Does Pharma Need the Entrepreneur?

Stephen Farghali

Capitalists don’t discover new medicine; they invest in it. The incentive to do so, as everyone will admit, is to return a profit. Most would also agree that this profit shouldn’t be “too large,” but enough to encourage adequate investment into new treatments. Under this arrangement the system appears to work fine—we get new medicines, even in a timely manner when, as now, they’re urgently needed.

However, the idea that this is a well-functioning system, and indeed the best way of producing medicine, is a myth. The primary argument in its favor is that it’s innovative. But this is less than compelling, considering the same result is seen without private investment (for instance, in Cuba) and since a significant portion of the industry’s success and investment is often found in psychopharmaceuticals that are both mislabeled (sometimes criminally) and fundamentally misunderstood by consumers, such as “antidepressants,” which do not target depression.

The unique contribution of the market to medicine is that we’re regularly lied to and manipulated by an industry that hinders, not helps, the science it funds. Yet the mainstream dialogue between progressives and conservatives raises no genuine alternative to a privatized pharmaceutical industry, as if any enterprise that doesn’t rely on the market is doomed to fail. Science, generally speaking, doesn’t rely on the market, and pharmaceutical research is driven by science. So why aren’t we discussing a genuine alternative to a genuinely flawed model?

Without a profit incentive, we won’t have medical research

To address this myth, we need only ask who it is that’s actually carrying out the research. It is, of course, researchers trained in the necessary sciences. Naturally, there is overlap between the investor and the scientist. Gilead, for instance, was founded by doctors and scientists—but these counterexamples only distract from the question of who is doing what. The fact that some scientists start private research companies doesn’t change the dynamic between science and investment.

For example, if by some strange and fortuitous circumstance, Elon Musk’s bachelor’s degree in physics proves influential in the design of a SpaceX rocket, he’ll have contributed as a scientist. His value as CEO and founder in that capacity might influence political and social matters surrounding the launch of the rocket, but neither of those roles are needed for the actual functioning of the device. The pharmaceutical industry is no different. Drugs require chemistry, not capital.

Insofar as we admit this much, we remove the credit of discovery from investors. But still they stand as moral giants because they know someone must house the researchers, and take on the risk, and that “someone” is the corporation.

No one can deny the financial benefits of the private sector. But does the researcher really care who pays her, so long as the funding is secure and the pay remains persuasive? Of course not—we need only look at publicly-funded discoveries throughout the history of science to debunk this idea. And if increased financial incentive is necessary, it would be nothing to offer monetary rewards for breakthroughs. In a word, we need motivated scientists for science. Everyone else is bureaucracy.

The government can’t afford to pay for this research

Maybe capital isn’t required and researchers don’t care who signs the check, but can we afford to fund it? We can, easily and for less. Taxpayers already fund the bulk of drug discovery, during which a basic understanding of the illness is sought so that we know where to begin to look for treatments. The next steps are preclinical and clinical trials. The pharma industry invests a great deal in these processes and that cost is their justification for prices that are, for most, unobtainable.

In 2018, the global industry expenditure for research and development (R&D) was $179 billion. By 2024, it’s projected to be at $213 billion. This covers everything through all clinical trial stages at which point a drug is eligible for market approval.

To put this into perspective, the United States could have picked up the tab for the world’s entire private R&D investments and it would’ve amounted to less than one-third of the Department of Defense budget. In fact, it would have been considerably less than that, because the number also includes trial costs for “me-too” drugs, which are basically designed to replace an expensive drug that’s about to go off patent and become much less expensive, i.e. less profitable. Without the entrepreneurial incentive to maximize profits, useless drugs would lose their value and there would cease to be an army of salesmen out to trick you into buying them.

The details of the utter wastefulness of these drugs are too many to consider here. But for the sake of a quick idea, it goes as such: a significant amount of money is spent developing a drug that won’t offer any worthwhile improvement to the one it replaces, and could in fact be worse (because FDA doesn’t require the comparison), but will be granted a new patent because a slight adjustment was made to the makeup or function. Massive amounts of money will then be spent persuading doctors to prescribe you the more costly medication, and more will be spent on commercials to make you think it’s the new gold standard.

This brings us to the larger point. Namely, the entrepreneurs in this industry are the middleman. In return for their investment they set the terms for life and death. Not only do they decide what diseases should take priority (for instance, see the neglect toward antibiotics that could end with COVID-19 feeling nice by comparison), they’re known to manipulate data to push through useless or harmful drugs, they waste time and precious resources (participants for studies) with unnecessary trials for drugs of no social benefit, they hire psychologists to craft manipulative marketing campaigns, they bribe our doctors, and at the end of the day, they pay themselves quite handsomely for it all. El Chapo picked the wrong product.

Perhaps this seems like an overly cynical, unfair treatment of the industry. Consider then how more than 40 companies, including some of the world’s largest and most powerful, coordinated their efforts to prevent South Africa from battling its AIDS epidemic in the late 1990s. For years the industry lobbied governments, including the Clinton administration, to impose sanctions and and cut off foreign aid to the country. Why? Because the only way Nelson Mandela and his government, still recovering from apartheid, could combat the world’s worst instance of the AIDS pandemic was to manufacture HIV medication under a generic label, thereby violating patents. And so, while 22 million people in South Africa alone were infected with HIV, with 60,000 children expected to be born HIV-positive every year, the pharmaceutical entrepreneurs banded together to stop this illegal battle against HIV. Only under capitalism can it be illegal to fight AIDS.

