Science, Scarcity and Public Health: The Search for New Pharma Models

Abstract

These are neither the best of times nor the worst of times for the pharmaceutical industry, or for global public health. Media reports regarding recent legal developments would suggest that the originator pharmaceutical industry is facing a new and dangerous threat to its long-term welfare, compounding the impact of the so-called patent cliffs. Governments around the world are facing budgetary shortfalls, and this has put considerable pressure on funding for public health projects, including for procurement of treatments for conditions such as HIV-AIDS.

Yet, both for the pharmaceutical industry and for public health more generally, the underlying reality is perhaps more positive than the headline news often suggests.

Human society has not proven very good at collective problem-solving, including public goods problems. It is easy enough to identify critical needs -- though even, as example in the case of global warming this identification can be politicized -- and, to a certain extent, it is often relatively easy to think about and postulate how human civilization as a whole could best address particular pressing problems. But that is often about the extent of how far we can go. Collective problem-solving at a global level quickly breaks down because of a number of built-in impediments: national sovereignty and public security concerns, inequalities in resource availability, differential needs and demands, existing patterns of ownership of resources and wealth, political outlooks, personality differences, and so on.

Regarding the way forward, first I start from a relatively optimistic premise. I do not see either the Pharma industry or global public health in the midst of a dire crisis. I think a combination of advances in technology and the opening of large new markets is encouraging for the industry, and statistically speaking global public health is trending to improvement.

Second, there is built into the Pharma R&D and distribution model a profound moral dilemma. That is, new and important drugs are developed and priced outside the budget of large parts of the global population. Governments that have a mission to promote and protect the health of their populations cannot realistically be expected to ignore this moral dilemma, and the public will not allow that to happen. This sets up an inevitable and continuing conflict.

Third, the present basis for Pharma reaction to the moral dilemma is to strengthen the legal and diplomatic walls protecting their pricing model. Investor pressure on Pharma executives to pursue this line is understandable in the logic of capital markets. But, it seems questionable that these walls can hold against public pressure over the longer term. They can probably extend the viability of the model, and perhaps for current management of the companies this is all that is important. But, someone should be thinking about the longer-term.

Fourth, governments are reacting to the moral dilemma with compulsory licensing, modifications to patent law, price controls, competition actions, and so forth. This is the control mechanism used to ameliorate the impact of the Pharma model.

We basically have a checks and balances, almost constitutional, system. On one hand, we have private ownership and exploitation of the market. On the other hand, we have governmental intervention supported by NGO involvement to police the market and keep the exploitation in check. The global system for developing and distributing medicines and vaccines is an enormously complex structure with many moving parts. There are many problems and issues. it is doubtful they can be resolved with a single solution or model that will tackle all of them.

The main point I would like to make today is that the Pharma industry, a good part of it based here in Basel, should be more focused on finding ways to address the fundamental moral dilemma posed by its business model. Whatever legal walls it can build are going to be breached because the alternative is intolerable to governments and the wider public. It is my belief that the Pharma industry could address the moral dilemma without significant adverse impact on its bottom line, if it seriously set out to do that.

Keywords: pharmaceuticals, patents, research and development, moral dilemma

JEL Classification: H41, H42, I18, K32, L65, O31, O34