This is the Wizards of Money, your money and financial management series, but with a twist. My name is Smithy and I’m a wizard watcher in the Land of Oz. This is part 16 of the Wizards of Money series and it is entitled “There’s a Generic in my Shark Fin Soup!”
Introduction
In this, the sixteenth episode of the Wizards of Money, we’re going to take a look at the world of drugs – the legal ones, that is. The star of this episode is the only industry more profitable than the commercial banking sector throughout the 1990s – and that’s the pharmaceutical industry, of course.
We’ll start with a look at the recent wave of pharmaceutical mega-mergers and what’s driving them … from the ominous “Shark Fin Curve”, to the search for the elusive “Blockbuster Drug”, to the need for ever more shelf space. Then we’ll look at the battles between the brand name drug companies and the generic companies, governments, and the other big giants of healthcare – the managed-care companies.
This journey through the shark-infested world of “legal drugs” will give us a good look at the bizarre human behavior that results from allowing the capital markets and the patented medicine model to dominate decision-making in one of the oldest of human pursuits…finding remedies for human illness. Allowing this behavior to continue unfettered may very well end in the capital markets giving themselves an incurable disease. For, while the capital that flows into drug research and development is obsessed with a couple of shark fins on the horizon, it is failing to notice the tidal wave swelling just over the horizon. This tidal wave is the global HIV/AIDS crisis, already striking at the very thing the capital markets need to survive.
Far away, in the land where Shark-Fin soup is a high-priced legacy of Imperial times, HIV/AIDS is rearing its ugly head. As the epidemic rips in to China, will the US be able to continue its token level support for this crisis of the developing world? Or will this threat to the labor force of a major trading partner provide the shock necessary to remind us that illness prevention and cure is, after all, a social service that does not fit well into the confines of 20-year patent monopolies. And will the exponential growth of HIV/AIDS in Eastern Europe and the former Soviet states, right on the doorstep of the European Union, wake up the rest of the West to the need to either act now, or risk losing their global marketplace?
Let’s get started with a discussion of what’s been going on in the world of patented drug monopolies.
Predator-Prey Dynamics in the Drug Sea
A July 16, 2002 article in “The Economist” announced the union of the two drug giants Pfizer and Pharmacia by opening “Depressed, bald-headed men with erectile dysfunction should be especially pleased.” The companies that make the world’s leading treatments for baldness, depression and Mothers Nature’s way of telling gentlemen their reproductive years are over, have combined to become the world’s biggest legal drug giant. The Pfizer-Pharmacia combo boasts over $50 billion in annual drug sales and spends about $7 billion a year on Drug R&D (Research and Development), plus another $3 – 4 billion on drug advertising.
As in most industries, the capital markets drive the classic predator-prey dynamics of the pharmaceutical sector. You either eat…Or you get eaten!
The Pfizer digestion of the smaller Pharmacia, announced in July 2002, was just the latest episode in the struggle to the top of the food chain. Let’s go back to 1995 when much of the mega-merger madness was just heating up. In that year, Glaxo Holdings gobbled up Wellcome Plc to form Glaxo-Wellcome. The following year the Swiss drug giant Novartis was formed out of the merger of Ciba-Geigy and Sandoz. 1998 saw the creation of Aventis out of the fusion of smaller drug companies and AstraZeneca from Astra and Zenenca. About a year later Pharmacia & Upjohn thought Monsanto looked pretty tasty, so they swallowed them whole, only to spit out the controversial agribusiness piece in August of this year. Also in 1999 we saw Pfizer swallow Warner-Lambert. Glaxo-Wellcome and Smith-Kline-Beecham were fused together to form GlaxoSmithKline in 2000. And just when we thought the mergers couldn’t get any bigger – Pfizer and Pharmacia announced their merger, pending regulatory approval, in July 2002 to outsize GlaxoSmithKline, and become the biggest fish in the drug sea.
And there are rumors of yet more drug mergers on the horizon!
