Should the USA Make Pharmaceutical Companies Public Utilities?

The idea of treating pharmaceutical companies as public utilities is a topic of heated debate among policymakers, industry experts, and the public. Pharmaceutical companies, like Moderna, have shown exceptional innovation in developing vaccines, raising questions about whether the industry should be managed differently. In this article, we explore the advantages and disadvantages of treating pharmaceutical companies as public utilities.

Adaptability and Innovation

One of the primary arguments against treating pharmaceutical companies as public utilities revolves around adaptability and innovation. Public utilities, such as electric or water services, are often criticized for their inflexibility during crises. For instance, the California electric utilities have been implicated in numerous incidents, including wildfires, primarily due to their inability to quickly adapt and mitigate risks.

Additionally, the majority of major pharmaceutical companies are foreign-owned. Transferring ownership could pose significant challenges, especially regarding national security and sovereignty. For example, seizing assets from companies based in the EU or Germany without just cause could be considered an act of war.

Four of the top ten pharmaceutical companies are based in the EU or the UK, further complicating the idea of a large-scale shift to public utility status. These companies do have operations in the US, but they are not leveraging market leverage to negotiate drug prices as effectively as countries in the EU or smaller markets like South Africa.

Market Dynamics and Innovation

Comparing pharmaceutical companies to public utilities highlights the stark difference in innovation. Companies like Moderna, which has been in business since 2010, have quickly developed and scaled up to 700 employees and 80 million in revenue. In contrast, Duke Energy, a utility company, has significantly fewer patents and innovation milestones.

Moderna has earned over 100 patents and has hundreds more pending, demonstrating a relentless pursuit of innovation. This is in stark contrast to the focus of utility companies on optimizing existing operations and managing assets, rather than driving groundbreaking research.

When Moderna announced a potential coronavirus vaccine, its market cap increased by approximately four billion dollars, transforming overnight a substantial number of employees into millionaires. This underscores the high-risk, high-reward nature of pharmaceutical research, which is often driven by private investment and the potential for significant profits.

Impact on Medical Innovation

The profit motive is a powerful driver of medical innovation. Pharmaceutical companies invest heavily in research and development (RD), knowing that failure carries the risk of no returns. This business model allows them to fund potentially life-saving discoveries that might be overlooked or underfunded in a public utility framework.

The US healthcare industry is heavily regulated and dominated by government, yet it still manages to support a robust ecosystem of biotech startups. The US has almost 500 promising biotech startups, many of which are akin to Moderna in their innovation and impact. These startups are more likely to develop breakthrough treatments for complex diseases, including cancer, Alzheimer's, diabetes, and AIDS, compared to a bureaucratic framework.

The Bottom Line

The pharmaceutical industry is not a public utility. Public utilities are designed to provide stable, essential services, whereas pharmaceutical companies are driven by innovation and profitability. While transparency and ethical considerations are critical, the high stakes of medical research and development suggest that a capitalist approach is more suitable for generating the transformative scientific advances needed to save lives.

Ultimately, the pharmaceutical industry's focus on innovation and market relevance is crucial for addressing pressing global health challenges. The life or death question of whether pharmaceuticals should be treated as public utilities underscores the need to support a system that drives urgent medical breakthroughs and brings life-saving treatments to those who need them most.