Gerald Posner is an investigative reporter and author whose latest book Pharma: Greed, Lies, and the Poisoning of America (Avid/Simon & Schuster 2020) covers in great detail the history of the pharmaceutical industry. His research has taken on new significance this year in light of the COVID-19 pandemic and the importance of the pharmaceutical industry in finding treatments and vaccines.

We recently spoke about his new book, the business model of large pharmaceutical firms, whether potential regulation is likely to hurt the industry, and the prospects of a COVID vaccine.

Ohio Capital Ideas: Good morning, Gerald, how are you? Congratulations on Pharma. The book continues a great tradition of investigative reporting. Your last book was on the finances of the Vatican, which a lot of people with an interest in finance or economics would find fascinating as well. What put you on the path of selecting the pharmaceutical industry as the topic of your next book?

GP: It had been a long-standing idea in the back of my mind from the late 1980s when I was doing research on the King assassination and I had some questions that I asked an investigative reporter who had broken a number of great stories, named Jim Phelan. He was the guy who unmasked the fake Howard Hughes autobiography by Clifford Irving. We talked about the state of investigative journalism and we thought it was difficult to do a story for a magazine in which they let you go off for a few months and not know if you were going to come back with a story on an interesting subject, but that you could still do that in books. When I asked him what he would do if he wrote another book, he said he would do the pharmaceutical industry, that there were great stories there to tell. He died shortly thereafter. I hadn’t realized that he was sick when I spoke to him of cancer. But, it sort of stuck in the back of my mind. I did go on to other books in between, but pharma was something I wanted to come back to and the opportunity came after my last book on the finances of the Vatican. I went to Simon & Schuster (VIAC), my publisher, and I said "what if the next one we did was the book on the pharmaceutical industry and its history." I’ve been very lucky to have had a publisher that is willing to let me work on a subject without knowing what I’m going to come up with. We didn’t know exactly what the story would become, we just knew it would be a good business story.

I just underestimated the scope of the project, as I often do. I thought I would never finish after drowning in documents and interviews.

OCI: How long did it take you? Was it four or five years?

GP: The research started five years ago. I worked with my wife Trish, who is also an author. We research together. When she puts her name on a book, I’m her researcher and when I put my name on a book, she’s my researcher. The process usually works for me that year one is spent reading everything we can find published in the field. But, the first year here was different. It was a really deep dive into the science. I don’t have a science background, I was a political science major. So, I had to dive into the medical literature, the nature of the drug business, viruses, bacteria. I needed to understand it in a way where when I went out to do interviews in year two, I could have an intelligent conversation with someone who was a doctor. So, that was the first year. In the second year, in addition to starting interviews, we did a lot of the FOIA [Freedom of Information Act] requests to the government. And then after that, the next few years was a mad dash to get to the finish line.

OCI: I think for most people that might have a rough sense of the pharmaceutical industry, they would have expected the Sackler’s to have entered the story towards the end, when the scale of the opioid crisis comes to light, along with the central role of Purdue Pharma with OxyContin. But, the Sacklers, in particular Arthur Sackler, are central figures in the book. They are really the thread that holds much of the narrative together. When did you realize that Arthur Sackler had a much greater influence over the history of the pharmaceutical industry than anybody had previously recognized?

GP: Not until I received the first big dump of Freedom of Information Act files from the FBI. They had a lot of information on Arthur Sackler going back to the 1940s, 1950s, and 1960s. Not just about Arthur Sackler himself, but the role of the Sackler brothers, the three psychiatrist brothers, these first-generation Americans who bought Purdue Pharma, the company which as you said, is at the center of the opioid crisis. They bought that company in 1952. I had no idea about the degree to which they were players in the industry. So, I thought too that these actors would come into the story at the very end with the opioid crisis and I’d be spending a couple of chapters on it. I had no idea that the story goes back to WWII and that Arthur Sackler himself was the fundamental person in changing the way that pharmaceutical companies marketed their drugs. He’s responsible for the idea of sales staff visiting doctors and sending out free samples of drugs and giving out pharmaceutical swag. He’s the one with the idea for much more aggressive advertising. As a result of these innovations, he was able to make Valium, Hoffman-La Roche’s (RHHBF) anti-anxiety medication, the first $100 million drug. They were investigated by the Senate in the early 1960s. The Senate referred to “the Sackler empire” and they were pushing the envelope in many ways.