The modern pharmaceutical industry has its origins in the late 1800s when it became possible to mass-produce compounds such as morphine and cocaine. By the early twentieth century drugs and compounds were patented by various companies to protect their discoveries. A patent on a branded drug or chemical gives the company a monopoly on sales of that chemical for a specified period, enabling them to set high prices in the absence of competition. The argument for patent protection is that it enables the developer to recover their investment in R&D plus a profit, hence providing incentive to private industry to find new cures. However, in order for the company to lure customers into buying such a high priced product they also need to spend a lot of money on advertising and marketing to convince people that it’s a very special product. There are many arguments both for and against the patent model for pharmaceutical development and we shall revisit these later.
Today, the brand name drug companies look nothing like their chemical commodity predecessors of the 1800s. New products require large investments in R&D and take a long time to bring to market. The drug giants are dependent on patents, marketing and branding to make a profit. Consequently, the pharmaceutical sector has more in common with the Hollywood movie industry than with any public service provider – A new drug must become a profitable “Blockbuster”, or it’s not worth the effort to develop it.
In contrast, generic drug companies spend comparatively little on R&D and advertising, existing primarily to compete for market share based on price once a patent on a brand name drug has expired. Once such a patent expires, generic companies can copy the drug and can afford to sell it at a lower price (as low as a quarter of the branded drug price) since they don’t have as much R&D and advertising costs to recoup.
After roaring successes and record high profit levels throughout the 1990s, today we find that all is not well in the world of blockbuster remedies. Ailments in the branded pharmaceutical sector include looming patent expiries and the resulting competition from generic companies, a drug R&D pipeline that is drying up, and angry governments, corporations, consumers and managed-care companies tired of high drug prices.
These common enemies are forcing all these unions amongst the drug giants who hope that consolidation will allow them to do more of their two favorite things at lower cost. These two things are (1) Advertise and (2) Produce Blockbusters. The future dangers to the general public of all this industry consolidation, in terms of even higher drug prices and, more seriously, the lowered ability of the pharmaceutical sector to respond to real illness, are not getting much attention. The latter is reflected not only in the untreated epidemics haunting the developing world, but even here in the US, with increasing reports of shortages of basic medicines and vaccines at many hospitals.
These problems are all compounded by the fact that drug companies are fighting dirtier and dirtier to counter the ‘Attack of the Generics’.
Attack of the Generics! Meet the Shark Fin Curve.
A story in the Wall Street Journal in June of this year about the birth of the much touted heartburn drug Nexium gave many people their first good look at the importance of the “Shark Fin Curve” haunting the pharmaceutical industry. You must know the Nexium ads, with a bunch of middle aged folks standing around in some canyons that presumably represent an eroded esophagus, all mumbling “I didn’t know, I didn’t know, I didn’t know”.
Insert: Nexium Ad
Well, I bet they didn’t know this…The only reason Nexium exists is that its predecessor, Prilosec, which is almost exactly the same – is coming off patent. It’s sliding right down the other side of the Shark Fin Curve. This eroded esophagus business is all about making the new patented drug Nexium seem different to the one that will now be copied by the generics.
The Wall Street Journal article describes the Shark Fin Curve as the Sales versus Time graph of a patented drug. It looks like an upside-down “V”. As soon as a patented drug is launched, revenues generated by it shoot up over time like the rising edge of a shark fin. But the minute it comes off patent they plunge just as quickly as they rose, as the generic companies come in, copy the drug, steel market share and force prices to drop. We’ll talk more about Shark Fins and eroded esophagi later when we look at some case studies of how the big drug companies fight back against generic competition.
