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Adam Smith Goes Pharmaceutical

As readers will have noted in my comments on drugs like Clarinex and Nexium, I certainly don’t think the industry I work in is always a one-hundred-percent benefactor of humanity. Drug companies are here to make money, and (like any business) they’re trying to make the most money they can, consistent with their tolerance for the chance of losing it.

The much-written-about report on innovation in the drug industry (PDF here) turned out, on inspection, to be much less confrontational than I had feared. The authors point out, correctly, that pharmaceutical companies are reacting rationally to their environment. Big, money-making drugs are coming off patent, and not enough new ones have been discovered in the last few years to take up the slack. Therefore, the companies will do whatever they can think of to keep the profits coming in for as long as possible.

That includes stepping up the marketing campaigns for what drugs they have. It includes ripping off their own expiring profit center drugs (as in the two mentioned above,) and doing whatever they can to get patients to ask for them and physicians to write for them. And that includes all sorts of schemes to delay generic competition. Some of them are bare-knuckled, but within the letter of the law (fighting patent claims.) Some are apparently legal, but have a certain shady aura around them (such as paying generic companies to go away.) And still others, like this accusation against Bristol-Meyers Squibb, are (if true) flat-out illegal.

It’s capitalism in action, and it’s not always – not even usually – a pretty sight. The same sorts of things go on in every other industry, in any number of variations. I think the same thing about individual economic competition, for that matter. One reason I like capitalism better than the other schemes that have sought to supplant it is that it seems to me to line up more closely with human nature. Not an original thought, but its validity is why it’s so well known.

People are going to act in their own interest, to serve what they see as their needs and desires. You can’t get rid of it, so you might as well set things up so they do some good while they’re at it. Wouldn’t it be more efficient if everyone worked that hard for the common good, though? Sure! Should some other zoological phylum develop intelligence, maybe they can give it a try. We, as far as I can tell, are wired for what we’re doing.

And so are companies. Wouldn’t it be more efficient if all of us in the drug industry just stopped trying to outdo each other? Open up the labs, put all our compounds in one gigantic screening file, pool our efforts? Well. . .it’s a tempting idea, in some ways. But what keeps us going is the competition, the knowledge that (like the sharks we are,) that we have to keep moving or die. I fear that a Monolithic MegaPharm would become so bureaucratized and lethargic that whatever good came of getting larger would be more than canceled out. Some of the large merged companies we have now are showing signs of this disease as we speak.

Knowing that other people are working on the same targets keeps us moving. The ticking clock of patent expirations, the arm-wrestling with the regulatory agencies, the demands of shareholders keep us moving. I think the best thing to do would be to, again, arrange it so that the maximum amount of good gets done while we’re out there pursuing our own agendas.

That means that I wouldn’t, frankly, object to making it harder to put drugs like Clarinex, Nexium and so on on the market. If I were the FDA, I’d raise the bar in such cases for advantageous efficacy, and if I were an HMO, I’d raise it for what I’d reimburse. But at the same time, I’d make it easier to find and sell new drugs, so there would be less incentive for all these activities that don’t lead to any real benefit. Faster regulatory approval, no method-of-treatment patent claims, more incentives like the orphan drug designation, some sort of tort reform: all these would help.

It boggles the mind, the amount of effort and ingenuity pulsing through a high-tech area like pharmaceuticals. But political grandstanding about the evil drug companies, schemes to clamp down good and hard on them: these could wipe out the crazy risk-taking that’s at the heart of the industry. Whack the ones that get out of line, sure. But while you’re doing that, set the system up so that we can whack on each other with even more ferocity than ever. That’s where the good stuff comes from.