How Big Pharma got out of the business of curing people

In partnership withVerso
How Big Pharma got out of the business of curing people
Since the neo-liberal revolution of the 1980s pharmaceutical companies have super charged their profiteering, at the expense of patients. In this edited extract from his new book Pharmanomics, Nick Dearden explains how and looks to the solutions.

In 2018, investment giant Goldman Sachs asked a provocative question: “Is curing patients a sustainable business model?” They were referring to the growth of gene therapy, which holds out the promise of giving patients a ‘one shot cure’ for all manner of conditions.

The company took one example: Hepatitis C.

Sure, pharmaceutical giant Gilead sells a product that can cure this disease. But the pool of patients with Hep C is finite. And the more you treat, the less people transmit the disease, and so the fewer patients there will be in the future. The more effective they are, the smaller market they enjoy. No wonder this system simply is not producing the medicines we need. To make the profits they demand, companies cannot produce drugs at a price we can afford.

Goldman Sachs made clear that the lack of sustainable profits does not apply to all diseases. Cancer, they point out, “poses less risk to the sustainability of a franchise,” as more people being treated for cancer does not stop others getting it. In fact, longer lives equals more cancer.

But even here there is a problem. Research costs for new drugs have been rising for decades. It is true that these costs are exaggerated by the industry. It is also true that some of these drugs are not hugely useful. The perverse incentives of the intellectual property system mean corporations are investing in drugs which make, at best, very marginal difference, but which they know they will be able to sell almost regardless of price.

Reinvention

There has been a trend in recent books to look back to a golden age of the pharmaceutical industry, when chief executives were more likely to be scientists, and when researching medicines for the public good, even if they made tiny profits, was seen as the right thing to do by these companies. This case is somewhat overblown, but it is true that the global economy which arose from the late 1970s onwards, and which incorporated a financial logic at its very heart, turbo-charged the worst elements of the pharmaceutical industry, and transformed it almost beyond recognition.

In the early 1990s, while Big Pharma was in the middle of reinventing itself into the beast we know so well today, many at the top of the industry saw that their biggest asset was not their research expertise or their manufacturing knowhow. It was, instead, their intellectual property – the patents and trade secrets that gave them monopolies, allowing them to control supply, production and prices, over a wide range of medicines. Regardless of whether the underlying medicines were actually produced or not, the intellectual property was an incredibly profitable commodity in its own right, open to being moved around to hide profits or avoid regulation, or bought and sold on financial markets.

Cancer, Goldman Sachs point out, “poses less risk to the sustainability of a franchise,” as more people being treated for cancer does not stop others getting it. In fact, longer lives equals more cancer.

From “The Genome Revolution” report by Goldman Sachs, 2018

The key to cementing this power was making this intellectual property sacrosanct. Throughout the 1980s and 90s, Big Pharma worked to increase these monopoly powers. The industry lobbied and funded US politicians, supported new laws, integrated themselves into European decision-making, and repeatedly fought court battles to set new legal precedents, all giving the industry ever more rights to extend their patents and keep their data secret.

But perhaps their greatest achievement was a trade deal known as TRIPS (the Trade-Related Aspects of Intellectual Property Rights agreement). Described by journalist Alexander Zaitchik as “a brute and profoundly undemocratic expression of concentrated corporate power”, TRIPS extended US-style patent protection to the entire world. Whereas before, countries across the global South could produce medicines far more freely, TRIPS enforced monopoly protection everywhere. And while there were exemptions built into the agreement, as South Africa was soon to discover, those exemptions were particularly hard to apply in practice.

By the early 2000s, HIV/ AIDS was having a catastrophic effect across Southern Africa, with as many as 4.5 million – or one-in-nine people – living with HIV in South Africa, and 1,700 people being infected every day. There were, by this point, life-saving drugs on the market that could suppress the virus, meaning they could halt the development of AIDS and prevent the spread of HIV. The problem was that the patents on these drugs were held by pharmaceutical corporations who got to set the price and decide who could produce the medicines.

In practice, that meant HIV medicines were priced at $10,000 per patient, rendering the drugs unaffordable to South Africa’s health service or to most individuals in the country. But the situation was not insurmountable, because fortunately the medicines did not cost anything like that much to make. By producing the medicines in the global south, it was estimated South Africa could cut the cost by 90%. Fortunately, at the same time, the government had introduced legislation which would allow them to override patents, so they could have imported generic versions from elsewhere.

Big Pharma saw things differently. Accusing South Africa of 'piracy', 39 firms, including some of the biggest corporations in the world, sued the South African government. Together with senior figures from the US and European governments, they pulled out all the stops to prevent South Africa introducing the legislation. The corporations ultimately failed, and were forced to back down. The case was also a disaster for the industry’s image, sparking a movement that lives on to this day, and has been a critical part of the battle for equitable Covid-19 drugs.

The battle was important precisely because it went to the heart of how the industry now made money – not from developing important new medicines, but from the monopoly power that patents, or intellectual property, gave them. This power laid the ground for the sort of pharmaceutical system we see today. One where fortunes can be made without ever setting foot in a scientific laboratory and where far more money can be made by playing the financial markets, and exploiting access to desperately needed public knowledge, than by inventing an important new medicine.