During the roaring 90s the pharmaceutical industry always seemed to be topping the charts as the most profitable. We are all familiar with the Blockbuster Drugs who made this dream a reality and have become celebrities in their own right – there’s Viagra, Vioxx, Celebrex, Claritin, Nexium, Prilosec, Lipitor, Rogaine, Zocor, Zoloft, Prozac, Paxil and Lamisil – to name but a few. Some will be on patent for many more years but others are soon scheduled to come off patent. Many patented drugs are simply ‘me-too’ drugs, designed to achieve the same effect as other patented drugs, but really add little value to society as a whole. To overcome lost revenues from patent expiries and the me-too drugs, each drug giant needs a certain number of new blockbuster drugs emerging from the R&D pipeline every year. Massive advertising campaigns are then designed to sell enough of the drug at a high enough price to recoup the R&D and advertising costs plus a target profit level.
But the big pharmaceuticals, much to their dismay, are finding that the blockbuster drug cabinet is bare, even after throwing piles of dough into the R&D bucket. Despite the extensive range of the silliness of the illnesses for which blockbusters can be made to remedy, such as toenail fungus and hair shortfalls, big pharma is still finding that it can’t find enough new drugs to bring to market. This makes them more desperate to maintain high revenues on existing patented products, so they pour more and more funds into advertising and into fighting the generic companies in court.
End Result: Profits are down in the pharmaceutical industry and the near future looks glum. And we get to see even more drug ads!
Add to all this the following pressures on the drug giants:
- European governments dare to regulate prices of their precious Blockbusters,
- US State Governments are now cracking down on some of Big Pharma’s desperate practices to shut out the generics,
- Drug companies get pressure from managed-care companies to lower prices,
- Drug companies now face a whole new set of giants – a coalition of corporate giants called “Business for Affordable Medicine” – whose healthcare expenses have been shooting up with the cost of prescription drugs. This coalition includes such behemoths as General Motors and Wal-mart (for example General Motors pays over $50 million a year just to buy the heartburn drug Prilosec for its employees and they are not happy).
It looks like the drug companies, poor things, could use a dose of their own anti-depressants!
True to form, however, the pharmaceutical industry is not one to take all this lying down. It’s fighting back on all fronts, in a series of vicious attacks, coupled with consumer manipulation that so characterize a desperate industry.
Before we study the attack strategy of big pharma, lets get to know the industry a little better and the regulation that defines its operating parameters.
A Little Bit of US Drug History
Miracle drugs and pervasive drug advertising have been a staple of the American diet for both the body and the mind for over a hundred years.
After more than 30 years of pressure for food and drug safety laws, the year 1906 finally ushered in the landmark Pure Food and Drug Act, amid shocking disclosures of the use of poisonous food additives and cure-all claims for worthless and dangerous patent medicines.
In 1927 the Food and Drug Administration (FDA) was formed as the regulatory arm of the government charged with enforcing food and drug law. The pharmaceuticals lost their battle against an overhaul in drug regulation in 1937, after a drug known as the Elixir of Sulfanilamide killed over a 100 people, including many children. This paved the way for the passage of the 1938 Food, Drug and Cosmetic Act which, among other things, required new drugs to be shown safe before they could be marketed. The Thalidomide scare of the early 1960s put pressure on Congress to further strengthen drug regulation. Still, the brand-name companies continued to prosper because they could set whatever price they wanted on patented drugs.
The year was 1984 when pharmaceutical companies first started seeing those shark fins emerge on the horizon, with the passage of the landmark Hatch-Waxman Act. Prior to this, generic drug companies had to perform the same rigorous testing on generic drugs that the companies with the initial patent had to perform. This made competition from generics virtually a non-issue because the investment required to get regulatory approval could only reasonably be recovered where the producer could charge a sufficiently high price for the drug once approved. In practice, this meant that the pre-Hatch-Waxman regulatory structure was heavily biased in favor of the companies with drug patents – that is, the brand name drug companies.
The 1984 Drug Price Competition and Patent Term Restoration Act (often referred to as the Hatch-Waxman Act) changed the drug competition landscape drastically by lowering the regulatory hurdles for generic companies. It said that, rather than the generic companies performing all the safety tests that the original company with the patent carried out, they just had to show that the generic drug was chemically the same as the original drug, which had already been tested. Finally, there was a feasible economic model for the generic industry. Once a patent expired on a drug, they could replicate and sell that drug for a lower cost and still make a profit, because their initial costs to get the drug to market were now much lower.
