the lack of commercial viability in supplying many medicines. The shortages witnessed in various countries of things like generic antibiotics and chemotherapy medicines have been triggered by low prices in the market caused in part by short-term cost-cutting on the part of funders to the detriment of long-term commercial viability. Hospitals running short of treatments for cancer patients and ongoing worldwide shortages of cheap, old antibiotics highlight the patient impact of business issues.

These are just to name a few examples where health outcomes would be helped by a good dose of comfort and capability working with innovation, business reality and industrial development on the part of those implementing health policy.

We do need to be careful in saying that there needs an industrial policy arrow to our health policy bow, because there have been some examples in the past of bad industrial policy being dressed up as ‘health policy’. Think here of examples of tariffs being put on medicines by developing country governments which sick people in their own countries end up paying or undermining patents through issuing compulsory licenses to give a leg up to local manufacturers that leads to higher prices for medicines.

 

What needs to change?

Some of the major issues in health policy today need to be considered drawing from the lessons and insights from industrial policy if they are to be better addressed.

Health policymakers in governments and international agencies should be prepared to constructively engage in issues like innovation, incentives, market competition and industrial development. Some already do, but more need to do it. They should understand their role in framing and developing the ‘health economy’ and leverage that to achieve better outcomes for patients. They should drive collaboration and dialogue across the innovation system between health policy officials, payers, industry, research agencies and patient groups. Officials should also be prepared to work closer with their colleagues in other government departments focussed on science, innovation, industry, environment and economic development and be prepared to work with private industry to understand these issues. As well as ameliorating some of the major health policy issues facing society, such collaboration will also spur the growth of new technologies, innovation and industrial development in the health sector.

More payer and reimbursement agencies should recognise their formative role in influencing the market for health technology and services. Just as the attitudes and aspirations of customers influence innovation and development in other markets, so too the purchasers and funders of medicines, devices and services influence the health market. It is these agencies that ultimately send signals to the private sector about what the market needs and the value of different medical technologies like ventilators, personal protective equipment, cancer treatments, antibiotics and vaccines. Some agencies around the world do this better than others. While some health policy practitioners might feel uncomfortable getting their hands dirty in dealing with business issues, done properly it will lead to better health policy in the long run.

Private companies working in the health sector need to be more open and explain the business issues of operating in the health sector. While obviously constrained by legal requirements, companies should spend more of their time explaining to stakeholders in the health policy community what they do, what their commercial drivers are, and how they make decisions as companies. Building trust between the different stakeholders is key and companies can take the lead in opening genuine dialogue on these issues. This might push the envelope somewhat in what companies are comfortable doing, but it is necessary.

There is a lot to be gained if health policy practitioners can work with one informed eye on the long-term business impact of what they are doing. They will benefit, the health system will benefit, industry will benefit, the economy will benefit and ultimately, and most importantly, patients will benefit.

 

Brendan Shaw is Principal of Shawview Consulting and is an adjunct senior lecturer in pharmaceutical medicine and global health at the University of New South Wales.

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