Big Pharma's origin: how the Chicago School and private equity shifted medicine's focus from health to wealth

Between 2010 and 2016, the FDA approved 210 new medicines and every single one was produced at public expense, part of a $1T US government investment project in medical research. Despite this massive public subsidy, the pharma industry has only grown more concentrated and rapacious, raising prices and diverting the profits to their execs and investors, who now pocket 99% of industry profits: the industry made $500B in profits between 2006 and 2015, and during that time, the US government pumped $33b/year into pharma research.

The history of Big Pharma's big business is beautifully told in a long piece by Alexander Zaitchik in the New Republic. Zaitchik describes how the NIH changed its policies in 1968, ending the rule that forced publicly subsidized researchers to assign their patents to the federal government and allowing them instead to flog them on the open market. This created a new kind of academic research program, focused on using public money to develop patented products that would be exclusively assigned to pharma companies who'd be guaranteed monopolies over life-saving medicines.

That's when the Chicago School -- the origin node of neoliberalism and the worship of markets as self-correcting, self-optimizing systems that cannot and should not be regulated -- got involved, seeding a network of think-tanks and journal articles that decried competition as "wasteful duplication" and celebrated monopolies for their efficiency.

These articles created the fiction of mass private-sector investment in pharma, downplaying the taxpayer's role in subsidizing the industry and lionizing the few pennies that escaped the grasp of execs and shareholders. This mythology gave the pharma industry a rhetorical stick to beat dying customers with whenever they complained about skyrocketing prices, so the answer to these complaints was ever, "This is the price of progress." High prices may make access to medicine difficult, but without them, there'd be no medicine at all. In the early 2000s, pharma liked to talk about "the $800m pill" and today they talk about "the $2.6b pill."

It's only gotten worse under Trump, whose policies have been a bonanza for the shkreli-alike sociopaths who target monopolist pharma companies for private equity takeovers followed by mass price-hikes. When Trump allowed corporate America to repatriate the billions they'd stashed offshore at sweetheart tax rates, drug makers brought home $175b, which they primarily spent on stock buybacks and dividends that were primarily paid to hedge fund investors. Pfizer alone cashed out $10b in buybacks.

But despite this massive cash infusion, R&D spending has been flat.

Here's the hilarious part: most of this transfer of public research into private hands is undertaken through the provisions of the Bayh-Dole act. That same act imposes a duty on the US government to ensure that the "utilization and benefits" of that research should be "made available to the public on reasonable terms." In other words, the state is legally obliged to seize these drugs, price them at a reasonable level, and make them available to the public. What's a reasonable price? Well, during the Vietnam war, the Pentagon used this rule to seize key antibiotics and reimbursed the pharma companies involved at 2% of the retail price.

Today, pharma is overseen in America by Health and Human Services chief Alex Azar, who used to be CEO of Eli Lily. This swamp-gator has made a few promising noises about patent abuse, and he certainly knows where the bodies are buried, but literally betting the nation's lives on this dingo babysitter deciding not to eat the kids is pretty damned optimistic.

In 1972, Stigler organized a two-day event, “The Conference on the Regulation of the Introduction of New Pharmaceuticals.” Major drug makers like Pfizer and Upjohn pledged funds and sent delegates to the conference—a first and fateful point of contact between Pharma and the organized movement to undo the New Deal and radically remake the U.S. economy to serve an ideology of unfettered corporate power.

Born of this meeting was the echo chamber of ideas, studies, and surveys that the pharmaceutical industry has used to buffer an increasingly indefensible system against regular episodes of public outrage and political challenge. Organized and initially staffed by alumni of the Chicago conference, its hubs are the American Enterprise Institute’s Center for Health Policy Research, founded 1974, and the Center for the Study of Drug Development, founded in 1976 at the University of Rochester and later moved to Tufts. Their research has succeeded in producing and policing the boundaries of the drug pricing debate, most successfully propagating the myth that high drug prices are simply the “price of progress”—carrots that drug manufacturers need to entice them to sink hundreds of millions into research and development, because drugs cannot be developed or tested any other way. In the early 2000s, these think tanks gave us the deceptive meme of the “$800 Million Pill,” a dubious claim about the “real” cost of developing a single drug, which has provided cover for, among other things, George W. Bush to sign away the government’s right to negotiate drug prices in 2004. (The same think tanks now talk about the “$2.6 Billion Pill.”)

“The point of pharma’s echo chamber was never to get the public to support monopolistic pricing,” says Nik-Khah. “As with global warming denialism, which involves many of the same institutions, the goal is to forestall regulation, in this case by sowing confusion and casting doubt about the relationship among prices, profits, innovation and patents.”

How Big Pharma Was Captured by the One Percent [Alexander Zaitchik/New Republic]

(via Naked Capitalism)