Well, that part of the 1984 law sounds pretty good for the consumer! But lets be realistic – Do you really expect the government, especially during the Reagan administration, to turn its back so abruptly on its buddies in the pharmaceutical industry just to create a deal for the consumer?
It is one of the oldest tricks in the regulatory book to create a law that looks pretty damn good to the general public, but with some back door gifts to friendly private interests that are not obvious to the general public until many years later. The Trojan Horse allowed into the 1984 regulatory regime contained an army of methods for the brand-name companies to fight the generics, including:
- Extension of patent protection to make up for time lost in the FDA regulatory approval process (hence the term “Patent Restoration”).
- Ability to get multiple patents on drugs covering not only the chemical itself, but also all kinds of preparation methods and techniques, making it harder for the generics to prove they had the same drug. These patents could be staggered, such that when the patent on the main chemical expired the patents on various methods and techniques were still in force.
- Wide ranging ability to challenge generic companies in the courts for patent infringement.
These back door methods available to keep patents going form a major arm of the strategy used by the brand-name companies to ward off the threat from generics. And it is these very loopholes that coalitions such as “Business for Affordable Medicine” and many congressional representatives are trying to close.
In later years the arsenal was to be extended by the formation of the World Trade Organization and associated revisions to international trade law that further strengthened patent protection of pharmaceuticals.
Then, starting in about 1994, the brand name companies launched into a shameless, near exponential growth in direct-to-consumer advertising of prescription drugs for reasons that probably have to do with increasing pressure from generic competition and managed-care companies. This strategy proved critical in the battle against the Shark Fin Curve. Nowadays, barely an hour can go by on the TV without us hearing from our friends in Big Pharma.
Meanwhile, in other industrialized nations, the provision of universal healthcare means that drug prices are largely controlled by governments. Drug companies have not been allowed such freedom to either set prices for patented drugs or to advertise directly to the consumer. Consequently the US consumer ends up not only paying for the privilege of being propagandized by the drug companies at home, they also subsidize lower drug costs abroad where prices are regulated by the government.
Put all these factors together and there’s little mystery as to why prescription drug costs are spiraling out of control in this country, increasing at about 15% a year!
The Anatomy of a Counter-Attack from Big Pharma
To understand where some of the most unsavory behaviors of the branded drug companies come from, it is instructive to look at several case studies. We will look at two of the most frequently referenced case studies, whose stories can never be told enough. Be sure to tell all your friends, too!
Case Study 1 – Blockbuster Nexium: The marketing of the heartburn drug Nexium by AstraZeneca to counter the expiry of its patent on the similar drug Prilosec. Schering-Plough is currently using similar tactics to convert people from the allergy drug Claritin coming off patent, to the almost identical branded drug Clarinex.
Case Study 2 – Blockbuster Taxol: The tactics of Bristol-Myers Squibb to keep its monopoly on the cancer drug Taxol, originally a gift from the taxpayer funded National Institutes of Health
These case studies come from a very educational series in the Wall Street Journal that has been running throughout 2002 documenting the tactics of the pharmaceutical industry.
Case Study 1: Blockbuster Nexium, by AstraZeneca (WSJ June 6, 2002)
Thanks to their bad eating habits, American are notorious for stomach related problems, and this has proved to be a gold mine for the drug industry. Stomach ulcer and heartburn drugs like Prilosec, and Zantac before it, were the largest selling blockbusters of their time.
Insert: 1940s “American Stomach” Radio Ad
In 1995 AstraZeneca launched ‘Project Shark Fin’ to draw up a battle plan as its 6 billion-dollar-a-year heartburn drug, Prilosec, was going to lose its patent in April 2001. After years of work, the Shark Fin team came up with the rather unimaginative solution of launching a successor drug that was basically the same as Prilosec, but would be under patent when Prilosec lost its patent. They also used every loophole available in the Hatch-Waxman Act to construct a legal minefield for would-be copy-cats, to extend the Prilosec patent as long as possible, and give AstraZeneca more time to convert Prilosec users over to Nexium. The related legal battles over the Prilosec patents continue to this day and are closely watched by those that follow drug prices.
