In his New York Times column, Bret Stephens wrote about the promise of the antiviral drug remdesivir as a treatment for COVID-19. The column mostly focuses the efforts of scientists working on the drug, but pivots to a criticism of Gilead and the pharmaceutical industry’s opponents:
Given the stakes involved, it seems perverse not to root for Gilead’s success. Just as there are no atheists in foxholes, there should be no big-pharma haters in pandemics. Last year, Elizabeth Warren wrote that “giant drug companies only care about one thing: raking in profits on the backs of patients.” I wonder if the Massachusetts senator would have the nerve to say that to Dr. Brainard and every other private-sector scientist laboring to find cures under the intense strain of this global emergency…
But [Medicare for All is] of little help without effective diagnostic tests, therapies and vaccines, which typically emerge from profit-seeking companies operating in fiercely competitive and well-regulated marketplaces. Whatever the fate of remdesivir or any other drug, one lesson from this pandemic is how dependent we are for our survival on an innovative and robust pharmaceutical industry. Maybe we should do more as a country to cultivate it than tear it down.
Unfortunately, as of this writing, hopes for remdesivir have been dashed after clinical trials failed to produce positive results. There was widespread belief in remdesivir’s promise, so Stephens can’t be criticized for his optimism (especially considering the pains he took to qualify it).
But as a defense of Gilead and the wildly unpopular pharmaceutical industry more broadly, his argument is woefully inadequate.
Stephens paints a romantic view of scientists working for pharmaceutical firms, laboring away at a cure for COVID-19 (they are, and deserve as much praise as can be given), but then uses this as a catch-all defense of the pharmaceutical industry in general (which is far from deserving of praise).
There are two serious problems with this approach. The first is that it completely ignores the role that government funding has played in research and development. To list just a few examples:
- The National Institutes for Health have invested $700 million in coronavirus research since the first SARS outbreak in 2002;
- NIH funding was associated with published research for every one of the 210 new molecular entities (NMEs) approved by the FDA from 2010-2016;
- Of the $1 billion Johnson and Johnson will dedicate to COVID-19 research, almost half came from the Biomedical Advanced Research and Development Authority (BARDA); and
- Significant taxpayer support is also provided by R&D and Orphan Drug tax credits.
It must be stressed that the roles of government and the private sector in R&D are very different. To use an example outside the pharmaceutical sector, extraordinary amounts of government investment in the military and the Space Race laid the groundwork for Silicon Valley and the information technology revolution, but it was private tech companies that took ARPANET, the transistor, and other technologies to the heights we see today.
The fingerprints of government funding, particularly from the NIH, are on all of these treatments due to the extensive involvement of federal funding in early stage research. The development and commercialization of products are the private sector’s comparative advantage.
To deny by omission the significance of public financing in drug development, and thus the entitlement of taxpayers to reasonable returns on their investment, is to create a false impression. There’s only so much space available in a New York Times column. If Stephens’ purpose were solely to highlight the good that Gildead and other pharmaceutical manufacturers were doing, this could be forgiven. But using it as a vehicle to defend PhRMA from its critics requires this type of in-depth discussion.
This leads to the second glaring flaw with Stephens’ argument: he fails to deal with the reason so many are angry at PhRMA.
I would argue that a great deal of it has to do with residual outrage at the opioid epidemic. But on a day-to-day basis, to borrow from 2003 paper published in Health Affairs, “it’s the prices, stupid,” and those prices are driven by patents.
Dean Baker has calculated that due to patent exclusivity, pharmaceuticals cost about $300 billion above what they would in a free, competitive market for pharmaceuticals. But that’s all necessary to finance the cost of innovation, right? Without high prices for a temporary period, we wouldn’t have new drugs at all, as this cartoonish (both literal and figurative) video from Pacific Research Institute (PRI) argues:
The problem with the abstract form of this argument is its open-endedness. How long should the exclusivity be? What are the upfront costs? The PRI video says the average drug development cost is $3 billion and PhRMA says $2.6 billion. But new research from the Journal of the American Medical Association finds the median cost to be around $985 million with an average of $1.3 billion.
There is significant variation depending on the type of treatment, with a right-skewed distribution. And success is no guarantee, making the case for patenting stronger–at least in theory. But every business can swing and miss when it comes to investment (though they’re not all at the mercy of the FDA), and the pharmaceutical industry outperforms other industries by a wide margin, boasting a 13.8% net income as a share of revenue compared to 7.8% for other top firms. The pharmaceutical industry could forgo $1 trillion in revenue and still lead the pack among sectors.
A new paper also found that the costs of repurposed drugs (none of which, to be fair, may be enough to beat COVID-19) could be produced for a marginal cost $1.50 a day on the high end, including a 10% profit margin. This is orders of magnitude cheaper than the current list prices.
The above figures suggest strongly that the pharmaceutical sector is abusing its monopoly power. One way it does so is by gaming the patent system through applying multiple patents to the same drug and thereby extending patent protection well beyond the normal term of 20 years. The Institutes for Medicine, Access, and Knowledge found in 2018 that the 12 best-selling drugs in the U.S. had an average of 71 patents per granted drug and an effective 38 years of claimed exclusivity.
In the case of remdesivir specifically, Gilead rescinded its “orphan drug status” only after significant public pressure from groups like Public Citizen. This status is granted to drugs treating diseases affecting fewer than 200,000 people (which at the time was the case for COVID-19) and comes with seven years of exclusivity that are separate from patent exclusivity and tax credits for clinical testing.
These flaws with the pharmaceutical system must be addressed if one is to go after its critics, let alone imply they aren’t “root[ing] for” its success. Stephens completely fails to do so.
Now, when the demand for both innovation and access is high, it’s time to think outside the box and reevaluate the relationship between pharmaceutical drugs and the patent system. Perhaps a prize system is in order, or maybe a formal guarantee from firms receiving BARDA grants that the drugs will not be patented. If an already existing drug can be repurposed, perhaps the federal government should dust off the long-neglected march-in rights provided in the Bayh-Dole Act, or go one step further use its powers under 28 USC § 1498 to cheaply license the drug. Using eminent domain to end exclusivity for a relevant patent would also do well.
But none of these solutions are possible if the pharmaceutical industry is treated as the Alpha and Omega of innovation whose actions are all beyond criticism.
Again, there’s only so much that can be fit into one column. But in less than twice as much space as Stephens’ had, I have taken the time to show that Gilead and other pharmaceutical firms are not the exclusive fountainheads of innovation they are made out to be, why there is well-justified outrage at the pharmaceutical sector, and alternatives to the business-as-usual of an industry Stephens fails to examine critically. Mindlessly bashing drug makers isn’t what’s called for now, but neither is uncritically rehashing the industry’s self-serving talking points.
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