I hope last week’s economics overview provided a beneficial background to the subject. That background will be important today as I review the past week of interviews. This past week I conducted two interviews—one with the CEO of a small vaccine technology company and the other a chief business officer of a small pharmaceutical company. During the interviews I was able to learn a few things—1) I still have much to learn on the business side, 2) companies experience financial strain that academics don’t always discuss, 3) in order to avoid financial strain, companies are exploring business alternatives 4) there is unfamiliarity with prize funds and 5) I learned some new perspectives of ethics in the industry. In the subsequent paragraphs I will be elaborating on these points.
In both conversations I quickly discovered the business side of the industry is very complex. There are many factors affecting the development and operations of the business that I had not understood well until the interviews. Among these lessons was an emphasis on the financial strain businesses face bringing the patent to product. In the past 15 years, the interviewees stressed the different investment atmosphere. Because of the high R&D costs, companies rely on attracting investors or receiving funding from a variety of sources. I was told that 15 years ago it was possible to receive investment from venture capitalists solely with a patented idea. Now, companies must first be able to demonstrate the efficacy of the product and in many cases safety in the form of stage 1 clinical trials before venture capitalists are willing to invest.
I was also described an additional strain due to unpredictability of the approval process by the FDA. One interviewee described an instance in which a company had worked with the FDA all the way through clinical trials, an incredibly costly process (millions of dollars), only to be told not enough information was provided on a specific age group.
Both cases demonstrate a heightened strain on the R&D side of the business that increase costs due to the unpredictability of the approval process as well as the increased development costs companies must bear before they receive crucial investments.
In both interviews, I learned of the wide spread exploration of various alternatives that are being explored in order to deal with the heightened R&D pressures. One of these alternatives was a public-private partnership. In the case described, the Cystic Fibrosis Foundation works with private companies by providing investments in their research (lowering the R&D cost the company bears) and when a successful product is developed the foundation asks for a return on their original investment that they then invest into other promising research.
Another alternative described to me was collaboration between pharmaceutical companies developing similar products. If a company X and Y are developing similar products A and B they can choose to develop products A & B together in order to share together the costs of R&D (subsequently each company bears less cost than before).
I also learned in one interview that there is still limited familiarity with the idea of prize funds and therefore uncertainties about the usefulness of such measures. The concern expressed to me was how the prize fund would be able to help small companies who experience the most trouble in the patent to product stage. In response to this concern, the answer can be summed up as this: the prize fund system would not be any different in this stage then the current model or if the prize model contains interim benchmarks for the development stage, it would actually ease the strain the companies currently face. For more discussion on prize fund system please refer to my post from last week.
Finally I would like to discuss some of the ethical perspectives in the industry discussed in the two interviews. In both interviews I found a strong emphasis on business ethics. Both interviewees placed a strong priority on maintaining a sound reputation within the industry due to its critical role in receiving outside investments. The business ethics were also tied to an ethics of science which was described to me as maintaining research as a pursuit of truth. This “pursuit of truth” would largely be manifested in the case of producing accurate studies that reflected the true performance of the product. The science ethics were an unexpected viewpoint that I had not previously considered. And then of course there were the social ethical considerations for access to medications. In particular this was explicitly discussed in my interview at the vaccine technology company, where the company itself only pursues vaccine technology that can be applied to diseases that affect the developing world. Therefore they have made a conscious decision to address the needs of the world’s poorer populations.
While I am out of space for this blog post, I would love to expand on any of the ideas discussed in today’s post. So please leave a comment and hopefully we can start a great conversation.
Mark Herzog is a rising sophomore at Duke University interested in the economics of healthcare focusing on distribution and access to healthcare systems and the subsequent impact on effected communities. Mark grew up and lives in the Appalachian region of North-East Tennessee/South-West Virginia. Apart from his studies, he can be found enjoying the outdoors whether running, hiking or climbing. Throughout his project, Mark will be based in Durham, NC and Washington, DC where he will be conducting research and interviews. He also enjoys a good discussion, so if you have any questions or comments feel free to comment on his posts or email him at email@example.com.