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Arguably, the most-hated industry in the world is the pharmaceutical industry. Since dying people will pay anything, the normal price resistance of consumers disappears. So, profit margins for new patented drugs can be humongous.

When anti-AIDS drug cocktails were invented in the 1990s, US drug companies charged a whopping $15,000 per year. This created an uproar. To mollify critics, major US companies offered the drug “at cost” to poor countries — just $1,500, they said.

But Cipla, an Indian company, was already exporting the drugs at just $800. Cipla was lambasted by US companies as a “pirate” violating patents.

Cipla retorted that the US companies were the real robbers and pirates. US President Bill Clinton ultimately sided with the activists.

Production shifted massively to countries like India, and prices kept falling. By 2010, the cost was just $200. No wonder activists denounced US drug companies as killers. Yet, ironically, these very companies had created the cures and saved millions.

The hated drug industry has just performed a miracle, producing several different vaccines against Covid in a few months. It had proved impossible to develop any vaccine at all for several viruses, including AIDS. When Covid struck, sober specialists noted that new vaccines took at least five years to be created, tested and approved. Bill Gates said we would be lucky to get an anti-Covid vaccine in 18 months. Yet in less than a year, vaccines galore have emerged. Russia and China were among the first to create and approve their own vaccines. Western experts cautioned that these countries had not followed all the usual safety protocols. However, it can make sense to shorten test procedures to expedite a vaccine that could save millions of lives.

Pfizer and Moderna in the US have produced vaccines following the usual protocols and are ready for mass vaccination. AstraZeneca and Oxford University have developed a different vaccine which — at the insistence of Oxford University — will be sold at just $3-4 per dose in poor countries. This vaccine can be stored at 2 to 7 degrees Celsius in ordinary refrigerators, making it suitable for poor countries like India lacking the super-cooling facilities required by the Pfizer and Moderna vaccines.

Maybe half the population of most countries will be vaccinated by late 2021, slashing further transmission of Covid. Gradually, people will resume travel, office meetings, social gatherings and tourism.

What lessons flow from this? First, the pharma industry is a saviour, not a killer. The international patent system is seriously flawed. To make up for huge R&D losses on drugs that fail tests, companies make enormous profits on the few that work. This can sound odious. But remember, the drug companies are the saviours that have doubled life expectancy in the last century, curing dozens of diseases once incurable, relieving the world of immense misery and death.

People have shown that they will happily give up their entire life savings for another year or two of life. By that standard, the life-extending services of drug companies make them among the greatest saviours in history.

What the Covid example shows is that government guarantees can make a huge difference. R&D is expensive. If governments are serious about health, they should offer significant funding for basic research, research on diseases of specific local interest, and for clinical trials.

For tackling tropical diseases, developing countries as well as aid consortia and institutions like the World Bank should guarantee to buy a large quantity of promising drugs even before expensive testing begins. This can be linked to price caps for drugs that clear testing.

In theory, all medical R&D could be done by governments and offered patent-free to all. However, the historical experience in this has been dismal.

The Soviet Union and its Red Empire stretching across Eastern Europe and Cuba boasted of good and free healthcare but failed to produce significant new drugs. Virtually all the hundreds of new medicines that saved millions of lives were created by profit-motivated R&D by drug companies. The social motivation of public sector research proved insufficient.

Drug companies have been found guilty of many sins: of cartelisation to raise prices or diminish competition; of fudging clinical trials; of promoting unsuitable or even bogus drugs; of bribing doctors to promote their particular medicines; of encouraging addictive opioids; and of enormous profits on some drugs. Yet the very same sinners have saved millions of lives through R&D. We must harness their skills while reducing the odium of super-profits on a few drugs.

Covid shows that we need new systems of government support for medical research. Public health is a public good that governments have a duty to improve. This does not mean just price controls and hospital subsidies but guarantees and funding for relevant R&D on diseases.

This article was originally published in The Times of India on 2 January 2021.

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The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.

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Swaminathan SA Aiyer

Swaminathan S. Anklesaria Aiyar is a graduate of St. Stephen’s College, Delhi, and Magdalen College, Oxford. He is currently Consulting Editor of The Economics Times and a research scholar at The Cato Institute. He has been editor of two of India’s biggest economic dailies, Financial Express in 1988-90 and The Economic Times in 1992-94. For two decades, he was also the India Correspondent of The Economist, the British weekly. He has been a frequent consultant to the World Bank and the Asian Development Bank. He is best known for his popular weekly column in The Times of India, “Swaminomics”. Swami, as he is universally called, is also a social investor. He runs the Mukundan Charitable Trust. He has co-promoted three micro-finance institutions – Arohan in Calcutta, Sonata in Allahabad and Mimo Finance in Dehra Dun. He is on the Board of Directors of Artisans Micro Finance Ltd and hopes to convert artisans into share-owning millionaires. And he is building a fleet of medical ships on the Brahmaputra to serve islands that have never seen a doctor.