To convert post-patent Prilosec users to its patented sibling Nexium, AstraZeneca spends about $0.5 billion a year in adverting of this single drug, making it now the most advertised drug in the US (taking over from Prilosec a few years ago). And, so far that’s paid off handsomely, as 60% of those switching from Prilosec are going to Nexium.
Nexium is one-half the Prilosec molecule and works pretty much the same, but it is just chemically different enough to win a patent of its own. The marketing spin that Nexium is better at dealing with eroded esophagus is good for converting Prilosec users that watch prime time TV over to Nexium but, according to the Wall Street Journal article, is built on very shaky scientific foundations. According to this article, four studies were commissioned to see if Nexium was better at healing eroded esophagus. Two studies found it wasn’t any better at all and the other two found it was better only by a smidgen.
Based on that piddling bit of evidence we all get to hear about eroded esophagi and purple pills with racing stripes on a daily basis!
Such tactics form a common strategy for maintaining revenue as drugs come off patent. A similar strategy is being employed to convert users of the allergy drug Claritin to the new patented Clarinex.
Case Study 2: Blockbuster Taxol, by Bristol Myers Squibb (WSJ June 5, 2002)
Bristol-Myers Squibb is currently being sued by 29 states for illegally delaying generic competition of its blockbuster cancer drug Taxol and costing governments and consumers billions of dollars, as well as costing lives. The basis of the suit is the claim that Bristol-Myers Squibb misled the US Patent Office to delay generic competition on Taxol.
But it gets more offensive than this! You see, Taxol is derived from the bark of the Pacific Yew tree and its pharmaceutical benefits were discovered not by Bristol-Myers but by the taxpayer-funded National Institutes of Health. The NIH handed Taxol over to Bristol-Myers in 1991 as a big gift. In return Bristol-Myers, who charges a hefty price for Taxol, has acted like a badly spoiled child not wanting to share this gift with anyone, even ten years later.
Bristol-Myers Squibb, similar to what AstraZeneca did in setting up its minefield around Prilosec, has used the trick of staggered patents of every technique and methodology used to serve up Taxol to maintain its monopoly on the taxpayers’ gift to them.
This is such a common strategy of counter-attack by the brand name companies against the generics that state governments, consumers, companies and health insurers that end up footing the bill for prescription drugs are themselves challenging it at every turn.
Poor Bristol-Myers Squibb! In addition to these lawsuits and angry governments, the planned heir to the cancer drug throne, a drug known as Erbitrix, developed in a joint venture with ImClone Systems, was rejected by the FDA and wound up in a sordid scandal with the queen of good cooking – Martha Stewart. What are they going to do with the Shark Fin now?
These case studies were selected to give an idea of the desperate tactics used by the drug industry to boost sales revenues. But, of course, the tactics don’t stop there. Following is a small sampling of other techniques employed to keep sales revenues and drug prices high.
- Marketing to the medical profession. (Source: Kaiser Foundation Study, 11/2001) Drug companies spend the vast majority of their direct marketing budgets (about 85% of them) not on marketing directly to the public, but on marketing directly to doctors. This consists mostly of giving doctors buckets full of free samples – about $8 billion worth in 2000 – noting that patients who start on free samples often convert to paying customers. It also includes giving doctors free dinners, sports tickets and other gifts, sponsoring conventions for them, and advertising in medical journals. In all, marketing to the medical profession costs the drug industry about $14 billion a year.