Martin Shkreli’s behaviour really was not so abnormal in the modern pharmaceutical industry, except in one respect: he did not hide what he was doing.

Martin Shkreli, Turing Pharmaceuticals.

Perhaps no-one represents this new industry more honestly than the ultimate bad boy of the pharmaceutical sector, Martin Shkreli. Shkreli is something of a pantomime character because, far from trying to avoid negative publicity, he seems to embrace it with glee.

Shkreli was a hedge fund manager, but started up a pharmaceutical company when, by his own admission, he realised there was not enough money to be made in hedge funds. His strategy for making money from his pharmaceutical company was simple: buy up expired drug patents for important medicines, control the supply of those medicines, and hike the price.

In 2015, Shkreli became infamous when his company, Turing Pharmaceuticals, acquired a simple-to-make but lifesaving anti-parasitic medicine, used particularly by AIDS patients and pregnant women. He then jacked the price up 5,000%. Shkreli was asked at the end of 2015, after being labelled ‘the most hated man in America’, about any regrets he might have. True to form, he replied that he should have raised the price higher. In the highly divisive world of US politics, Shkreli managed to unite Hillary Clinton, Bernie Sanders and Donald Trump in their opposition to him.

Of course, Big Pharma moved to distance itself from Shkreli. He was just another bad apple, they said, but you cannot judge the whole industry by his standards. "I think it's really important for our industry to make it clear that he is not us. We are a research-based pharmaceutical industry" one Big Pharma CEO told the press.

Yet, for all these denunciations, Shkreli’s behaviour really was not so abnormal in the modern pharmaceutical industry, except in one respect: Shkreli did not hide what he was doing behind a wall of public relations. As he himself told a healthcare summit "My shareholders expect me to make the most profit. That's the ugly, dirty truth…. no one wants to say it. No one's proud of it. But this is a capitalist society, capitalist system and capitalist rules. My investors expect me to maximize profits. Not to minimize them or go half or go 70% but to go to 100% of the profit curve."

Many of Shkreli’s activities are indeed pretty mainstream in an industry renowned for price-gouging, for buying up the intellectual property of other people, for acquiring or shutting down competitors, for playing the financial markets, for making insignificant changes to existing drugs and pretending they’ve made something new and important, and for lobbying for an even more favourable regulatory environment.

Far from being a necessary evil, which in spite of profit-hungry behaviour at least keeps us healthy, Big Pharma today is in fact one of the most financialised industries in our heavily financialised global economy. Big Pharma has little interest in keeping us healthy, and often an interest in the very opposite. It acts as a parasite on public research and public health systems; a super-efficient vehicle for channelling public resources into the pockets of the already super-wealthy.

The Big Pharma fairy tale

It’s May 2021. Richard A. Gonzalez, Chairman and CEO of pharmaceutical giant AbbVie, looks bemused as he sits before a US Congressional committee taking questions on drug pricing. Covid-19 restrictions mean that Gonzalez is speaking via video link, but this seems to do little to mitigate his discomfort when Representative Katie Porter of Orange County reaches for her whiteboard and sticky notes.

Porter has become an online sensation for the way she lectures CEOs about their pay and corporate activity, placing sticky notes on a board to drum home messages of corporate profiteering, like a primary school teacher telling off an errant school pupil. As Rolling Stone magazine puts it “There are few things in Washington more dangerous than Katie Porter with a white board.”

Today, Porter is on particularly fruitful ground, as she quizzes Gonzalez about the price hikes his company made to a cancer drug called Imbruvica. She starts out by asking about the price of Imbruvica. A standard 3 pill-a-day course would have come to a cool $98,000 a year in 2013. High enough you might think, but what Porter really wants to know is how, in only 8 years, the price has jumped to an eye-watering $181,000.

The answer, as usual, appears to be the research and development costs which AbbVie has spent. But Porter has heard this one before and is having none of it. After all, she asks, what has the effect of this R&D spending been? Are there less side-effects of the pills perhaps? No, answers Gonzalez. Do patients require fewer pills now? No, not that either.

In fact, it transpires that AbbVie has not improved Imbruvica at all. What’s more, it did not actually even invent the medicine, but rather bought up the much smaller company that created the drug. As Porter put it “AbbVie took zero risk to develop this drug, you bought it approved for the market knowing it would be profitable, you hiked the price to pay for R&D but you haven’t made the drug any better even as you doubled the cost.”

“The big pharma fairy tale is one of ground breaking R&D that justifies astronomical prices, but the pharma reality is that you spent most of your company’s money making money for yourself and your shareholders.”

Representative Katie Porter

Then come the sticky notes. Porter sticks a little pink circle onto the white board representing the $2.5 billion which AbbVie has put into research and development on Imbruvica between 2013 and 2018. She suggests, given that Imbruvica does not seem to have improved in that time, that much of this ‘research’ is really “innovations and indications which are designed to keep competitors off the market and develop new sales opportunities”, rather than anything that the average person might regard as genuine ‘research and development.’