I also didn’t think when I started this project that there was a family that I could keep coming back to with a human story within the narrative, in the middle of all the business tales about profits and bottom lines. It’s wonderful within all that to have a human element to come back to. If I was writing about one company, Johnson & Johnson (JNJ) or GlaxoSmithKline (GSK) or Pfizer (PFE), maybe I could have followed it through the CEOs, but that wasn’t the case. When I looked for a family to follow in the early days, the families who founded large pharmaceutical companies didn’t fit because the early family founders long ago dropped out and became public companies that had little to do with the founders. So, the Sacklers were an unexpected development that arose from the research. They became a thread that you could come back to because they touch every aspect of the industry, from the way they market drugs to the very nature of public health versus private profit and promotion and sales, the issues that seem to pop up every generation.

OCI: And was involved in the origins of a company like IMS Health (IQV), a company many are familiar with and is fundamental to the industry, but many people don’t know that Arthur Sackler was a founder of the company. In fact, I think officially he is still not listed as a founder.

GP: So interesting because IMS Health is this great data collection company, a very successful multi-billion dollar company that has long been separated from the roots of how it was founded. But, it was founded by Arthur Sackler and held with a hidden interest. The founder on the surface was a close friend of his named Bill Frohlich. He had a small medical advertising firm like Sackler did. His original name was Wolfgang Frohlich and he changed it to Bill and hid the fact that he was Jewish, because he didn’t think at the time it was good for business to be Jewish and he was also gay, but he hid that as well. Those were secrets Sackler knew about him. Sackler also downplayed his Jewishness in those years of the 1950s and 1960s. But, they were at the forefront of medical advertising.

IMS at the time had rudimentary ways of measuring what was being prescribed. But, they understood the importance of knowing which doctors were the big prescribing doctors. Who was writing the prescriptions for your drug? Concentrate on those doctors. That’s the way the business works today.

This is a business with an odd business model. It’s the only industry in the world that I know of in which the manufacturer of the product sells the product not directly to consumers, in this case patients, because they have to go through this middle group, doctors, to dispense and write prescriptions for end-users. So, in the United States the pharmaceutical companies are advertising to patients and consumers, they’ve been able to do that since 1997, to encourage demand by getting us to go into a doctor’s office and say, “Hey, what about this new wonder drug?”

Sackler and IMS and others understood very early on to not waste money advertising to doctors who aren’t writing prescriptions, but focus on the 5% or 10% that are writing 70% of the prescriptions for a given drug as sometimes happens, as happened in the case of Oxycontin. Concentrate on those doctors. Remember, most of the time the doctor who writes the prescription doesn’t know what the price is and what I mean by that is even if they know what the list prices of the medication is they have no idea what the patient actually pays. So, you have drug companies pushing doctors to write prescriptions to end consumers without knowing the end price. It’s a remarkable business model.

OCI: Have you been in contact, either while you were researching or after publication, with any member of the Sackler family?

GP: No, not at all. As a matter of fact, I wrote an op-ed in the Los Angeles Times about a month ago calling for the appointment of an independent examiner in the Purdue bankruptcy case because the family...none of the family members have declared bankruptcy, they’re being shielded by that court and some think possibly hiding portions of their assets. Even after that, there was no response from them or their attorneys. I think the Sackler family today is focused on settling the more than two-thousand lawsuits that have been filed against them individually and until that’s finished, they’re not going to respond to some author talking about them on the side.

Although I have wondered about the children. Richard Sackler for instance was the CEO of Purdue from 1999 when Oxycontin produced billions of dollars in sales - it did $35 billion in sales from 1996 through 2019 and the Sacklers entered the Forbes list of the wealthiest American families in 2015 with an estimated net worth of $14 billion. I wonder if he knew his father and his two uncles and his mother were all card carrying members of the American Communist Party back in the 1940s and 1950s. They were investigated by the FBI and I was able to get all of those files, but I’m not sure if Richard Sackler’s parents ever told him about that.

