Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Miller and Kazman Op-Ed in National Review Online
The recent germ-warfare attacks are cause for concern, but so is one proposed government response: the move to federalize vaccine production, a recommendation contained in two independent reports released earlier this month by the Institute of Medicine (IOM) and the Gilmore Commission, the federal advisory panel on terrorism.
The IOM calls for the creation of a National Vaccine Authority that would have sweeping responsibilities, including market research, establishing priorities, control of intellectual-property rights, the conduct of in-house research and development, and the support of clinical trials of candidate vaccines. Similarly, the Gilmore commission recommends "the establishment of a government-owned, contractor-operated national facility for the research, development, and production of vaccines for specified infections." Dismissing private-sector involvement as inadequate, it argues that "direct government ownership or sponsorship is likely to be the only reasonable answer for producing vaccines" for such diseases as anthrax and smallpox.
But industry officials see things differently, emphasizing that the crisis in vaccine development and production is largely of the government's making. A former senior executive at a vaccine company described the problem thusly: "You've got a booming demand for vaccines that people think cost only pennies, coupled with increasing regulatory burdens that cost companies millions. In short, the current shortage situation was, unfortunately, predictable."
The debate is not merely a garden-variety dispute between industry and government over how best to supply a specific product or service. It has major implications for the future of pharmaceutical development, not only within the United States but internationally as well.
The recent appearance of cases of inhalational anthrax in humans — the first in this country in a quarter century — coupled with the rising fear of further use of biological agents, has fueled interest in vaccines against various exotic diseases. Moreover, the media have seized on the possibility of terrorists obtaining and using smallpox virus, considered by many experts to be the most feared and potentially devastating of all infectious agents. It spreads from person to person, primarily via droplets or aerosols coughed up by infected persons, via direct contact, and from contaminated clothing and bed linens. Smallpox is fatal in approximately a third of previously unvaccinated persons who contract the disease.
The German government has bought six million doses of vaccine, and pressure is mounting in the United States for widespread, or even universal, vaccination. (Routine smallpox vaccinations ceased in the U.S. in 1972.) Health and Human Services Secretary Tommy Thompson has promised that the government will obtain 300 million doses of the vaccine, enough to immunize every man, woman, and child in the country.
Federalizing vaccine production would obviously ride the political currents that are expanding government control over a host of activities that touch on national security, but the history of government manufacture of pharmaceuticals is far from encouraging.
Consider the decades of production of human growth hormone for short children by the National Pituitary Agency. This program, conducted from 1963 to 1985 under the auspices of the National Institutes of Health, was an extremely careless operation. The hormone was prepared from human pituitary glands recovered from cadavers, and the absence of rigorous collection guidelines and purification procedures permitted contamination with the agent that causes Creutzfeldt-Jacob disease, the human equivalent of "mad-cow disease." As a result, several dozen recipients have died a lingering and gruesome death.
If this had been a private operation, competition, and the threat of liability would have encouraged frequent updating of the drug's isolation and purification with state-of-the art technologies, and would have required rigorous adherence to government regulation. But when government is itself the manufacturer these forces are attenuated, and the backstop of government safety regulation is weakened. The nation's drug regulator, the Food and Drug Administration, is a sibling agency of the National Institutes of Health; their common political interests precluded vigorous and uncompromising oversight over the NIH's production of human growth hormone.
The recent history of the privately produced anthrax vaccine might appear to support more government involvement. The controversial vaccine has been characterized as "perhaps the most shunned and controversial shot ever produced." Its producer, the Lansing-based BioPort Corporation, has had repeated difficulties meeting FDA requirements. It has been cited for problems ranging from quality control to record keeping, and its production of the anthrax vaccine was suspended by FDA in 1998 (though that suspension may soon be lifted).
But BioPort is hardly a representative pharmaceutical company. It is the sole supplier of the anthrax vaccine for the Defense Department, and one of its four board members is a former member of the military's Joint Chiefs of Staff. More important, until late 1998 it was not a private-sector operation at all; its facility belonged to the Michigan Department of Public Health. Many, if not all, of BioPort's problems date from the time when it was a state-run institution. According to the General Accounting Office, FDA inspectors were permitted only limited access to the plant, and FDA itself was not promptly notified about important changes in the vaccine manufacturing process. In 1990 alterations were made in the filters used to purify the vaccine, a change that could affect the vaccine's safety and efficacy, but by the time FDA learned of this change, there were no more pre-1990 batches of the vaccine to compare against the later product. In 1993, the state public health department added several new fermenters, for which FDA repeatedly requested documentation. But not until seven years later, by which time BioPort had taken over the facility, was that documentation submitted to federal regulators.