Porter is right. AbbVie filed 165 patents for Imbruvica to keep competitors outside the market, giving the firm an additional 9 years on what is considered a normal exclusivity period. Experts predict that in those 9 years alone, American patients will spend $41 billion on the branded drug. Big Pharma likes to pretend that sky high research costs justify the cost of medicines. In the case of Imbruvica, the sales of the drug in a single year dwarf anything the company has put into research and development.

Porter now reels off a number of other figures that the company has spent in the period 2013-18. It includes a budget of $1.6 billion for litigation and settlements, which of course includes enforcing and defending the company’s monopolies. It includes a marketing and advertising budget of $4.7 billion. It includes $334 million for executive compensation – that’s the pay and other benefits of senior leadership.

But really staggering is a massive blue sticky note representing $50 billion which includes money directly returned to shareholders (dividends) and the buying up by the company of its own stock, which drives up share prices, effectively returning even more money to shareholders. It is this huge pot of money, more than any other, that tells us that the pharmaceutical industry is not struggling to recoup the costs of sky high research. In fact, as Porter concludes:

“The big pharma fairy tale is one of ground breaking R&D that justifies astronomical prices, but the pharma reality is that you spent most of your company’s money making money for yourself and your shareholders.”

The Hub

“What happens next with the hub is very significant. It looks like they’ve really done it. You can ask as nicely as you want, but at the end of the day, if you don’t want to be dependent on northern charity or on the marketplace, you have to do it yourself.”

I’m speaking again to South African activist Fatima Hassan. Often when you’re campaigning, you don’t get what you want. You might get a more moderate version of what you demanded. You might get a lot of hot air concealing the fact you’ve won nothing at all, rather like the eventual WTO deal on TRIPS eventually agreed in 2022. Or, you might not even get that far, failing to make any breakthrough at all. But now and again, you’ll help put something in motion which will start to really transform things, beyond anything you expected.

It’s far too early to tell what the long-term effects of vaccine inequality and the global people’s vaccine campaign will be. But in mid-2021, with that inequality reaching its deepest point, and campaigners getting mainstream media coverage on a nearly daily basis, the South African government in partnership with the WHO, launched an initiative to start doing things differently. It was the seed of something which, campaigners like Hassan hope, could grow into a radically different model of researching and producing what is needed.

The mRNA Hub was officially launched by the WHO in July 2021. The concept was simple, to help southern countries get to the stage where they could produce their own mRNA vaccines, and share that knowledge openly. Initially they asked the companies that currently control mRNA vaccine technology – Pfizer, BioNTech and Moderna – to share their knowhow. The corporations were already producing vaccines, and no one was suggesting they stop doing so.

But the companies’ interest was less in making money from individual sales, and more in controlling a technology which could be used to create major money-spinners for years to come. Vaccines for HIV, malaria, tuberculosis, and other diseases were already in development. Why would these corporations share knowhow that could transform our medical knowledge and save countless lives, when sitting on and monopolising this knowledge could allow them to make a killing for decades into the future? The corporations refused to help, a position they maintain to this day.

“They thought it would take forever because they really do think Africans can’t do this - well, they were and are in for a shock!”

Fatima Hassan, South African Activist

The scientists and officials, driven by a campaign-like zeal to do something about vaccine inequality, were undeterred. They said, if the corporations wouldn’t help, they would simply work out how to make an mRNA vaccine on their own, taking a leaf out of the book of every country which has successfully developed their economy in the last 200 years. And, within just a few months, they declared a breakthrough – they worked out how they could produce it.

Of course, this is not the end of the road. Scaling up the amount of vaccine they could produce was a whole new challenge, as was testing and trialling their vaccine. But, they showed it was only a matter of time.

And here’s where the really radical bit of the hub’s work comes in. Because once they had developed the knowhow to make mRNA vaccines, the hub started sharing that information with those who could make safe and effective use of it. First up, scientists from Argentina and Brazil, two countries which said Pfizer’s bullying had left them unable to sign contracts with the company, travelled to Cape Town to receive the training in how to make mRNA vaccines. More countries were added to the list, most recently Ukraine, as it suffered brutal invasion by Russia. At the time of writing, the knowhow was being actively shared with 15 countries. And the project is complemented by the creation of a WHO training hub in South Korea, to help low- and middle-income countries produce their own biologicals medicines, including insulin and cancer treatments.

This is potentially big stuff. It is beginning to remake the pharmaceutical research and development system from the ground up, giving countries across the global south an alternative model to relying on Big Pharma. No patents have been broken in the research phase, but as an expert told me on WhatsApp “they’re just sort of behaving as if patents didn’t exist.” The implications for the future of the industry are profound.

As Fatima Hassan told me, Big Pharma didn’t think Africa could generate the complex knowledge to figure out the mRNA technology and to make vaccines. “I think they believed it actually, they thought it would take forever because they really do think Africans can’t do this. Well, they were and are in for a shock. We will do whatever it takes – including patent defiance – to protect the work and knowledge generated by the hub and its ability to manufacture for the global south. We will then be able to turn round and say, ‘we did this ourselves’.”

Pharmanomics: How Big Pharma Destroys Global Health
 is out now on Verso Books.

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