How Medical Breakthroughs Happen: A Response to Megan McArdle

by Benjamin Domenech on 1:21 pm July 30, 2009

Pharma and Medical Research

Megan McArdle, Business Editor of The Atlantic and one of the most prolific free-market bloggers out there, had an interesting and lengthy post yesterday about her reasons for opposing national health care. It’s worth reading, and several of her points are well-made — which is probably why it was linked far and wide today, and is currently the top read story at RealClearPolitics. But McArdle also bases a portion of her argument on a surprisingly inaccurate depiction of the way medical research happens, one that needs rebutting if we’re going to keep the debate about reform of both the industry and the insurance side of health care based on facts about how the current system works, not polemics.

Starting at the sixth paragraph of her piece, McArdle launches into a description of the drug research process that is based on contrasting the tasks and goals of the National Institutes of Health and Pharma, starting from her premise that “Monopolies are not innovative, whether they are public or private.”

Advocates of this policy have a number of rejoinders to this, notably that NIH funding is responsible for a lot of innovation. This is true, but theoretical innovation is not the same thing as product innovation. We tend to think of innovation as a matter of a mad scientist somewhere making a Brilliant Discovery!!! but in fact, innovation is more often a matter of small steps towards perfection. Wal-Mart’s revolution in supply chain management has been one of the most powerful factors influencing American productivity in recent decades. Yes, it was enabled by the computer revolution–but computers, by themselves, did not give Wal-Mart the idea of treating trucks like mobile warehouses, much less the expertise to do it.

In the case of pharma, what an NIH or academic researcher does is very, very different from what a pharma researcher does. They are no more interchangeable than theoretical physicists and civil engineers. An academic identifies targets. A pharma researcher finds out whether those targets can be activated with a molecule. Then he finds out whether that molecule can be made to reach the target. Is it small enough to be orally dosed? (Unless the disease you’re after is fairly fatal, inability to orally dose is pretty much a drug-killer). Can it be made reliably? Can it be made cost-effectively? Can you scale production? It’s not a viable drug if it takes one guy three weeks with a bunsen burner to knock out 3 doses.

She goes on at length from there, and I’d encourage you to read it all for context’s sake. But needless to say, this passage and the ones following it surprised me a great deal. Working at the Department of Health and Human Services provided me the opportunity to learn a good deal about the workings of the NIH, and I happen to have multiple friends who still work there — and their shocked reaction to McArdle’s description was stronger than mine, to say the least.

“McArdle clearly doesn’t understand what she’s writing about,” one former NIH colleague said today. “Where does she think Nobel prize winners in biomedical research originate, academic researchers or in Pharma? Our academic researchers run clinical trials and develop drugs. I’m not trying to talk down Pharma, which I’m a big fan of, but I don’t think anyone in the field could read what she wrote without laughing.”

To understand how research is divided overall, consider it as three tranches: basic, translational, and clinical. Basic is research at the molecular level to understand how things work; translational research takes basic findings and tries to find applications for those findings in a clinical setting; and clinical research takes the translational findings and produces procedures, drugs, and equipment for use by and on patients.

Pharma operates under a great deal of pressure these days, and not just from the political side — everyone wants to avoid being left holding the next Vioxx. But as a matter of focus, their only area of interest is that last category: clinical research. What’s more, they’re only really interested in clinical research into areas that hold the promise of recouping the cost of their investment, and more. They are a business, and they perform as one.

As a side note: If you want to understand why in 1998 the medical community suddenly decided that you were overweight at a body mass index of 25 instead of 27.8, taking the WHO view (based on the BMIs of Africa and other developing nations as opposed to the long-held U.S. definition) and suddenly making 30 million Americans “fat,” just look at the makeup of the advisory panel — Pharma pushed this decision through, which had the effect of instantly adding millions of customers. But again, it’s nothing personal, just business.

So Pharma is interested in making money as their primary goal — that should surprise no one. But they’re also interested in avoiding litigation. Suppose for a moment that Pharma produces a drug to treat one non-life threatening condition, and it’s a monetary success, earning profits measured in billions of dollars. But then one of their researchers discovers it might have other applications, including life-saving ones. Instead of starting on research, Pharma will stand pat. Why? Because it doesn’t make any business sense to go through an entire FDA approval process and a round of clinical trials all over again, and at the end of the day, they could just be needlessly jeopardizing the success of a multi-billion dollar drug. It makes business sense to just stand with what works perfectly fine for the larger population, not try to cure a more focused and more deadly condition.

The truth, as anyone knowledgeable within the system will tell you, is that private companies just don’t do basic research. They do productization research, and only for well-known medical conditions that have a lot of commercial value to solve. The government funds nearly everything else, whether it’s done by government scientists or by academic scientists whose work is funded overwhelmingly by government grants.

It’s just simple math: if you have a condition that has a relatively small number of patients, there’s just no market incentive to sink a great deal of time and money into researching it. This is why you’ll usually find that 100% — not a majority, the entirety — of the research into a cure is done either via taxpayer-funded grants to academic researchers or, more frequently, it’s entirely found on the NIH campus.

Organ transplantation? Just about 100% is funded by NIH. Low prevalence cancers, or cancers with low survival rates? Just about 100% of all three phases is funded by NIH. You start to understand how this works.

“The innovation argument McArdle makes is silly because it presupposes that the government actually controls the research direction,” says my NIH friend. “The overwhelming majority of our money is devoted to RO1 research. A scientist in a lab has an idea he wants to pursue and writes a grant application. A few times a year the various institutes at NIH convene panels of academic researchers to evaluate the ideas and rank order them. We then issue grants based on the rank order.”

This is one of the many reasons that, when it comes to real innovation, most of it originates in the academic labs, funded by the taxpayers. It’s also one of the reasons that the boards of biotech start up companies are heavily populated with top NIH funded researchers. The bright line between public and private efforts on the research front exists only as a very dim separation in some areas, if at all.

While I consider myself a pro-market and pro-consumer conservative, specialized medical research is one area where government funding is still needed. And to be honest, I see no inconsistency between holding that view and also holding the view that a government takeover of our health insurance system is a bad idea. McArdle intends for the point of her post to be about the nationalized health care system, but talking about government-funded advanced medical research is an entirely different arena, and it just doesn’t have anything to do with how our health insurance system is run. It’s a red herring, and what’s more, it’s one still slick from the water.

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