OCI: What is the psychology of somebody who on the one hand was, as you described clearly in your book, devoted to the cause of Communism and on the other hand pushing the boundaries of capitalism?

GP: I don’t think thosetwo sides co-exist, not at the same time. It would have been fascinating to have interviewed the three brothers and asked them that question and have gotten a real answer. Arthur Sackler put himself at some risk by allowing his medical advertising firm to become a safe haven for journalists who were blacklisted from The New York Times or even the Los Angeles Times and other papers because they were called before Joseph McCarthy’s Senate Committee in the 1950s and refused to answer questions, citing Fifth Amendment protections. Some newspapers fired those who did so and Sackler made his medical advertising firm a safe haven for some of those blacklisted journalists. Arthur Sackler protested during WWII about the segregation of black and white blood because there was no medical reason to do so, obviously, so he showed flashes of being an activist at an early age. Once you get into the 1960s and 1970s, the brothers don’t really return to that. They were really about building an empire by that point. And they did build an empire.

OCI: The interesting thing is that the family has always been so public about their philanthropic work, they’ve wanted it front and center, and so secretive about the business. That suggests to me an awareness of at least a potential perception of wrongdoing if not underlying unethical conduct.

GP: Well, you know, it’s interesting because imagine if they had not put their names on buildings and at the Met. It’s not unusual to ask for naming rights, but not everyone has done so. Brooke Astor gave away a $100 million fortune anonymously. If they had, we really would have known next to nothing about the family. The fact that Purdue was a private company is an important distinction in the history of pharma, because we are so accustomed to all of the main pharmaceutical businesses being publicly traded. That’s true in most industries, actually, and you’re used to seeing substantial amounts of information every few months. The Sackler family keeping Purdue private was actually critical in Oxycontin becoming the most successful prescription opioid narcotic by far. The bigger companies also sold opiates. Johnson & Johnson sold one. But, they were not as successful as the smaller and privately held companies.

OCI: You can definitely understand why there was never an IPO from one perspective, but from another, they would have been rich even without the success of Oxycontin. Why not just divest from that business early on and do what they seemed to have really loved, which was the philanthropy? Had the scandal not broke, would they have divested at some point and just held a diversified group of investments?

GP: It was just a cash cow that they were going to run until the end. What’s the end? The end is when the patent on Oxycontin would have expired. As I’m sure you know, the United States grants the longest patent exclusivity in the world, seventeen to twenty years. So, you get to keep generic competition off the market. The United States is also the only country in the world that allows pharmaceutical companies the unchecked power to set their own prices without some form of negotiation with the government or health boards. So, as a result, the latest study that I cited from either 2014 or 2015 showed that drug prices in the U.S. are anywhere from three times to sixteen times more expensive here than the rest of the world. Purdue was charging 400% more for Oxycontin in the U.S. compared to other countries. They were able to get extensions of the patent in 2012 and 2013 by arguing that their extended release version of the drug was unique.

I think they had made a decision that they would stay in business until they had lost the patent, at which point maybe they would diversify. They were a one-hit wonder. They looked at coming out with other medications, but were never successful. Other pharmaceutical firms may have had opioid products that weren’t as successful as Oxycontin, but it didn’t matter as much for them because they had hundreds of products and pipelines full of potential blockbusters. Not true of Purdue. I think that when the patents expired in the U.S., they would have looked abroad to China or India where opioids were still fairly new and then in maybe in ten years they would be doing that diversifying that you’re talking about. But, they simply didn’t feel they had any need to.

OCI: Is there a theme to the book? Would you say it’s possible to condense Pharma into a few sentences?

