A new plan to give away trade secrets could improve big pharma's awful reputationby Jim Giles / April 26, 2009 / Leave a comment
Published in April 2009 issue of Prospect Magazine
Critics loved the Oscar-winning film The Constant Gardener. But it must have been greeted with dismay in the boardrooms of big pharmaceutical companies when it was released in 2005: the film shows them ruthlessly willing to swap lives for profits. And it was just one of many low points for the industry in the last decade. At times it seemed as if its mission was to manufacture public relations disasters, not drugs. In 1998, big pharma took on Nelson Mandela’s plan to make Aids treatments affordable. (It lost). As if going up against the world’s most respected man wasn’t enough, drug companies have also acquired a reputation for bribing doctors, selling medicines that make young people suicidal, cheating medical journals, running deceptive television advertisements and ignoring diseases that kill millions in the developing world. Their moral stock has, like their financial stock, tanked. This is the unhappy backdrop against which Andrew Witty, the soon-to-be CEO of GlaxoSmithKline (GSK), took the lectern at the Harvard Medical School on 13th February 2009. He had surprising news: GSK would soon cut prices in poor countries and begin to share its secrets with rival companies. The aim was to encourage the development of new drugs to fight neglected diseases. Approving coverage followed: the Guardian, a frequent critic, splashed the story and even ran a glowing editorial about Witty. The most intriguing part of GSK’s news was the plans to share information with its cut-throat competitors in what are known as “patent pools.” The move has potentially radical implications, both in the pharmaceutical industry and beyond. Most directly it could begin to solve various “market failures.” Drug companies are owned by shareholders who want to make money. As a result America alone spends over $60bn researching lucrative new drugs for the rich world, but a paltry $230m on trying to end developing world scourges like malaria. Spending on research in rich nations is also skewed. Only about a quarter of new drugs are new treatments, the remainder are “me-too” products: attempts to cash in by slightly updating existing treatments in profitable markets, like the $30bn people spend every year on cholesterol-lowering drugs known as statins. In short, pharmaceutical companies do not develop the drugs the world needs because the market is telling them not to bother. So how might the new patent pool system solve this problem? It works like this. Once a company has developed a drug, it will have the option of submitting the relevant intellectual property to a publicly-run pool. (A patent is a licence given to a company allowing it exclusive rights to manufacture, and profit from, a product it has developed for a set period of time.) Other companies would then be free to use patents from the pool to develop drugs. With less expensive licensing agreements, the resulting drugs would be cheap. Manufacturers in India and elsewhere have already shown that they can produce affordable drugs once patents are taken out of the equation. But how to encourage companies to take part? One way is to offer a prize fund, eligible to those who put their patents in the pool. The greater the health benefits that flowed from any pooled patent, the greater the share of the fund the patent holder, normally a company, would get. As a result drugs that cure more people—like anti-malaria drugs, which could help 250m people annually—would win the most money. If this all sounds unlikely, consider the example of aerospace engineer Burt Rutan and his spaceship. In 2004 Rutan’s privately-funded craft lifted a crew of three to the edge of outer space. The technology has since been licensed by Richard Branson, who wants to create a space tourism business. But Rutan was not motivated solely by Branson’s interest. The flight also earned him the $10m Ansari X prize. This reward acted as kind of benign market manipulation; a means of solving a market failure. In a normal market, future returns may not have been enough to encourage Rutan (and his investors). But the Ansari family, who funded the prize, gave the market another reason to care. In doing so they broke the link between returns from the sale of a product—in this case, spaceflight—and the amount investors were willing to pay to help to create it. There are, of course, potential problems. The sharing system would need to be developed slowly, perhaps starting with one or two key neglected diseases. Money could be found by shifting government funds from less effective drug procurement budgets into new prize funds. Organisations buying drugs for developing countries, including aid agencies, could do the same. The theory behind patent pools promises similar benefits in other industries. For many years pools were considered anti-competitive, but in the early 1990s the US department of justice began to rethink. It loosened the restrictions on pools; the electronics industry responded by sharing its knowledge on DVD technology, making it easier for companies to get DVD players on to the market. If agricultural companies did the same, they might speed the development of the drought and salt-resistant crops that farmers in arid regions cope need to cope with global warming. Such hopeful thought should not disguise the fact that drug and energy companies alike remain self interested. GSK’s plans are laudable, but they are also a smart political move. The company gets good PR and, by starting the pool, it gets more say in how it is run, and which treatments should be included. Despite what their corporate slogans say, their mission is not to cure disease—it is make money. Schemes like patent pools and prize funds will only persuade big shot CEOs and shareholders if they make financial sense. In this case, real reform starts not in the heart, but in the pocket.