Life Sciences Industrial Strategy (Science and Technology Committee Report)

Viscount Hanworth Excerpts

Tuesday 23rd October 2018 Lords Chamber

[Viscount Hanworth (Lab)]

In 2014, we witnessed an heroic corporate battle when the American drug company Pfizer mounted a hostile takeover bid for the Anglo-Swedish company AstraZeneca. The bid was successfully resisted. Many politicians were aghast at the prospect of such a large component of the British pharmaceutical industry disappearing into the maw of an American competitor. Some of the leaders of the Conservative Party were conflicted in their reaction to this prospect. The City of London derives much of its income by mediating such takeover bids, and the Conservatives favour the interests of the City. On the other hand, our pharmaceutical industry is one of the few British industries that can be said to be world leading; and the loss of one of its principal players would have severely diminished its status.

What was at fault in this episode was the failure of our weak laws of corporate governance to protect British companies from the depredations of foreign competitors. Other European countries, including France and Germany, have created strong barriers to protect their companies against such depredations and activities. It is appropriate, however, to take a closer look at AstraZeneca, which is representative of the large multinational pharmaceutical companies. Zeneca, which is the British component of the company, originated in 1993 from the demerger of the pharmaceutical operations of Imperial Chemical Industries. Zeneca combined with the Swedish Astra company in 1999. Since the merger, AstraZeneca has become one of the world’s largest pharmaceutical companies and has made numerous corporate acquisitions. In 2009, GlaxoSmithKline and AstraZeneca were respectively the world’s fifth-largest and sixth-largest pharmaceutical companies, measured by market share. However, since then they have been sliding down the scale, and today they are seventh and 15th respectively.

AstraZeneca proudly boasts that its focus is on developing new medicines that would make a meaningful difference to patients’ lives; and says that the UK is right at the heart of efforts to achieve this. However, a very different impression is gained by looking at the list of its acquisitions, which have been the basis for its product lines. In this respect, it is probably no different from the majority of large pharmaceutical companies.

For an explanation of the structure of the international pharmaceutical industry, one must consider some of the fundamental economic determinants. Research to find new drugs and remedies is risky and expensive; and there are no guarantees of immediate success. The clinical trials that must precede the release of a new drug are bound to be protracted and expensive. The marketing of a new product requires considerable resources and an extensive sales force. For a while, a proprietary drug can reap huge benefits, but, eventually, the profits will disappear when the patent of the original drug expires. Then the product becomes a generic drug that can be cheaply manufactured and sold by other companies.

The consequence of these circumstances is that large pharmaceutical companies must maintain a steady stream of new drugs passing down the pipeline that runs from their clinical trials to their certification and marketing. To maintain the supply of new products, the companies are involved in an incessant process of wheeling and dealing and of mergers and acquisitions that absorb smaller start-up companies. The failure to maintain a sufficient product pipeline can cause a large company quickly to crash. Thus, at the time of the attempted acquisition by the American drug giant Pfizer, AstraZeneca was in a vulnerable state and Pfizer was also heading in that direction.

Had Pfizer succeeded in its takeover bid, it would have captured the product lines of AstraZeneca; and the likelihood is that it would have suspended the research activities of the company and divested it of its British employees. It seems clear therefore that our large pharmaceutical companies require much stronger protection against hostile takeovers. However, on looking further down the food chain, it seems clear that the smaller UK companies also require protection. They are the mainspring of pharmaceutical innovation; and to lose them to foreign takeovers would be to lose our international competitiveness.

We should also question whether past experience is the best guide to the future. Modern advances in biochemistry, genetics and cytology imply that, in future, the development of drugs and remedies might proceed in a very different direction. This might utterly alter the structure of the international pharmaceutical industry. The Government continue to adhere to the view that industry should lead the way in stimulating the practical application of biomedical research. The activities of the drug companies are determined largely by their commercial priorities, which are poorly aligned with public health requirements, but the Government appear to be largely unconcerned by this. The one exception to this aspersion is the concern that the Government have shown over the declining efficacy of antibiotics and the failure of the industry to undertake research to find replacements.

The activities of the drug companies could become more closely aligned with the interests of public health if our National Health Service were to exercise a greater leverage over them. This is one of the principal observations of the excellent report of the Science and Technology Committee that we are debating today. The Bell report, which was the precursor to the committee’s report, asserted that the NHS is potentially an enormous asset for those attempting to discover and develop new, innovative products and to test their utility in a healthcare system. Given the decentralised structure of the NHS, which is a product of the reforms of the Conservative Government, the organisation lacks a coherent purchasing policy that could redress the power of the large pharmaceutical companies. The result is that many new products that are too costly to afford are denied to NHS patients. A better integration of NHS IT and data services could greatly facilitate clinical trials as well as epidemiological research, and the NHS could thereby become a driving force in medical innovation.

However, these prospects are being severely stymied by Brexit. We have learned that already the EU certification of pharmaceuticals, which has been taking place largely in the UK where the European Medicines Agency has been based, is now taking place elsewhere. The agency will transfer to Amsterdam when the UK leaves the EU. In the event of a no-deal Brexit, our clinical trials will lose their validity as far as the EU is concerned and will have to be conducted elsewhere, or at least in conjunction with an EU partner. This is not the worst of it. Last night we heard from the BBC of the likelihood that the research staff of the Francis Crick Institute would leave in the event of a no-deal Brexit. Some 40% of them are from the European Union and, of those, 78% have declared that they are unlikely to stay. In fact, 51% of all the research staff have said the same. The reasons given are the hostile environment, which will inhibit free movement, and the lack of research funds, of which there will be no guarantee beyond 2020. The carelessness of the protagonists of Brexit who dismiss all such concerns is incomprehensible to many of us.