Why Progress Against Disease is Impaired

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Interesting albiet older article on former Intel (INTC) exec Andy Grove's crusade against Parkinson's disease. Grove was diagnosed about 10 yrs ago and has since committed $60+ million of his personal fortune plus much of his attention toward progress in treating the disease.

A theme of this article is Grove's frustration with the slow paced, inefficient nature of the process--even with projects that he has funded.

Grove's frustration is understandable given his background. Andy Grove founded and grew one of the most successful enterprises on the planet. He gained his industrial experience in a market environment that approaches the unhampered ideal. Info tech hardware and software is relatively unregulated, highly competitive, and global. Lack of government intervention has driven textbook 'creative destruction' behavior, where operators spin on the hampster wheel, constantly innovating and driving down costs to stay alive.

Speed, innovation, and market focus. This is the environment that Andy Grove is familiar with--one that he seemingly is using as a benchmark in his Parkinson's pursuits. Unfortunately, the health care sector in general and drug production in particular are not very market driven.

To understand the issue, let's examine a simplified version of the pharmaceutical supply chain. Upstream are activities involved in basic or 'deep' research. Projects here address general research questions that may not have immediate or specific application. What genomic markers are associated with the onset of Parkinson's? Are certain demographic factors more predictive of breast cancer?

Deep research findings generate basic raw materials for more focused efforts downstream in the supply chain.

An important characterist about deep medicinal research as currently practiced is that these operations are usually not done by private enterprise. Generally, and increasingly, basic pharma research is conducted by government sponsored enterprises (GSEs). GSEs are either government agencies or they receive federal assistance (direct dollars, subsidies, tax incentives).

Government's presence in basic research crowds out similar activities by private enterprise. Government directly or indirectly controls much of the industry' capacity, and constitutes a barrier to entry to private enterprises who want to engage in basic research. Moreover, encumbant operators such as large pharma may be content to 'outsource' basic research to GSEs to reduce cost and free up resources for other endeavors.

The problem with this approach is that basic research lacks market connecction and incentives. Projects are likely to proceed more slowly and toward the wrong goals. How, for example, are correct research priorities to be established in the absence of information about supply and demand, and risk and reward (as established by prices)? What incentive do university lab researchers have to speed laboratory progress?

Thus Andy Grove laments about poor research project priorities, snail's pace progressm, no double loop learning, etc...

Deep research is rarely an end in itself. Information and knowledge gained upstream must be transformed downstream into commercial products and services that treat disease.

For drugs/medicines, the downstream link is dominated by private enterprise. Private enterprises procure the knowledge created by upstream deep research (via alliances, buyouts, public info, etc) and use the information to develop medicines.

This environment is highly regulated. Patents grant companies with legal monopolies over certain treatments, which keep prices high and squelches innovation by new entrants. The Food & Drug Administration (FDA) oversees the new medicine approval process, which raises costs and slows development speed. Moreover, promising treatments that fail to meet FDA regulatory hurdles are barred from the market.

Once again, incentive to be fast, innovative, and efficient is attenuated by distorted (or non existant) market signals. And, once again, we find Andy Grove shaking his head at the lack of progress toward his goals.

But it is no mystery. Hampered market conditions dominate upstream and downstream in the medicinal supply chain.

As long as this is the case, the medicinal supply chain is likely to chew thru enormous quantities of economic resources on the way to producing a dearth of valuable treatments. Medicines that do surface will, on average, take painfully long times to produce.

We reap what we sow...

positions in select pharma