Have they repented? In 2012, GlaxoSmithKline paid $3 billion for criminal misbranding of their drugs, where among other things, they published false information in medical journals to promote pediatric use of their “antidepressant,” Paxil—despite there being no FDA approval to do so, no evidence of its effectiveness, and an increased risk of suicide among children who take it—and then bribed doctors to promote it. Likewise, they used “sales representatives, sham advisory boards, and supposedly independent Continuing Medical Education (CME) programs” to promote the use of Wellbutrin for ADHD, sexual dysfunction, weight loss, substance addictions, and other off-label uses while it was approved only for Major Depressive Disorder.

Prior to this, the largest settlement in US history for health care fraud was $2.3 billion, against Pfizer in 2009, for similar actions, including illegal promotion of the antipsychotic medication, Geodon. In 2013, Johnson & Johnson paid $2.2 billion in settlements for false claims and physician kickbacks. In 2012, Abbott Laboratories paid $1.5 billion. In 2009, Eli Lilly paid $1.4 billion. In 2012 Amgen paid $762 million. In 2010 GlaxoSmithKline paid $750 million (bravo for perseverance). In 2010 AstraZeneca paid $520 million…the list goes on and on.

But they didn’t really pay that—you did. The legal costs of bribing your doctor, lying to you, and of their liability in needless addictions and deaths—these costs are passed on to you. And if that makes the treatment your life depends on too much for you to afford? That’s too bad. Maybe you’ll find charity somewhere. Or they’ll have cheap options to make your death more comfortable.

Regardless of whether one believes the free market to be the source of all human freedom, or a monstrosity to be abolished, there is no rationale for using it to produce medicine. The system doesn’t reward “responsible profit”; it rewards maximal profits. As we’ve seen, the counteracting incentives—positive public image, ethical satisfaction, and so on—aren’t strong enough to prevent them from the behaviors that have led to perpetual settlements and to horrid crimes against humanity, such as that which played out in South Africa. Yes, in the end their attack against the country was abandoned, but how much damage was done in the process? Wouldn’t we rather have people in charge who don’t struggle to pick the humane option, who won’t make access to medicine more difficult than it really needs to be?

If the government were in charge, innovation and efficiency would collapse under a stagnant and bloated bureaucracy

The market incentive has produced some abysmal outcomes in medical treatment—compromised research, wasted resources, price-gouging, criminal practice, general unaffordability, and extraordinary salaries to those responsible for such failures. It sounds remarkably similar to the indictments that are brought against the government when it takes control of a sector, as through nationalization. In spite of this, and in spite of the fact that the entrepreneur makes no contribution to drug development that justifies these failures, many still reject a nationalized alternative, simply because they equate nationalization with failure.

Quick rejections on labels alone are not based on thinking; they’re based on reflex. When your knee is tapped with a mallet, the nerve signal doesn’t bother travelling to your brain to retrieve a decision to kick out your leg. It makes a shorter loop, entirely without thought, and completes the reaction. Likewise, the word “nationalization” is so settled in our minds that it seems to elicit the same effect, as if the auditory nerve connects directly to the jaw to kick out “Venezuela.” But is nationalization such a decided failure as to warrant no further thought, no reflection of the context involved?

Considering the USSR beat the United States into space and developed themselves into a world superpower in very short order after dealing with civil and international wars—it would be a tough sell to say they failed scientifically. Or perhaps it’s the specific aspect of central planning that worries people. However, that doesn’t apply to pharmaceutical development, nor would it make any sense to try it. We already know what nationalized pharmaceuticals would look like. Generally speaking, it would look much like it does today, only cheaper and with fewer middlemen. When Venezuela, North Korea, and the USSR are used as general examples of why a specific endeavor like nationalized medicine wouldn’t work, they’re meant to evoke terrible suffering and shut down the conversation. They aren’t honest or intelligent counterarguments because it makes no sense to equate an entire country to a given hardship, or to assume that all policies are related to that hardship.

Fortunately, there are clear and positive examples to look at that are specific to the question at hand. Cuba’s pharmaceutical industry has for decades excelled as sophisticated, innovative, and prevention-focused. It’s also entirely state-owned and had to be rebuilt following the internal conflict of their revolution 60 years ago. Not only has their nationalized system produced an outstanding industry that’s consistently won international praise for its output and innovation, they’ve done so while restricted by decades of embargo placed on them by the United States (which has been condemned every year for decades by virtually every country on earth).

For those who mistrust any success attributed to the Cuban government (even if that success includes the pioneering of cancer vaccines and an international reputation of supplying doctors to countries in need), the issue returns to the same points that have already been addressed above. Government bureaucracy is irrelevant in this case. Nationalization doesn’t equal central planning. It’s merely a relatively small expansion of the same method that’s already producing most of our science.

The challenge of improving this system is not much of a challenge at all. We simply need to ask what kind of system we want, and make that happen. In the case of medical research, we don’t need radical transformations. We only need to feed what works and cut what doesn’t. Well-funded labs, funded for the public good, work extraordinarily well. Labs funded for private profit are sometimes great for science, and are always good for profit, no matter the social cost.

When asked, “who owns this [polio vaccine] patent?,” Jonas Salk replied “Well, the people I would say. There is no patent. Could you patent the sun?” The executives we trust to run our research would, we have to imagine, say yes, if they could. They’ve been at work to patent DNA for years.

To ask, as Albert Einstein did in 1949, “Why Socialism?,” we might, if we answer without reflex, be tempted to respond as he did, that “the economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil.”