Why Drugs Companies Are Able To Quickly Shift To Address Pandemic

June 16, 2020 8:11 am

More than 100,000 Americans have now died from COVID-19, and thousands of new cases are identified each day. The president has promised a coronavirus vaccine by the end of the year, and leaders across the world are hoping that a cure will soon follow.


The entire world has shifted its gaze toward the pandemic, including, of course, the biopharmaceutical sector.


As Wall Street Journal chief economics columnist Greg Ip wrote, drug companies “are pouring resources into therapies and vaccines, with the entire economy’s fate resting on their success.” (As Forbes columnist Doug Schoen noted back in March, industry researchers also are “sharing their data and findings from clinical trials in real-time, as they collaborate with governments and even competing companies to more rapidly deliver vaccines and treatments.”)


How are they able to rapidly shift their focus? How do companies have the resources to invest to address a virus most Americans had never heard of before this year?  


Billionaire John Arnold will tell you it is because the federal government is bankrolling efforts to find a vaccine and treatment. (We addressed that claim here and here.) Tax dollars and government researchers certainly are an important part of the drug discovery effort, but, as Ip explains, drug companies were able to turn on a dime to address COVID-19 because the United States systems allows innovators to be rewarded for decades of risk.


In the United States, Ip notes, drug companies are allowed to “charge prices commensurate with the cost of developing drugs, including those that fail.” (As a reminder, the average cost to develop a new prescription drug exceeds $2.8 billion, and the process takes more than a decade. And failures are widespread. Only 1 in 10 new treatments that make it to Phase 1 of the Food and Drug Administration’s exhaustive testing process are eventually approved.) The current system is why drug companies have the “capital, know-how, and technology to deploy in the fight against the coronavirus,” Ip concludes.


Peter Kolchinsky agrees. He told Ip, “America’s willingness to pay for branded drugs of all kinds created this vibrant industry, fueled it, and encouraged it to develop new tools, and made us so well equipped when the unexpected struck.”


Craig Garthwaite, a health economist at Northwestern University‘s Kellogg School of Management, told Ip this system is important for future discoveries. “There are a lot of people in biotech really trying to solve this problem because it’s the right thing to do,” Garthwaite said. “But I don’t want to put all my eggs in the altruism basket. We want every company that can possibly address this problem to think that both morally and financially, the best thing to do is to tackle the coronavirus.”

In other words: while drug companies are pledging to give away coronavirus treatments at cost or for free (see our reporting here), as Ip says, that business model will not work if Americans want drug companies to be able to continue to attack illness and disease.


Price-control mechanisms like the Trump administration’s International Pricing Index (IPI) and provisions in H.R. 3, U.S. House Speaker Nancy Pelosi’s (D-Calif.) drug-pricing bill, would limit pharmaceutical firms’ access to the capital they will need to continue to research and develop new drugs. In an April Fortune article, Karen Kerrigan president and CEO of the Small Business and Entrepreneurship Council, noted, “A little over half of pharmaceutical firms have fewer than 20 workers, and about 4 in 5 have fewer than 100.” These companies need certainty, and a policy ecosystem that encourages risk taking and investment” to continue to bring life-saving treatments to market.


The IPI and H.R. 3 provide none of that.