“Labour will tackle this. We will redesign the system (of access to, and pricing of, medicines) to serve public health - not private wealth - using compulsory licensing to secure generic versions of patented medicines. We’ll tell the drugs companies that if they want public research funding then they’ll have to make their drugs affordable for all. And we will create a new publicly owned generic drugs manufacturer to supply cheaper medicines to our NHS saving our health service money and saving lives. We are the party that created the NHS. Only Labour can be trusted with its future.”

The above statement may not be the most headline grabbing part of Jeremy Corbyn’s conference speech, but it is a radical proposal that is worth looking at in a bit more depth and unpacking it.

In effect, what Labour are proposing are three separate measures:

·        Compulsory licensing to effectively circumvent patent protection

·        Creation of a new publicly owned medicines manufacturing company to make generic medicines – including, potentially, the ones whose patents the government has overruled

·        Publicly-funded research coming with the requirement to make medicines ‘affordable for all’

This is the first of two blogs looking at the more controversial aspects of the proposals.

The creation of a publicly owned generic medicines manufacturer

This is not a new idea, and indeed the Scottish Parliament’s Public Petitions Committee considered the issue in 2016. The trade body of the pharma sector in the UK, the ABPI, were not against the idea in principle:

“In principle ABPI Scotland have no concerns about the creation of a publicly owned (either wholly or in part) company to operate in the pharmaceutical industry, as long as the new publicly-owned company is subject to the same rules as any other organisation (including private sector companies) in the industry. Our member companies are used to operating in a highly competitive business environment, and a new company, regardless of its ownership, will not significantly alter that.”[1]

However, the letter does go on to point out the many difficulties that pharmaceutical companies hoping to manufacture medicines have to overcome, for example the considerable set-up costs, as well as ongoing costs that occur from managing a medicine in the market.

And while Labour may suggest that having this capability would make medicines cheaper for the NHS, it must be borne in mind that these costs would still need to be recovered, and presumably the company would still need to generate some profit to enable ongoing reinvestment. So how much a nationally owned enterprise would be able to lower prices is unclear, and it would be working without the economies of scale that large global companies enjoy. After all, Brexit has shown us that every British medicines factory supplies Europe and much of the world, not just the people of the UK.

Labour may point out that the profits would be retained by the state, and that we as taxpayers would own the asset, something that would of course be true in this scenario. The state would also have control of the company to direct its attentions in specific directions.

In response to the same petition, the Scottish Government’s submission was far more damning of the idea than that of the industry trade body; they said it was neither “feasible or sustainable (both in policy or health economic terms)”.

The Scottish Government then went into some detail about their reasons for reaching this conclusion; EU competition law (this may alter when the UK exists the EU, but it is highly likely that future trade agreements with the EU or other countries will contain measures along similar lines) the safety and pricing of medicines, the difficulty in controlling the costs of NHS prescriptions, the strength of the existing research infrastructure, and the economic importance of the pharma and wider life sciences sector to the economy.

It is clear that the Scottish Government is not opposed to state ownership per se, either ideologically or practically. The Scottish Government owns a number of companies (David MacBrayne aka CalMac and Argyll Ferries, Highlands & Islands Airports, Scottish Canals, Caledonian Maritime Assets and Scottish Water) and in the last few years has stepped in to nationalise Glasgow Prestwick Airport, and Ferguson Marine shipyard.

So, while the creation of such a state-owned enterprise is possible practically, the question then becomes is it desirable? If one of the ambitions is to try and lower the costs of generic (off-patent) medicines, there is already a mechanism to do that.

The Health Service Medical Supplies (Costs) Act, which was given Royal Assent in 2017, gives the UK Government the power, working with the Competition and Markets Authority, to determine when the cost of a generic medicine is “unreasonably high” and instruct the companies to reduce the price; an instruction that can be enforced by financial and other penalties. This is aimed specifically at those cases where lack of competition has allowed certain companies to hike the cost of their generic medicine. It is worth pointing out that generic medicines are generally very cheap (sometimes 90% cheaper than new, branded medicines[2]), and that the enormous costs of generic medicines to the NHS is driven more by the enormous volumes of these medicines that an ageing and often unhealthy population requires.

So, while creating a generic manufacturing company owned by the state would be possible, it would not be without problems, and the benefits it would bring are not yet clear, particularly when there are other routes to achieve the same ends.

[1] Letter from ABPI Scotland to the Public Petitions Committee

[2] https://www.britishgenerics.co.uk/about-generics