GP: There are a couple of themes. One is that government efforts in the U.S. to regulate pharma are always reactive. Every effort to talk about pricing has always failed and every time there’s a major health crisis we’ve always waited until after the fact to react. The other thing is the yin and yang in the industry. Like any industry, there’s good and bad. There’s some fantastic stories inside the book about scientists working inside the lab, coming up with cures for diseases that have confronted us for centuries - the story of penicillin, the curing of smallpox, the polio vaccine - heroic stories. But the heroic stories seem to get overshadowed by bad decisions made in the boardroom to squeeze the last dollar and take advantage of every loophole despite receiving information about increasingly bad side effects or other adverse effects in the field. In the most infuriating instances drug companies for years receive reports about the damage that a drug is doing and they still sell it until it’s finally exposed. That happened with oral contraceptives at Searle, it happened with hormone replacement for a decade plus, and it happened at Roche with Valium. It’s in the DNA of the pharmaceutical industry.

OCI: What makes the pharmaceutical industry unique? Every industry is driven by greed. We understand this. We normally don’t have a problem with it. We understand that that’s a part of what makes the system work. What makes the pharmaceutical industry unique? Why should it be criticized for displaying the same greed as other industries?

GP: I understand that. Look, I’m capitalist. I’m a for-profit guy. I believe that profits are the right incentive and pharmaceutical companies can make plenty of profit if they’re not making it by gaming the system and I’ll tell you what I mean by that.

There was a time in the early 1950s that George Merck, the great-grandson of the original founder of Merck (MRK), believed that if you owned a drug company it was a quasi-public trust. That you could make money if you develop medicines and concentrated on developing cures and delivering them efficiently and focused on putting patients first.

On the other end, the guy who ran Pfizer at the time, Jack McKeen, ended up hiring Arthur Sackler to push one of his antibiotics. He thought that was an antiquated view and yesterday’s news and that you had to be as aggressive as possible. The problem is when the profit comes from health is that often what hurts profits are when unexpected adverse effects of a drug pile up and the drug company is the only one in a position to get them and they don’t pass them along to anyone else. That’s where they often cross the line to me. This happened in the opioid crisis. There were a record number of complaints coming in about overdoses and dependency. They never reported a single one back to the FDA or the DEA. And guess what? They weren't legally obligated to, that’s the great loophole. So, maybe they didn’t do anything legally wrong, but maybe they did morally.

There are many other examples of this. You saw it with the Dalkon Shield, which is a contraceptive that was put out by A.H. Robins. They were getting reports for nearly three years about all types of internal bleeding and hemorrhaging taking place with the women using it and they hid all that information until it came out in an investigation.

The fines that are levied are often just the cost of doing business. If a drug makes profits of $5 billion or $6 billion and then the company is hit with a $1 billion fine, it doesn’t do much to alter behavior and as long as we have that as their only fear, then I think we’ve taken away the possibility of bringing about better behavior.

OCI: What today is fundamentally broken with regulation beyond what you mentioned before with companies not required to report certain things? Even more broadly than the pharmaceutical industry, what is broken with the healthcare industry? Saying we need certain companies to behave more ethically or do other things doesn’t seem sustainable in the long-run. If you don’t have a better framework, it just seems obvious that someone will come along and exploit the loopholes you give them.

GP: Some of it is just enforcement, but you need some new regulations as well. There are some fixes that are easy, believe it or not. There’s a chapter about orphan drugs in the book. For people who don’t know, there was a law passed in the 1980s to encourage drug companies to concentrate on small patient populations that may only include ten-thousand or twenty-thousand sufferers and for which there was no incentive for drug companies to develop treatment. Well, once that law was passed orphan drugs became some of the most expensive drugs in the world. They’ve done tremendous good, but companies have again exploited loopholes in order to game the orphan designations. But, there would be simple things that could be done to close those loopholes, such as putting a cap on the market size of a drug before it can no longer be designated an orphan drug. There are even things the President could do with Executive Orders that would take eight of the ten most expensive drugs in the world and cut their prices substantially.

