“It is extremely disingenuous to be discussing pharmaceutical companies being incentivized to fail as they managed to have wildly successful vaccines ready for clinical trial within a few months, and widely distributed within 10 months of outbreak in the United States.”
Believe it or not, a recent op-ed in the Washington Post written by Robin Feldman took the position that pharmaceutical companies should charge prices for their drugs that would surely guarantee that they go bankrupt. An absurd position even for a law professor who is ideologically predisposed to an irrational hatred of patents, but precisely the position Feldman articulated. How someone as smart as a law professor does not understand basic business reality raises important questions about her intellectual honesty—or at the very least raises questions about whether she is truly an expert on this topic.
The reality is that pharmaceutical science is difficult, which is hardly an earth-shattering observation. Practically everyone with a high school education had to take at least basic biology and basic chemistry, and many with various science or even liberal arts degrees were required to take at least basic biology or basic chemistry in college. These subjects are complicated, and on the level required to provide innovations of the most desired for the worst diseases, the science is uncertain, unpredictable, and extraordinarily complex. And the regulatory processes are fraught with hurdles, delay, long clinical trials and evaluations, and billions of dollars in expenses. Those are the facts, whether we wish them to be different or not.
It seems that one of Feldman’s primary arguments is simply against capitalism. She cites several examples where pharmaceutical companies made billions of dollars in profit. She laments the fact that these pharmaceutical companies merely acquired smaller innovator life-science companies and then shepherded the drugs through the Food and Drug Administration (FDA) approval process. To hear a so-called expert be so casually dismissive of the risk and hurdles associated with the FDA regulatory process is astonishing. To listen to Feldman, it is as if acquiring a promising drug is a guarantee that FDA approval is ensured and riches will follow. That is simply not the case.
They’re Not All Blockbusters
The pharmaceutical companies lose money on more than 90% of the drugs that are conceived. One study demonstrated that from 2006 to 2015, only 9.6% of drugs entering Phase 1 clinical trials even made it to market successfully. A more recent study by MIT suggests that 14% of drugs entering clinical trials make it to market, but there is a wide variation of between 33% in vaccines for infectious diseases to 3% for cancer treatments. So, no matter how you choose to look at the issue, upwards of 86% of drugs that even make it into clinical trials are never going to make it to market, and a far smaller percentage of those that do will ever become blockbuster drugs that make real money for the pharmaceutical company.
Notwithstanding, Professor Feldman in her infinite wisdom suggests that pharmaceutical companies should not be able to charge enough for the drugs that make it to market to cover the costs associated with researching, developing, engaging in clinical trials and the regulatory processes for those drugs that don’t make it to market. Or, that they should be limited on the profit they make because they simply acquired the drugs from a smaller life sciences company. The inconvenient truth that Feldman does not explain is that the FDA regulatory process is too burdensome and costly for any except for the largest pharmaceutical companies to navigate over the 12+ years it will take and billions of dollars in investment. That is why deals are struck between smaller innovative companies and large pharma. And let’s not forget that those smaller life science companies do extremely well monetarily, and so too do the investors, which is precisely why and how the system works.
When Feldman says the bulk of the patent reward is going to the company that “walked the last mile,” she is not telling the whole story—not by a longshot. Those small life science companies with the good ideas that take risk are able to obtain capital in order to pursue the treatments and cures they do precisely because big pharmaceutical companies are going to come calling if they look like they might be successful.
“If Big Pharma wants to start buying assets, more venture capital is going to start pouring into biotech because they know that Big Pharma will be interested in acquiring it down the road,” Bill Bolding, a senior analyst at Provident Healthcare Partners, explained for a recent article that described a 60% uptick in venture capital availability for small biotech companies in 2021 compared to 2020. So, there is a fundamental mischaracterization (to be kind) with the alleged problem identified by Feldman. She begrudges pharmaceutical companies making what she believes to be excess profits on an exceptionally small number of drugs, but those profits are what incentivizes investors to pay for very risky innovation that seeks to tackle the very problems for which we need solutions the most.
Feldman also claims that to allow pharmaceutical companies to charge a high enough price to make it worthwhile to stay in business creates an incentive to fail, in what has to be one of the most illogical, business naïve arguments one could possibly make.
No business can stay alive if they are prevented from making money, particularly when 86% of what is attempted is going to lose money. Perhaps it is Professor Feldman’s position that pharmaceutical companies should just focus on the 9.6% to 14% of drugs that will make it to market and stop spending money on the 86% to 90.4% of drugs that will lose money, but if that is her expert opinion, she really needs to consult with a science textbook. Only someone who thinks creating drugs and vaccines is as easy as waving a magic wand could form such an ignorant position. And ignorant it is, on both the science and the business.
Does This Look Like Failure?
Additionally, to suggest that pharmaceutical companies are being incentivized to fail is the type of argument that shocks the conscience and makes a mockery out of what we have all witnessed in plain view over the last 18 months. As the COVID-19 pandemic has unfolded there was a race to create vaccines that are so wildly successful they are upwards of 96% effective to prevent severe disease and 88% effective to prevent any symptoms, even with respect to Delta and other variants. See MayoClinic. So, it is extremely disingenuous to be discussing pharmaceutical companies attempting to fail or being incentivized to fail as they managed to have vaccines ready for clinical trial within a few months, and widely distributed within 10 months of outbreak in the United States.
Next Time, the Cupboard Could Be Bare
What good does forcing pharmaceutical companies out of business do anyone? In the United States, the Supreme Court has already made it virtually impossible to patent many different types of life sciences innovations, the Federal Circuit has doubled down, taking those decisions to the next level, and Congress has been absent. We should be thankful that the science and technology responsible for COVID-19 vaccines date back to 2003 to 2008, prior to the Supreme Court’s Mayo and Myriad rulings that effectively prohibit many kinds of patents relating to medical diagnostics and treatments. We may not be so lucky next time, when the cupboard of patented technology is bare, and that is if pharmaceutical companies aren’t driven into bankruptcy by fringe business positions like Professor Feldman’s.
Without the revenue from those drugs that make it to market, and the smaller subset of blockbuster drugs, pharmaceutical companies will cease to exist. And without the escalating prices being paid for promising small life science companies by big pharma we will see venture capital retreat and fewer companies in search of extraordinary cures and treatments be funded. What good does this do anyone?
If Feldman has better ideas, then she can and should put them forth. But pretending that the answer is a price cap on big pharma so they can’t possibly stay in business and expecting that to not have a disastrous impact on life science innovation is foolish.
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