July 23, 2003

Visible victims, hidden victims

One of the major problems of humanity is how to decide between today's suffering victims and future victims? Do you spend resources to help people today or invest to aid even more sufferers tomorrow? This problem crops up in many fields of human endeavor, including medicine.

New medicines are discovered not by accident, but by purposefully testing many thousands of substances and poring over previous tests to discover whether a substance rejected for one purpose is useful for another. It is a massive undertaking that works by brute forcing the problem. Promising substances enter the approval process which resembles a funnel with fewer and fewer substances passing through each stage and a slow trickle of new miracle cures popping out the end.

Widening the funnel by testing more substances in the same time increases the number of new medicines approved a decade later while narrowing it by testing fewer substances means that a decade later people die who wouldn't otherwise.

The funnel is fed by the money given by investors to fund new companies and by customers who pay for current medicines to established firms. Increase profits and give stockholders a better then average rate of return and new entrants will pour into the market and additional stock will be issued to pay for more substances to be tested per month.

Conversely, if you reduce the rate of return via price controls, good ideas for new medicines will not be funded and existing companies will gut R&D to maintain profitability. Today, government price controls are the biggest factor in reducing industry profitability and today people are dying because a decade ago, people got reduced prices for their medicines and inevitably the number of substances tested declined. A decade from now, people will be dying because of the price controlled pills that are prevalent in most of the world are starving the industry of income to find the next generation of cures.

So why does this happen? Simple, it's cheaper and easier for politicians to rob the future ill of their cures in a way that will not be politically punished than to come up with the money to pay for medicines that some find difficult, even impossible to pay for on their own. It's a dishonest, irresponsible thing to do but it won't end until the voters won't stand for it anymore.

The end game will be when all major markets are subject to price controls and the industry can't soak the remaining free markets for the R&D expenses that should have been spread out throughout the world. Perhaps the current drug importation bill will mark the beginning of the end.

Posted by TMLutas at July 23, 2003 12:06 PM