There’s another chapter in the book on pharmacy benefit managers, which is a middle man in America. They used to be the equivalent of payment processors, but now they have real power. They’re multi-billion dollar companies now, such as Caremark, a part of CVS (CVS) and others. They are in the middle and pick the formularies, that many people know if you have insurance you have to look and see whether a formulary is covered or whether you have to pay more for certain formularies. They don’t choose based on quality or price. They choose the one from a company that’s giving them the biggest rebate and the rebates don’t have to be disclosed anywhere. Many pharmacists I spoke to believe that about 80% of those rebates would disappear overnight if they were disclosed. So, it’s a matter of getting it done as much as knowing what to do.

One final point. Gilead (GILD), the biotech company from California that has been known for Hep-C and HIV treatments, they have a treatment for COVID that has shown promise in getting people out of the hospital sooner, Remdesivir. So, according to them if you get someone out of the hospital three to four days sooner you might save $12,000. They just priced their drug at $3,200, which will be the equivalent price for a ten day treatment paid by insurance companies in the U.S. That’s one-third more than what’s being charged anywhere else in the world. Why? Because they can. The fact that we don’t negotiate is madness. And the Trump administration - and it would be the same way during a Bush administration, Obama administration, Biden Administration - bought 500,000 treatments, all at Gilead’s asking price. There was no negotiation.

OCI: It’s being presented as being priced a lot lower than it could have been priced.

GP: This is fantastic. So, everyone is watching Gilead and wondering where they are going to price Remdesivir. What do you do if you’re Gilead? You put out a whisper number. You know, just like on Wall Street there’s a whisper number for earnings. The whisper number for Remdesivir was that Gilead would price it at $4,500. How did that get out? No one knows. Then, of course, they ultimately price it at $3,200 and everyone thinks, wow, they’re not charging that much. There was an article that came out recently about this in the Philadelphia Inquirer. Gilead could recover its cost if it priced the drug at $60. Now, there’s some argument that if you put in marketing expenses and everything else that it might have to price between $100 and $160 to recover its costs. Now, it’s certainly entitled to a profit, so, maybe you price it at $200, $250, or $300. But, $3,200 for a ten year old drug for which the federal government helped pay the research for doesn’t seem to be a cheap price.

OCI: Since this was an existing drug, had it ever been prescribed for any other use?

GP: No, never used. This is why Gilead could have a new model here, which is very interesting, when it comes to orphan drugs. Just by their nature orphan drugs are among the most expensive in the world. There’s a new gene therapy from Novartis (NVS) that costs $2 million. Who would pay $2 million for a therapy? A lot of people would. England, France, Germany, and other countries with socialized medicine would if the drug company can show them that the cost of the drug or treatment will be less than what not paying would cost the healthcare system. They may be able to negotiate a lower price, but they’re going to approve that drug.

Now, take a very different type of product, say antibiotics. You get meningitis and you’re in the hospital and they give you an antibiotic, the product itself may only cost a $10 copay. It’s worth a lot more than that, but nobody prices it that way. No one says that because this antibiotic allowed you to leave the hospital five days earlier or maybe even potentially saved your life that it should cost thousands and thousands of dollars. We don’t price drugs that way, at least existing, normal therapies. What Gilead is doing, nobody has ever priced a normal therapeutic drug in that manner.

OCI: Are there specific other countries that have a regulatory scheme that are particularly worthy of emulation?

GP: I’m not a fan of drug price controls, which is what some of the European countries have done. One of the things we have to do in the United States and that I would borrow from other countries, practically every other country does this, is limit the number of drug approvals. I mean you could have additional drugs approved for the market, but the government isn’t going to pay for them.

In the United States we have an unusual law which says that if you’re on Medicaid, just as an example, the government cannot refuse to cover a drug for you that’s been approved by the FDA. So, even if that drug is $500,000 a year, if a doctor writes a prescription for you, they have to cover it. There are instances that I talk about in the book, such as with Acthar Gel and others, where the government overpaid by millions of dollars because they had to cover them and after the fact has gone after the companies and gotten settlements, but a fraction of what they spent.

So, one of the things that needs to be done is to give the government an ability in certain cases to say that they’re not going to cover specific drugs or treatments or to say that they believe that a particular new drug isn’t as effective or no more effective than existing drugs which may be cheaper.