- Advertising to consumers through pharmacies. (Source: WSJ 5/1/2002) This newest form of direct-to-consumer advertising comes in the form of what looks like an educational booklet from the pharmacy about various treatments for your particular condition. It’s provided for free when you purchase your prescription drugs, and looks like a public service provided by your trusted pharmacy. The targeted consumer would have to get their magnifying glasses out to see that these are actually advertisements from the branded drug companies. The trusted pharmacies are, of course, amply compensated for their distribution efforts and access to their databases for target marketing purposes.
- Advertising Agencies Participating in Clinical Trials: (Source: WSJ 6/3/2002) Believe it or not, those same drug agencies that bring us the subliminal messages of eroded esophagi using big canyons, are entering the business of performing clinical trials for their clients. This should lower both advertising costs and expenses of clinical trials, for there is every incentive for the advertising agency to find that their tested drug is just fantastic. After all, they will have an exclusive on the advertising account once the product is launched.
As noted, these case studies and other techniques are just a small sampling of the techniques the branded drug companies use to stay alive and profitable in the face of competition, decreased innovation and increasing opposition from many quarters. There are many more strategies employed and if you read the business press you can probably read about a new one just about every day. Indeed, it is remarkable that the granting of 20-year monopolies and the gifts of publicly funded research can’t even help this industry solve its profitability problems, let alone that it increasingly fails to provide value-added service to the public. Surely it is time to re-think the viability and sustainability of the branded drug sector in its current form.
[ The following Section 6 was deleted from the audio version for continuity reasons, but you might find it interesting…
The Next Blockbuster Drug – What will it be? A “Youth Pill”
As we’ve already seen, the blockbuster cabinet is currently looking pretty bare, and big pharma is getting nervous. Many recent blockbusters act on certain enzymes to inhibit their production of an undesired chemical that causes problems like high cholesterol. But the enzymes available for such targeting are pretty much used up by now by all the existing blockbusters. In addition, it will be hard to improve on existing treatments for the 5 main ailments that currently dominate the top 20 drug lists – heartburn, arthritis, high cholesterol, high blood pressure and low spirits (depression). So what next?
Operating in the favor of big pharma profitability is the aging of the rich world populations with money to buy prescription drugs. This aging in the West will drastically increase per capita spending on prescription medicines in the coming years. Finding effective medication for the degenerative altzheimers disease or even osteoporosis would be like hitting the jackpot. But with few warm leads on such cures, investing R&D monies in this area is certainly very risky.
In it’s efforts to produce a blockbuster for the over 65s, the biggest drug giant Pfizer has recently been working on the elusive “fountain of youth” pill, also known as the “frailty pill”. By stimulating the pituitary gland to produce more growth hormone, this drug aims to reverse the degenerative process that comes with aging and make old people feel young again. Taking the trend set by drugs such as Viagra, Rogaine and Paxil to a whole new level, this drug promises to be the ultimate “lifestyle drug” for the baby boomer generation. But so far the clinical trials have not produced the desired results.
Nevertheless, if the drug companies could get the youth pill to work then, by playing on one of the deepest of human fears, they will have struck gold. Consumers might start taking such medications at the first signs of old age and then be taking them for the next 50 years!
Another strategy we are likely to find followed more is the use of ‘gene hunting’, where researchers try to discover the genetic roots of chronic diseases and thereby devise treatments. But payoffs from gene technology are not expected for another decade or so.
In the midst of this current drought in the blockbuster drug pipeline, many industry watchers have noted that increasing consolidation has actually made the drug industry less efficient at producing more drugs.
But that’s not the worst of it, by far. The patented medicine model, while contributing much to the welfare of the western world over the past century, has itself aged and entered a seriously degenerative phase. It is not making much sense in our globalized markets, and maybe it’s time for it to die out. Today, people all over the world, regardless of nationality, political ideology, or wealth, should seriously be questioning the suitability and sustainability of the contemporary patented medicine model.
Market failure of the Patented Medicine Model. HIV/AIDS Rips in to China and Russia.
