get to the point

Good evening fellow Toastmasters and guests. Hong Kong is certainly one of the best global examples of capitalism. It’s what […]

Good evening fellow Toastmasters and guests.

Hong Kong is certainly one of the best global examples of capitalism. It’s what capitalism is all about. In Hong Kong big profits are good, money’s good, doing good’s GOOD. Capitalism has reached its apotheosis.

And there’s nothing wrong with that.

Or is there?

Thinking globally… there are some business sectors that really raise emotions among a lot of people.

Let’s take three examples…

First we have big oil. It destroys the environment. Wipes out fisheries, and so on.

Or there are the big banks. Big banks destroy economies. Here’s Fred Goodwin, he destroyed his own bank as well as making a good attempt on Britain’s economy.

And then we have big pharma – and this where I’m focussing. Big pharma – the drug industry. It kills people. Or, so some would say.

So, do the environmentalists, the anti-capitalists, advocates for this, campaigners for that – do they have a point? Are these sectors as bad as they are portrayed? Or is this anti-big business sentiment just a voluble bunch of badly informed zealots, picking on very profitable, easy targets?

Considering the pharma industry. Are drugs expensive? Is the pharmaceutical industry holding human health – and peoples lives – to ransom?

A course of antibiotics in Hong Kong costs you, what, $200. Is that a lot of money? If you’re old or you’re chronically ill, and susceptible to opportunistic infection, without access to these basic drugs that we all take for granted you might die. Now in that context is $200 expensive?

Now, if you’re unlucky enough to suffer from paroxysmal nocturnal hemo-globinuria you need a monoclonal antibody drug – the world’s most expensive drug – and that costs $400,000 US per year, every year. Without it, you will probably die. Then, is $400,000 US per year expensive?

What’s the price of life? Do these examples change your perspective on what is expensive? Do they make you ask why these drugs cost what they do?

Now take a look at the slide.

Here we have the kind of image that in some ways defines an age. The blight of AIDS particularly in sub-saharan Africa over the last 30 years or so.

And here we have Joe the plumber. You’ll remember he was wheeled out as an example of Main Street America in 2008. Average Joe.

What an odd juxtaposition you might say. Now who out of them has the most straightforward, relatively affordable access to healthcare?

Drug sales in the US are a quarter of a trillion dollars a year. Pharma spends something like 25% of those revenues on promotion. It reinvests about 14% in Research and Development.  And it’s this difference that fuels the noise made by the drug industry’s opponents. The amount spent on sales and marketing exceeds that spent on R&D. Pharma is pushing its products, and profiting from life and death.

Well they are big, but how does big pharma make its big profits?

To many of us these days innovation constitutes an iPad or an iPhone or an iWhatever. Hardly essential stuff but you don’t hear too many complaints about Apple’s enormous profits.

Well at the core of big pharma’s offering is genuine innovation. And biotech and figuring out which part of the human genome to target is a lot more complex than circuit boards.

And just as for any other innovation, a patent is granted for 20 years. But no other sector has to spend 14 of those years testing their product for safety and efficacy. With only 6 years remaining in which to market the drug – assuming it does get approved, and most do not – the drug company needs to set a price that recoups the typical $1 billion+ dollars of development costs, and makes a profit.

And after those 6 years have elapsed it’s a free-for-all. Generic copies will flood the market, the price collapses by 90% and we all have access to $200 drugs. But the originator – innovative big pharma – might not make a cent from that point on. That’s despite it having set in motion the chain that drives drives universal availability of low-cost drugs.

Just like Apple however, pharma needs to promote its products to healthcare decision makers. And again it’s this fact of healthcare as a business that really riles the activists.

But basic economics says the more that pharma sells, the more revenues they create, the more can be invested in R&D, the more innovative drugs can be created and the less humanity suffers

So back to our patients….

Who’s better off?

Well Joe can realistically only get access to optimal drugs if he’s employed and has the accompanying health insurance. So with 2011 being synonymous with high unemployment this means that potentially, average Joe has access to very suboptimal levels of healthcare.

Now, our AIDS patient, probably in 2011 will get access to life-saving antiretovirals. For free.

Why is that? When most of the R&D was done in the USA, the investment is made in the West, how can the guy on the left get free treatment?

Well, it happens because governments in some developing nations – just like the activists – play the moral card. Vociferously. They make a noise about the pricelessness of life. And they get their way. For pharma to not give-in is an inevitable public relations disaster for the drugs companies.

It also happens because in this sector, big pharma is prepared to collaborate and drive down development costs. Imagine Apple and Amazon collaborating in the same way as GSK and Pfizer. Unlikely.

So, of course, this is only a cursory analysis of a horribly complex and ethics-ridden area. But, there is a disconnect in understanding the costs of business of developing a lifesaving drug and the moral concept of the pricelessness of life.

It’s much easier if you’re an activist to go after a private sector giant than it is the government or the faceless hard-to-pin-down insurers, or the doctor or the hospital or any of the more human faces of healthcare.

So is big business bad for your health?

My point is that it is not. Big business is the life force of innovation. In this case life-saving innovation. I could make a similar argument for big oil and big banks (ok big banks might be a bit harder).

Whether big pharma really does save lives is not a question of the moral stance at big pharma’s corporate HQ. Rather, it’s an inevitable function of the fundamental fact of scarcity. You can only milk the same cow so many times.

Mr Toastmaster…

4 October, 2011

cc manual no. 3: get to the point


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Living in Hong Kong... a Brit... via Singapore