Affordable medicines remain out of reach for millions because pharmaceutical innovation is organized around value extraction, not public health. How do shareholder-driven governance and fragmented global health financing reinforce inequity, and what structural reforms are needed to reverse it?
Every year, millions of people die in the Global South from causes that are entirely preventable. Many of these deaths could be averted with timely and affordable access to medicines. According to the World Health Organization (WHO), of the roughly 2.7 billion people living in low-and middle-income countries (LMICs), more than two billion lack regular access to essential medicines. Although precise estimates of mortality linked specifically to medicine shortages are difficult to calculate, existing evidence indicates that poor-quality health care in LMICs—including limited access to medicines—is responsible for 5.7 to 8.4 million deaths annually. A substantial proportion of these deaths could be prevented by enhancing access to essential pharmaceutical interventions for a wide spectrum of diseases both communicable, such as HIV/AIDS and tuberculosis, and non-communicable, such as cancers and cardiovascular illnesses.
The access gap is profoundly inequitable, producing stark disparities in life chances and quality of life across regions. Epidemiological data show that an infant born in sub-Saharan Africa faces a risk of dying before the age of five that is approximately 15 times higher than that of a child born in a high-income country. Available data also suggest that those children who survive these odds in sub-Saharan Africa face a much higher risk of not being able to lead their lives to the fullest potential due to a continued lack of access to pharmaceutical interventions for chronic and other illnesses throughout their lives. For example, during 2017 and 2018 alone, there were over 120 localized disease outbreaks in Africa, which remained under catered for. In the same time period, at least ten million Africans died of causes that could have been prevented with sufficient coverage of anti-retroviral drugs alone. Such dramatic divergences in life chances and life quality are ultimately traceable to structural inequities in global health, and represent a critical challenge for policy making.
While there is broad agreement that one of the most pressing challenges in global public health is ensuring the timely availability of affordable, high-quality medical products, the mechanisms for achieving equitable access remain highly contested. Much of the prevailing debate has centered on incentive structures and organizational arrangements aimed at reconciling the growing tension between R&D, innovation and profitability, on the one hand, and access to medicines on the other. This framing, however, adopts a narrow, market-oriented perspective that overlooks the deeper structural and political determinants shaping the global pharmaceutical industry today.
Our new INET Working Paper argues for a change in the underlying framing. Our departure point is that the misalignment between innovation incentives and public health needs is not merely a coordination failure, but a systemic outcome of an innovation regime driven by pharmaceutical corporations that make resource-allocation decisions based on financialized business models, as they use their global power to develop, manufacture, and deliver medicines to maximize shareholder value. Addressing the access challenge therefore requires serious structural reform that can align the global pharmaceutical sector closely with the goal of medicine innovation that creates value for all the world’s inhabitants.
Our central argument is that significant improvement in access to medicines in the Global South requires a fundamental transformation of the mode of corporate governance that has come to characterize the global pharmaceutical industry. The dominant corporate-governance model is based on the premise that the purpose of a business corporation is to “maximize shareholder value” (MSV). This ideology of corporate governance, which has become increasingly influential since its initial articulation in the 1980s, is most deeply entrenched in the United States, but has been spreading widely among companies in the pharmaceutical industry in the global economy more generally. Given the centrality of the United States and its regulatory framework to the global pharmaceutical industry, MSV ideology has exerted a preponderant—and, we contend, deleterious—impact on access to medicines around the world.
Our analysis begins with a comprehensive overview of the structural shortcomings that contribute to the persistent problem of lack of access to medicines for the Global South. We outline the three key structural failures of the current pharmaceutical model: (i) a shareholder-value-driven approach centered on the pursuit of blockbuster drugs; (ii) the dominance of exclusive intellectual property rights; and (iii) the broader financialization of the global pharmaceutical industry. We then discuss how these failures impact the achievement of the four ‘A’s shaping access to medicines according to the World Health Organization: Availability, Affordability, Accessibility, and Acceptability.
