Big Pharma: Heroes or Villains?

25 12 2011

What is ‘Big Pharma’?

Many people have argued that alternative and complimentary medicines are suppressed because they threaten the status quo for ‘big pharma’.  Before we accept this claim, let’s unpack the idea of big pharma a little to understand the incentives at play and when it may be right not to trust big pharma.

Let me start by making it clear – big pharma, as a label for the largest pharmaceutical companies, deserves a healthy dose of outrage; but before we toss the baby out with the bathwater, but lets see when – and why.

Big pharma is just another name for ‘big business’: a big business is an organism that has grown beyond the people that founded it, such that rather than having emotions, conscience or guilt, it has KPI’s like turnover, cashflow and return on investment. Big pharma is in the business of making money and as such should generally be expected to default to that option unless constrained by law. The collective conscience of shareholders only tends to kick in when dirty laundry is put out on show. Ok, so firstly, I think we can agree, a business is not a charity.

Next we take this lack of compassion and combine it with size and complexity – we see we now have an organism susceptible to plain outright crookery – from the white collar sort, like insider trading – to the very tangible – such as the dumping of toxic waste. These practices usually require the corruption of people – but not always – it is very easy for companies to do bad things without any individuals having malicious intent; it could simply be negligence or incompetence, or it could simply be that profit sometimes comes before fairness.

Take for example the problem of selling DVD’s in the world market. They are small and lightweight and easy to ship worldwide. This usually means that the price would be similar worldwide, if dealers in one country were to raise prices, residents would simply import the product. However, the enormous wealth differentials that exist between, say, the USA and Mexico, mean that the company could set a high price to extract maximum value from the US market, but then essentially price themselves out of the Mexican market. If they lowered the price, they would sell more product but with much reduced profit margins.

This problem is thrown into stark relief in the case of drugs, where the most profitable option is often to cater to the richer countries. This is sound business – set your price high, keep your factory trim, reduce shipping costs, keep high margins. However, if the drug can radically improve health outcomes, this policy could be seen as unethical.

This is the sort of problem big pharma face routinely; they are not selling entertainment, they are sometimes selling life itself, and often find they need to play profits against ethics in they way I describe above. It is thus hardly surprising that the general public have a distrust and general suspicion toward Big Pharma. In addition to drug import controls, there are many other situations where governments have had to step in to ensure the pharmaceutical companies ‘do the right thing’, such as the case with antiretroviral drugs (for HIV) coming into Africa.

Now think for a moment on this thought experiment: what would happen if a small publicly traded company discovered a cheap and easily reproducible cure for cancer? Would they really be able to hold on and extract full value for their shareholders? History actually suggests they wouldn’t – the drug would become public property, or would simply be nationalised if the company tried to resist. Inventions like the major vaccines and the first antibiotics were often not patented, and we see if we look at the pharmaceutical industry that their biggest profits come predictably not from miracle cures but from drugs that cater to the maladies of the richer classes. The top targets are heart disease, heart-burn, stroke, mental health and asthma. Once you  add disorders like diabetes you have accounted for the most profitable chunk of the industry.

This trend raises fresh concerns, because there are many severe ailments that are simply not attractive to profit making operations, the poster-boys being malaria, TB and HIV/Aids. Drug companies can be bullied into doing work in these areas, but it tends to fall to governments and charities to fund research in the afflictions of the poor, or on the so-called ‘orphan diseases’ – ailments that affect too few people to ever make a profitable market.

Economists will also argue that profit making businesses, being creatures under the strict control of incentives, will be unlikely to aim for ‘cures’ because cures are ‘one-offs’. While this criticism has some sad validity (in the board-room if not in the clinic), we have to remember that the big drug companies only exist because they make profits; in an imagined world where the first dollars were always spent on the most dire diseases and we only get to do botox and erectile dysfunction once those are all solved we would have no private industry at all, so far fewer trained scientists, far less public knowledge and certainly no map of the genome. We have to remember that to some extent at least, the aging american taking their cocktail of pills every day for the last 50 years has in some sense subsidized the field doctor in rural Africa. Yes, they also subsidized Wall Street excesses, but perhaps it’s a deal worth making.

Publication Bias

Another area where drug companies increasingly in need government intervention is in drug trials; specifically, they are presently allowed to pick and choose what to publish; this sounds OK at first, because, surely, you assume, the drug company has to make a bulletproof case before the drug is licensed? Well, if you do 100 trials, you may well find 50 good results, and publish those, and simply sweep the duds under the carpet. What’s more is those duds could have revealed possible side effects or interactions that could actually turn out to be real issues later on down the road. This is going to be a big one in the next few years.

The Big Picture

When criticizing the pharmaceutical industry it is easy to get caught up in the weeds, for there are weeds, but let’s also try to remember that this century has seen unparalleled improvements in life expectancy world-wide, and the improvements in child mortality in the third world do owe a lot to the sometimes cold-hearted business models intrinsic to western medicine.

Before I move on, and being a scientist, I wanted to make another point about big pharma. While it’s true that big money is involved, we have to remember that the Pareto principle applies here too – the majority of the profits come from the minority of the research. There are legions of perfectly good people, motivated by no more that the desire to help people in distress working in healthcare all around the world. Drugs are highly integrated with other therapies at the clinical level and the people actually running trials ‘in the trenches’ face-to-face with the patients (and often dealing with terrible trauma)  are rarely shareholders in big pharma, and many would not even think for a second they are part of what people would call big pharma. Yet it is they who have gradually built up our current understanding of the human body, not the men in suits.

Conclusion

To me, the idea of executives at the top 5 drug companies has become conflated with the idea of the ‘canon’ of western medicine. The idea that the whole world of ‘proven medications’, the result of countless years of hard graft (and the learnings from millions of deaths), can be dismissed because it’s under the control of ‘fatcats’ is a sick tragedy. Western medicine is simply a name for ‘what has been statistically been proven to help’, and the idea that even a tiny fraction of the scientists who developed it would be working to suppress good ideas from outside the ‘fold’ sounds frankly paranoid. Yes big pharma has some warped incentives that cause it to focus on the wrong things and leave the poor out in the cold, but all for-profit publicly-traded businesses do that! Ask yourself for a minute – even if a cure for heart disease were found that threatened the profits to Pfizer and friends, could they really recruit a worldwide network of conspirators who think a cure for cancer is something worth selling their very souls for to suppress?

It hard enough to run a real business, let alone running one so effectively in complete secrecy in the face of so much scrutiny. If they have that much skill and power, they should go legit, they would make a real killing!