The economics of Ebola

As someone who has written 50 newspaper columns a year for as long as I can remember, I know a really skilled practitioner of the columnist’s art when I see one. And one of the best is James Surowiecki of the New Yorker whose weekly ‘Financial Page’ is one of the wonders of the journalistic world. It’s not only unfailingly intriguing and informative, but it’s also clear and beautifully written.

Last week’s page on the economics of Ebola (and the economics of drug-discovery generally) is a typical gem. Surowiecki starts from the puzzle that while Ebola is one of the deadliest diseases known to mankind, nevertheless the pharmaceutical industry has developed no serious tools to combat it.

He then goes on to point out that this is only a puzzle to those who do not understand how the pharmaceutical industry works. “When pharmaceutical companies are deciding where to direct their R.& D. money”, he writes

very naturally assess the potential market or a drug candidate. That means that they have an incentive to target diseases that affect wealthier people (above all, people in the developed world), who can afford to pay a lot. They have an incentive to make drugs that many people will take. And they have an incentive to make drugs that people will take regularly for a long time – drugs like statins.

This system does a reasonable job of getting Westerners the drugs they want (albeit often at high prices). But it also leads to enormous underinvestment in certain kinds of diseases and certain categories of drugs. Diseases that mostly affect poor people in poor countries aren’t a research priority, because it is unlikely that those markets will ever provide a decent return. So diseases like malaria and tuberculosis, which together kill two million people a year, have received less attention from pharmaceutical companies than high cholesterol. Then, there’s what the World Health Organisation calls “neglected tropical diseases”, such as Chagas disease and dengue; they affect more than 1 billion people and kill as many as half a million a year. One study found that of the more than fifteen hundred drugs that came to market between 1975 and 2004 just ten were targeted at these maladies. And when a disease’s victims are both poor and not very numerous that’s a double whammy. On both scores, a drug for Ebola looks like a bad investment: so far, the disease has appeared only in poor countries and has affected a relatively small number of people.

This is, of course, bad news for people in poor countries. But Surowiecki goes on to point out that the business model of pharmaceutical companies poses serious risks for those of us who live in rich countries too. The case study he picks is the looming problem of diseases that have become resistant to our current arsenal of antibiotic drugs. The need for new, more powerful antibiotics grows with every passing day, but it’s not need that the industry – left to itself – will be able to address.

The trouble, again, is the business model. If a drug company did invent a powerful new antibiotics, we wouldn’t want it to be widely prescribed, because the goal would be to delay resistance. Public-health officials would – quite properly – try to limit sales of the drug as much as possible. Otherwise its efficacy would follow the same downward path as conventional antibiotics.

Which leaves us with a difficult public-policy problem: how can we get the drugs we will need without radically transforming the industry that makes them? The answer has to be some way of incentivising companies to do the research necessary to create substantial public-health benefits. And the only idea we seem to have for doing that at the moment is by going back to what the Board of Longitude did in the 18th century — getting governments to offer massive prizes for drugs that we may need but for which there is only a limited immediate market.

It’s a great column, worth reading in full.