Free the pharmaceutical market

Rolling back the government advantages given vaccines would level the R&D playing field and help end the drought in pharmaceutical breakthroughs.

This article, by Lawrence Solomon, first appeared in the National Post

For most of the last century, medical science brought us one marvel after another — CT scans and MRIs, penicillin and antibiotics, open heart surgery and organ transplants and vaccines for deadly and debilitating diseases such as polio. Then the rate of medical breakthroughs plummeted — recent decades produced few major advances, although R&D spending for health care went through the roof.

The paucity of major breakthroughs has an explanation: Government became evermore a player in the medical field, determining the economics of the health care business as well as research priorities. The more that government called the shots, the less that major breakthroughs materialized.

The watershed that would usher in a foursquare government entry into health care occurred in the mid 1950s, when the U.S. government oversaw what came to be seen as one of the greatest medical accomplishments of the 20th century — the development of the polio vaccine. Ironically, a tragic government error grew the role of government.

In its rush to get the vaccine to market, the government cut corners in testing, leading to the production of a faulty vaccine that afflicted 70,000 children, who in turn infected others. The toll: 10 dead, 164 permanently paralyzed.

Largely to improve testing, the budget of the National Institute of Health — the same organization that had prematurely approved the polio vaccine — increased five-fold between 1955 and 1960. The Public Health Service also grew on the strength of its Polio Surveillance Unit, which won rave reviews in tracking down victims of the faulty vaccine. Bad testing aside, the polio vaccine was a winner: Studies showed that the properly produced vaccine felled the incidence of polio dramatically: Vaccinated children came down with polio at one half to one-fifth the rate of unvaccinated children.

Government health care — seen as socialistic by many prior to the polio vaccine’s success — was now popular, leading to the passage of Medicare in 1965 and great optimism in public health circles for other disease-ending vaccines. But although the pharmaceutical industry did produce subsequent vaccines, they weren’t popular — or profitable. By the 1980s, vaccine sales represented a mere one quarter of 1% of an otherwise booming global pharmaceutical business. “All vaccines were losing money,” recalled former CEO Claude Vezeau of IAF BioChem International, Canada’s largest vaccine maker. To make matters worse, vaccine failures led to hundreds of costly lawsuits.

Although the government’s Institute of Medicine projected that the U.S. could save billions of dollars by developing 14 high-priority vaccines in a decade, the industry began to cut its losses by abandoning the vaccine field in favour of what it saw as more lucrative markets in more promising areas of the health field. By 2000, more than 80% of the firms that had been in the vaccine business had abandoned it, despite government encouragement designed to correct what health economists and health planners alike agreed was a classic case of “market failure.”

The U.S. government then became more aggressive in redirecting industry along the path its health care planners preferred. To end the risk to corporations of lawsuits, the government in 1986 had passed legislation absolving corporations of liability should a vaccine prove defective. But more steps were needed. To overcome the vaccines’ lack of popularity with the public, the government progressively became more pro-active, becoming the largest purchaser of vaccines, mandating their use, providing them at no cost to increasing portions of the population, funding research and advertising their merits. This intervention in what had been a relatively free pharmaceutical market radically changed the economics of pharmaceuticals, turning vaccines from risky, money-losing sidelines into often risk-free, government-guaranteed bread-and-butter products.

The government’s intervention in some ways worked brilliantly. The pharmaceutical industry reoriented much of its R&D to vaccines from other fields to capitalize on the ever-growing captive markets for vaccines. Vaccines, today a $26-billion-a-year business, have become one of the most profitable and fastest growing segments of the pharmaceutical industry.

But despite these boons to the government’s vision and the industry’s bottom line, disappointments abound. The new focus of research funds has yet to perfect the major vaccine breakthroughs hoped for, such as pneumonia at home and malaria abroad. With research funds diverted to vaccines, other pharmaceutical hopefuls languish. As the World Health Organization notes, R&D no longer provides much bang for the buck: R&D between 2005 and 2010 was 70% less productive in terms of producing a profitable drug than in the previous decade.

Governments are notoriously bad at picking winners. In the case of the health care field, the government did pick a few, but it may not deserve any plaudits — the pharmaceutical industry had a far superior record of picking winners prior to the entry of big government.

To restore the industry’s previous success, we need to level the R&D playing field by rolling back the government advantages given vaccines, such as exemptions from liability and government mandates, and letting the market determine where to best allocate R&D. But eliminating the government’s bias towards vaccines is only one needed R&D health reform. Government needs to be rolled back in other areas, too, the subject of the next column in this series.

This column is the third in a series. For the first column, see: We’re more vulnerable to diseases.

Lawrence Solomon is executive director of Consumer Policy Institute.

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For previous columns by Lawrence Solomon on vaccines, see here.


About Lawrence Solomon

Lawrence Solomon is one of Canada's leading environmentalists. His book, The Conserver Solution (Doubleday) popularized the Conserver Society concept in the late 1970s and became the manual for those interested in incorporating environmental factors into economic life. An advisor to President Jimmy Carter's Task Force on the Global Environment (the Global 2000 Report) in the late 1970's, he has since been at the forefront of movements to reform foreign aid, stop nuclear power expansion and adopt toll roads. Mr. Solomon is a founder and managing director of Energy Probe Research Foundation and the executive director of its Energy Probe and Urban Renaissance Institute divisions. He has been a columnist for The Globe and Mail, a contributor to the Wall Street Journal, the editor and publisher of the award-winning The Next City magazine, and the author or co-author of seven books, most recently The Deniers, a #1 environmental best-seller in both Canada and the U.S. .

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