Capitalism could save us from the coming superbug epidemic
September 2, 2012 Leave a comment
Last year, a superbug called Klebsiella pneumoniae ran amok through the National Institute of Health’s ClinicalCenter following the 48-hour stay of an infected lung cancer patient. NIH staff detected the bacteria and believed the infection contained, but several weeks later the bacteria suddenly reappeared in several patients. DNA testing confirmed the original lung cancer patient as the source. It took six months, and eleven deaths, before the NIH got control of the situation. The CDC’s Alexander Kallen said it may take “a decade before we have new antibiotics that might be able to help.”
The Washington Post followed up on Kallen’s comment with an article noting the dearth of new frontline antibiotics to combat potential epidemics. From 1945 to 1968, drug companies developed thirteen new categories of antibiotics. Since then? Drug companies have developed two. After out-innovating every other nation on earth for the past two hundred years, the United States may be out-innovated by microscopic bacteria.
The article picks an intriguing culprit in this medical collapse, claiming that it’s “a case of evolution outrunning capitalism.”
In the case of vaccines and antibiotics, the real question is: what capitalism?
In 1993, Hillary Clinton railed against vaccine developers for failing to keep up with national demand for childhood vaccines, though medical experts at the time noted that vaccination rates exceeded expectations. As politicians do, Mrs. Clinton created a solution for a problem that didn’t exist and pressured Congress to ram through legislation to fix it. This solution resulted in government becoming the majority buyers of vaccines, instituting price controls, and subsequently killing the potential supply pipeline when all but a few diversified players could afford to maintain these business units under Clinton’s costly regime. Since then, vaccination rates failed to rise while the number of vaccine producers collapsed.
Fast forward to 2003 and beyond, where the country has gone through panics and vaccine shortages with SARS, bird-flu, swine-flu, and the deadliest killer of all, regular influenza. With so few pharmaceutical companies capable of vaccine production on a mass scale, vaccines took months to produce and distribute. While these particular viruses ended up being more hype than epidemic, this trial run of a swift medical response to potential epidemics highlighted in what tatters United States vaccine production had become. The Wall Street Journal pointed out the direct link to Hillary Clinton’s 1993 congressional railroading as the main culprit of the shortage.
The Bush administration allotted $1 billion in 2006 to update vaccine production. Had the government simply stayed away from capping profits, more pharmaceutical companies would have maintained the incentive to continue innovating cheaper and more efficient methods of distribution, rendering moot this piece of taxpayer charity. Political interference in the free market process always distorts the supply and demand curve, creating either a shortage or a bubble.
How will market-based capitalism help close the gap between science and the next superbug?
The Washington Post article identified three key aspects of the current antibiotic shortfall, observing that “there is not much money in it; inventing new antibiotics is technically challenging; and, in light of drug safety concerns, the FDA has made it difficult for companies to get new antibiotics approved.”
Big Pharma has long been a favorite whipping boy of Democrats, Hollywood, and the occasional Republican. Political crusaders take to news media and silver screens to paint these firms as profiteering blackmailers run by corrupt, cigar-smoking old men who spend their evenings devising new ways to scam the FDA and poison consumers. Our ancestors would have mistaken the pharmaceutical industry’s hair-growing, disease-killing pills to be bottled miracles. Our modern and desensitized expectations decry the profit motive.
Even though pharmaceutical companies uniquely produce life-saving products, these companies are subject to the same laws of economics as a company producing cinnamon scented candles. Modern drug making is a long, expensive, and perilous adventure. For every five drugs that reach the clinical trial stage, only one makes it to market. The four failures represent millions in sunk costs. That one successful, self-originated drug has an average price tag of $400 million in development, and it can take up to fifteen years until the developing company sees a single dollar of revenue. If you include the lost cost of capital gains, an admittedly fuzzy yet positive number, the price tag reaches a shade over $800 million.
To assist the private sector, basic research through grants may be a useful function of government. However, who will innovate cost effective ways to mass produce and deploy the results of this research? The one thing government repeatedly fails to do is economize. The only thing the government efficiently or effectively deploys are missiles and IRS agents.
In a rare case of useful congressional proactivity, Congress included a provision in an FDA authorization bill to “grant an additional five years of market exclusivity — meaning no competition from generics — for companies inventing new antibiotics.” Contra those campaigning to bring in cheaper drugs from Canada, if even the motley crew in Congress is willing to reinforce the importance and security of intellectual property rights and the profit-motive in a competitive and incentive-based market, we must face a dire situation. Due to the expensive and cumbersome R&D and approval process, only four major pharmaceutical companies are currently researching antibiotics. In order to follow the FDA’s high standards and prevent sub-par and unsafe drugs, companies must be able to recoup their costs, and yes, even profit from their ventures.
Pfizer, the world’s largest drug company, laid off 1,200 workers and shut down its Connecticut facilities, looking to move its antibiotics research to Shanghai. Though Pfizer has been unable to get up and running at its new Chinese facility (making it re-evaluate whether to remain in antibiotics research at all), it’s only a matter of time before other major drug producers make this move as well. This outsourcing puts us in the unsavory position of relying on countries such as China to funnel cures to the United States in the case of a true epidemic.
And we all know how well China makes their toys.