In short, the anthrax vaccine's problems appear to originate not within BioPort, but from its prior history of government production — and from the absence of competition to make such products. Leaving aside BioPort's manufacturing problems, the design of the anthrax vaccine is antiquated. What we should be seeing (and encouraging) are biotech companies scrambling to use gene-splicing technology and recent knowledge about the organism to make purer, safer, more effective vaccines. A federal move to take over vaccine design and production could replicate, on a far greater scale, the problems of both the current anthrax vaccine and government-produced human growth hormone.
Federalization of vaccine production would be ominous for the future of pharmaceuticals generally. In recent years, the industry's long-term survival has become increasingly imperiled by the controversy over drug prices. But the old saw about pharmaceuticals is especially true today: The first dose costs hundreds of millions of dollars to produce, while the rest cost pennies apiece.
New drugs are hugely expensive to develop and test; the time from discovery to marketing may well take 12-15 years, at a cost of $200 million or more. The undertaking is a gamble with extraordinarily poor odds; thousands of drugs must be tested in order to produce one successful product, and even among drugs that are ultimately approved for marketing, only one in three generates revenues that cover development costs. For that reason, blockbuster drugs are doubly important — they not only advance public health, but also cover the costs of the industry's countless scientific and commercial flops.
Another challenge to the pharmaceutical industry is the integrity of intellectual-property rights for its products. For example, when Health and Human Services Secretary Tommy Thompson recently encountered difficulty negotiating what he considered a sufficiently discounted price for government purchases of the antibiotic Cipro for treatment of anthrax, he threatened to break Bayer's patent. Not surprisingly, he ended up getting a better price, but his extortionate tactics have sent an unmistakable message to an industry that this year will spend in excess of $30 billion on research and development: If you come up with something of tremendous worth, something that society vitally needs, the government just might decide to invalidate your patent.
Moreover, Thompson's action encouraged the growing opposition, international as well as domestic, to drug patents. Unlike many poor countries, the United States cannot plead poverty in its dealings with Bayer. Yet if the United States, with its wealth and its reputation for respecting property rights, could act so cavalierly in its quest for a better deal on Cipro, then what is the lesson for other countries?
The answer wasn't long in coming, from pre-Thanksgiving international trade negotiations in Doha, Qatar. The World Trade Organization expanded the ability of less developed nations to override drug patents and authorize cheaper generic copies in the name of public health. Prior to Doha, poorer countries could override a patent in the face of medical emergencies; now, however, they might be able to do so on almost any public health pretext. In the words of one exuberant delegate (from a country whose generic drug industry stands to benefit greatly from the new policy), this is a development which "even six months ago … was unthinkable."
A country's ability to disregard patents in the face of public-health emergencies might offer quick medical relief, but it dangerously undermines the prospect of treatments for future crises. It makes good health seem like bad business. Why should any company take the risk of investing vast sums in developing new drugs, if the more successful and important the drug, the more likely that its patent will be invalidated? And if that incentive for companies to invest is destroyed, then we are left with a system in which government must become not only the major purchaser of drugs, but also the major source of drug research and development.
That is not an inviting prospect. Governments may be good at certain things, but they are rarely good at technological innovation. We may admire most postal employees for their steadfastness in the face of the anthrax threat, but we can't look to the U.S. Postal Service for breakthrough communication technologies or other innovations; they didn't introduce Express Mail, after all, until years after FedEx's breakthrough introduction of overnight mail, and their version is still far less reliable. Do we really want a postal-service model for developing new medicines?
All of this brings us back to the proposals to federalize the vaccine industry. At best, the proposal is unnecessary; more likely, it will be dangerously counterproductive. Government can adequately address real and potential emergencies by contracting for large purchases of vaccines or by guaranteeing minimum sales. But making vaccine research, development and production a wholly government-operated — or even government-directed — enterprise would do little to advance either the safety of current vaccines or the development of new ones. Far better to remove the regulatory and other disincentives that currently make vaccine development so unattractive and uncompetitive.