Thursday, November 13, 2014

Profits, Ebola, and Biodefense-- Common Ground for the New Congress

In my post of November 6, 2014, I linked to an interesting BBC story that pointed out that pharmaceutical companies are highly profitable in comparison with other industries and that pharmaceutical companies generally spend more on marketing than on research and development (in the case of Pfizer 72% more and in the case of Novartis 47% more).  This is unfortunate, but inevitable when companies with very similar drugs and relatively little data that support a physician’s preference for one drug over another are fighting for market share.  At the same time, pharmaceutical companies are being criticized for their high prices and for their slow pace of investment in developing drugs and vaccines for Ebola.  The New York Times on October 24, 2014, provided extensive coverage of a number of Ebola issues, including a story on a vaccine that had shown great effectiveness in a primate study but then had gone undeveloped for ten years.  The New York Times story pinned the blame for the delay in development on the lack of a significant commercial market for the vaccine.  The Director-General of the World Health Organization (WHO), Dr. Margaret Chan, had this to say in her November 3rd address to the WHO Regional Committee to Africa:

The second argument is this. Ebola emerged nearly four decades ago. Why are clinicians still empty-handed, with no vaccines and no cure?

Because Ebola has historically been confined to poor African nations. The R&D incentive is virtually non-existent. A profit-driven industry does not invest in products for markets that cannot pay. WHO has been trying to make this issue visible for ages. Now people can see for themselves.

Dr. Chan is correct that “a profit-driven industry does not invest in products for markets that cannot pay.”  However, to the extent that she implies that this is a moral failure on the part of the pharmaceutical industry, I believe she is wrong.  Pharmaceutical companies may spend more on marketing than on R&D, but they spend a lot on R&D.  To do so they need more than simply high profits on their successful drugs-- they need to compete in the capital markets with other investment opportunities.  Even if every scientist in the virology and infectious disease research programs at major pharmaceutical companies would rather work on drugs for Ebola than on drugs and vaccines for Herpes Simplex 1 and 2 (genital herpes), the simple fact is that either research is expensive and the capital markets will fund the company pursuing the most profitable opportunities. 

To illustrate this point, as well as other issues surrounding pharmaceutical company social responsibility, I often use the comparison between the companies that develop and sell violent video games (which arguably make little or no contribution to increased social welfare) and those that sell pharmaceuticals (most of which clearly provide significant benefits to human health).  Pension funds and large institutional investors are obligated to invest in those opportunities that will maximize the return to the persons for whom they are investing. So, if pharmaceutical companies reduce their rate of return relative to video game makers by allocating a significant percentage of their efforts to socially responsible but financially unprofitable diseases such as Ebola rather than potentially lucrative opportunities such as Herpes Simplex, then investors will provide more capital to the video game makers and less capital to pharmaceutical companies.  It is an inevitable rule of capital markets: investments seek the highest return just as water seeks its own level.

So, if the pharmaceutical industry is now investing a small amount of its overall research efforts in Ebola, it is likely to be, at least in part, a “marketing” effort to shore up their increasingly battered public image and hold on to its very significant political clout (industry newsletter the Gray Sheet entitled a post-election-day story “FDA Will Face Reforms, Oversight In Republican Congress, Analysts Say).  The simple fact is this: Ebola and other diseases prevalent in the developing world is an issue of national security and public health that can only be addressed by efforts in the government and not-for-profit sector.  The solution is to view biodefense as a greater and broader priority than it has been despite all the attention paid to that problem since 2001.  According to a paper by Franco and Sell, the 2013 budget for civilian biodefense was $574.2 million, while the overall budget for related programs was an additional $4.96 billion.  However, given the stagnation and even decline in the general NIH budget since 2003, much, much more can be done.

Perhaps one bipartisan measure that the Congress and the President can agree on is that research on antiviral technology and effective antivirals for broad families of viruses, as well as the basic mechanisms of immunology and their application to the rapid development of effective vaccines, is a major priority for the national security of our country (and global health).   To paraphrase the line from Field of Dreams: If you fund it, they will apply (and the resulting research may save us from a future global pandemic).  Both the for-profit and not-for-profit sectors would welcome the funding opportunities.

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