The following, seemingly prophetic, quote from an 1851 edition of the The Economist describes perfectly the degenerative phase the patented medicine model has reached by the start of the 21st century:
“The public will learn that patents are artificial stimuli to improvident exertions; that they cheat people by promising what they cannot perform; that they rarely give security to really good inventions, and elevate into importance a number of trifles…no possible good can ever come of a Patent Law, however admirably it may be framed.”
This 1851 quote gives a good description of what has become of today’s pharmaceutical sector when viewed from a global perspective. Patents have certainly provided “artificial stimuli to improvident exertions” or, put another way, wasteful spending. And there is no question that we have seen the elevation “into importance a number of trifles”, namely the blockbuster lifestyle drugs such as Viagra, Rogaine, and various anti-depressants, as well as unnecessary drugs that are virtually the same as a host of other drugs already on the market. All this takes places against the backdrop of a developing world HIV/AIDS crisis that has resulted in up to 40% of the population being infected in some African counties, and is now starting its exponential growth throughout Eastern Europe, the former Soviet states, China and the rest of South-East Asia.
The West has remained largely unconcerned with the HIV/AIDS crisis in Africa. There have been some nice efforts from various quarters but so far the response has been woefully inadequate from those that can most afford to help. To put it bluntly, this is because the “self-interest” component just isn’t there. Africa is only a minor trading partner with the West, and the West has relatively little economic interest in Africa. So far, all the help adds up to not enough, and the disease continues to outpace efforts to stop it. Out of a $10 billion-a-year request from the UN, the West can only bare to part with $2 billion to assist in dealing with the problem of HIV/AIDS in the developing world. And, compared to other drug investment, relatively little goes into finding a vaccine. If and when a vaccine is available, distribution of it will pose the next major hurdle.
But now, there are increasing reports detailing the spread of HIV/AIDS throughout the former or semi-communist, now market-directed, nuclear powered giants – Russia and China. A startling report from UNAIDS, released in June 2002 entitled “HIV/AIDS: China’s Titanic Peril” reveals the state of the problem of HIV/AIDS in China. With 1-2 million people infected today, infection rates have been increasing at more than 50% a year. Estimates of the number of people infected by 2010 range between 10 and 20 million. The former Soviet states have seen a five-fold increase in infections in the past three years, have more than 1 million people infected, and the fastest spreading epidemic of all, according to a September 2002 UN Report. A survey from British scientists released in June predicts that within 5 years, 1 in every 20 Russian adults will be infected.
Both China and Russia are rapidly developing market economies. One is a major trading partner of the United States, the other set to become one of the European Union. Lest you think this development will help, think about the African nation of Botswana. Botswana was the golden child of economic development of sub-Saharan Africa, financed largely by its mining industry after it gained independence. Its first AIDS case was detected in 1985, then HIV/AIDS built slowly for several years. By the 1990s it was spreading furiously throughout the general population so that by 2002 it affects almost 40% of the entire population. Why so much worse than the less developed sub-Saharan region, you might be wondering? Largely because of the rapid economic development itself. The road networks that come with development, the mobility of labor away from home and families that comes with globalization, and men leaving wives to get work, all sped up the spread.
Now, many people in Africa think China and Russia look a bit like their countries did five to ten years ago. But there’s more. With Western style development comes rapid growth in drug use, teenage sex, commercial sex and poverty. These increases are being observed across China, Eastern Europe and Russia and the relevant populations are showing huge increases in infection. In addition, the old social safety nets and health care systems have largely collapsed. In rural China, the poverty of farmers has forced them to sell their blood for trade on the lucrative national and international plasma markets. Millions of rural people participated in these plasmapheresis programs in return for cash payments to supplement their ever-dwindling incomes. In this process their blood was taken, pooled with that of lots of other people, and the plasma separated from the red blood cells. The plasma is sold on the plasma market and the now pooled red blood cells are then re-infused back into the pool of donors so that they can keep giving blood at a high frequency. In such a process, all it takes is for 1 person in a pool of 100 to have HIV and all 100 get it. This has greatly increased China’s HIV problem. Add this to the fact that population pressures and the preference for male children has created a dangerously high and unnatural male to female ratio, plus the big taboo on discussion about sex in eastern cultures, and you see a growing number of catalysts for disease spread.