We show that the structural failures of the contemporary pharmaceutical industry—its reliance on blockbuster-driven innovation, the monopolistic architecture of global intellectual-property protection, and the financialization of firm behavior—are not anomalies but predictive results of a governance system dominated by “predatory value extraction” (PVE). When firms operate under incentives that reward value extractors rather than value creators, innovation systems tend toward underinvestment in socially valuable knowledge, inequitable distributions of income, and the systematic neglect of public health needs. Such MSV-obsessed companies dominate the pharmaceutical industry globally today with restrictions on output and high prices.
In sharp contrast to a PVE mode of governance, an innovative pharmaceutical enterprise that seeks to develop a high-quality product that it can sell to the largest possible market at the most affordable price engages in “progressive value creation” (PVC). We explain how PVE and PVC represent two antithetical models for governing the relation between value creation and value extraction within the business corporation, with polar-opposite outcomes concerning the quality and cost of products that are available on the market and the distribution of income and wealth derived from the development, manufacture, and delivery of these products. We contend that PVC is the appropriate model to promote pharmaceutical innovation for the Global South. The challenge, in both theory and practice, is to build and support business corporations that embody and empower PVC governance.
We go on to summarize the evolution of global health diplomacy for access to medicines through three distinct phases, starting out in the 1970s. We show how PVE-oriented objectives have consistently undermined the business models necessary to deliver medicines to the Global South since the late 1990s. As a result, by the 1990s, access to medicines became a political stalemate because of the financialization of the industry along with increasing globalization, and the establishment of uniform global IP rules under the TRIPS Agreement. Mapping the tasks of the wide network of actors who promote pharmaceutical innovation and access to medicines for the Global South, we examine how the missions of the different international, governmental, and civil-society actors support or hinder, deliberately or unintentionally, access-to-medicine strategies along the PVC-PVE spectrum. We trace these competing mandates to a fundamental tension between the shareholder-driven objectives of major pharmaceutical companies and the access objectives espoused by government and civil-society actors. This tension has stymied the emergence of a coherent strategy for the development, manufacture and delivery of medicines for the Global South.
By tracing the role of financing by major philanthropic foundations and agencies representing high-income countries over the past twenty-five years, we show how a proliferation of international initiatives has come to define global health, which shifts focus from approaches that target the structural shortcomings of the pharmaceutical industry to one that “fixes the problem of access.” The approaches are embedded in the PVE mode and avoid targeting the structural failures of the innovation model in terms of intellectual property or excessive pricing in general, even though they enhance the supply of specific products for the most deprived regions of the Global South. that structures interventions to promote global health outcomes>span class=”MsoCommentReference”> contains a crucial status quo bias in favor of the PVE model. Strategies and initiatives often involve working within existing constraints, focusing on negotiating lower prices for LMICs, supporting the development of generic medicines, voluntary licensing of patented products, and ensuring more equitable distribution of innovator drugs as and when needed, rather than advocating for a radical overhaul of the supply of medicines or greater competition in innovator categories.
The COVID-19 experience underscores the relevance of a PVC model. There was openness to accelerated innovation at the start of the pandemic, but then proprietary control reasserted itself—particularly in downstream manufacturing—constraining global supply. We conclude that, despite evidence to the contrary, the pandemic reinforced the drive among pharmaceutical companies to defend stronger IP rights, especially patents to generate profits, rather than tame them. In some ways, it even pushed us farther into the PVE mode, legitimizing certain practices that had earlier been contested. By so doing, the pandemic marked a turning point in global health diplomacy that helped relegate access to medicines in LMICs to a secondary goal, overwhelmed by the defense and prioritization of the global pharmaceutical industry in the name of shareholder value.
We conclude our INET paper by arguing for a PVC mode of governance that seeks to provide the global community with the high-quality pharmaceutical products that they need at prices that they can pay. In pharmaceuticals, this shift is needed to realign corporate behavior with the dynamics of investment in innovation, collective and cumulative learning, and equitable access to medicines on a global scale. Following the COVID-19 pandemic, Africa has engaged in significant efforts to expand pharmaceutical manufacturing and innovation capacity. These initiatives represent a significant structural shift toward a PVC model in the region, but are still heavily influenced by, and dependent on, agenda setting and external financing by global health actors and coalitions. We call for a global PVC model to support structural change in the global pharmaceutical sector to promote pharmaceutical innovation in the Global South and propose a set of reforms to enable this paradigm shift.