China is currently the forth-largest trading partner of the US, likely to be the number 2 or 3 before too long, and with a strong chance of becoming number 1. With China joining the World Trade Organization there’s tons of capital wanting to invest in China. As residents and consumers in the US, our lives are undeniably intertwined with those of the Chinese. So much of our own purchasing power and hence, quality of life, is a direct result of the relatively low cost of labor in China. As our population ages, more and more of the productive labor force we depend on will be in countries like China. In this case, the economic interests of the US are very much tied up with the well being of the labor force of China. If the US does for China’s emerging epidemic what it did for Africa, which was not very much, the consequences on the US economy could be quite severe. Maybe this self-interest component is the only thing that can get the US to do what it can well afford to do about this crisis in the developing world. Then, I am sure, a vaccine could be found and distributed in no time at all.
Similar arguments apply about the relationship between Western and Eastern Europe. The European Union has an added incentive. Since this is all happening right next door, the epidemic may very well stretch into Western Europe if they don’t help do something about it in a hurry.
A Remedy for the Ills of the Current Medicine Model
There is no point asking the branded drug industry for help. They just wont budge without a monopoly and a profit stream, neither of which is a suitable incentive model for this global crisis. It is heartbreaking to see the present $8 billion shortfall in the UN requests for HIV/AIDS assistance, compared to the many tens of billions spent by the pharmaceutical giants on advertising nonsense pills to us daily, suing the generics at every turn and developing medicines that aren’t really necessary. And we end up footing the bill for all this, be it in the form of our taxes, higher health premiums or direct prescription purchases.
If global capitalism wants to save itself from its own worst enemy – which is itself – it better act quick smart. Following is a prescription for the capitalists to save their global markets…
(1) Since the branded drug industry is wasting our time and our money and they are not helping to solve the really big and important health problems, we can conclude they are a big inefficient sector of the markets due to too many years of monopolies and taxpayer subsidies. They are fired! That should make the markets more efficient. We will keep the generics, though.
(2) The generics can keep producing all existing FDA approved drugs in a patent free environment. This should lower our total annual drug costs by about $80 billion a year.
(3) We will use about $15 billion of this for a prescription drug benefit for seniors (whose costs are now much lower because all drugs are generics) and put some $15 billion towards insuring the uninsured.
(4) We will set aside $30 billion for drug research and development in the public sector, to replace what the private sector used to do, except with a more needs oriented approach. All the scientists, researchers and administrative workers from the now extinct brand name companies get new jobs at the new publicly funded research centers. Realizing that the biggest needs are in the developing world and that our own economy is intimately tied to their well being in this globalized world, we set the first $15 billion aside exclusively for HIV/AIDS vaccines and treatments. The next $5 billion goes on tropical diseases, tuberculosis and so forth. Then the other $10 billion will go into the most important things at home.
We still have $20 billion left.
(5) Of the people that used to work for the branded drug companies, we still have the marketing people and lawyers sitting around idle, which is worrisome. Since the marketing people are always telling us that they are not annoying and that they are instead providing the social service of distributing important information, we have just the job for them! First they will be put in decompression chambers and then some training will take place to retool them for a more wholesome career. They will each be provided with 10,000 packets of condoms and sent all over the world from India to the Congo to Russia to China to Brazil. Their job will be to sell the use and advantages of condoms and safe sex to as many people in the developing world as possible. This should be right up their ally. For years they have been walking into doctors offices with free samples to give away and stories to tell. They will get compensated based on the preventative practices adopted in their region. The total cost of the global prevention plan will be about $10 billion.
(6) The lawyers will be left on their own. They are inventive enough to find other ways to occupy their time.
(7) Well, there’s lots that can be done with the remaining $10 billion and I’ll just leave that up to your imagination.
That’s all for the Wizards of Money Part 16.