However, I guarantee you that you will get a heart-rending story by patient groups that will show you some example of a person who's not getting the drug that was just excluded from the government formulary and it will be a heart-rending story of a child or mother or something like that and every politician immediately breaks down when that happens. We can't have negotiated prices if every drug has to be paid for. Your negotiation has to involve a stick. There's some drugs at a certain price that shouldn’t be covered since the therapeutic advantages aren't significant enough over a lower priced drug. All the other countries have done that long enough so people don't complain about it. I don't know how we get a politician to have the courage to do that here, but it's a combination of not just negotiating but also restricting a little bit the formulary of what you're covering.

OCI: You talked about Acthar Gel, which I think is made by Mallinckrodt (MNK). You’ve also talked about orphan drugs and you had a chapter in the book on orphan drugs. I wanted to ask you about Valeant (BHC). One of the things that surprised me most was that you did not discuss the Valeant Pharmaceuticals story. Everybody on Wall Street and in the financial world knows about Valeant because so many smart people were suckered by this company. I don’t want to impugn the current Bausch Health because they have new management and to be honest, I haven’t followed the company that closely of late. But, they were certainly the poster child for what was wrong with drug companies for a while. They were a pioneer in taking advantage of older orphan drugs without generic competition and jacking the price up and paying patient copays to encourage demand for drugs. I think people like Martin Shkreli and Mallinckrodt were really just following their lead.

GP: You asked one of the great questions. These are the things that keep you up at night. What do you keep in? What do you take out?

Here in my office you can see a lot of file cabinets, including one with a file on Valeant. The original drafts of a longer book had a chapter on Valeant. We had to make a decision on what to cut so we could get down to a five-hundred page book. Valeant was a story that had simply been covered so well in so many parts of the press that I decided to cut it. But, in original drafts it was covered in depth.

I happen to think that you’re absolutely right about the story.

OCI: Yea, it has been covered quite well. I don’t know if you’re familiar with Bethany McLean, she did an amazing job reporting on that story.

GP: She did a great job. Great reporting.

OCI: Just staying on this topic of orphan drugs, you’ve kind of got a dual problem here in my mind. After the Kefauver hearings in the 1960s and the passage of the FD&C Act, orphan drugs were left out of the equation. Just wasn’t possible to go through the rigorous FDA process and make money from a small market. The Orphan Drug Act was an attempt to remedy that and certainly it has been abused. I remember from your book the examples of household names like Crestor and Humira trying to take advantage of orphan drug protections. But, also on the generic side of things, you have people taking advantage of the fact that the FDA approval process for a new generic can be lengthy and substantially increase the price of an existing drug knowing that it can be some time before new generic drugs can compete. What’s your thoughts on trying to accelerate that process to eliminate some high prices on the generic side?

GP: From my perspective the effort should not be so much on speeding up the generic process by the FDA, but instead on restricting the ability of companies to take an old drug and then re-purpose it for an orphan population, like with Acthar Gel, which was developed in 1952, and get all the benefits from the Act. Remember, the Act was intended to encourage companies to conduct their own research for conditions that are untreated and be able to provide a new drug for that population. So, if you spend a couple of billion dollars to really help people with Huntington’s disease and you end up with a treatment, you should be able to price that treatment very high. You have done the exact thing that the Orphan Drug Act was attempting to incentivize. But, we don’t need people like Martin Shkreli coming in and just re-purposing old drugs.

We also need to remove the ability to re-purpose drugs time and again to smaller patient populations. So, you come in and you get an orphan drug approval and then you come back and you ask for pediatric approval for that very same drug. We have to remove the incentive that allows drugs to be funded through tax credits and subsidies by the U.S. government under the Orphan Drug Act and then allow the drug to become a general-purpose drug as happened with Botox at Allergan (ABBV). There are areas where you can close the door on some of the abuse of the Act.

I obviously like the idea of more generics. But, I also want safe generics and generics have the same problems often that branded drugs do with safety. Over 70% of generics today are made in China or India. We’re supposed to inspect those plants overseas. I think before COVID they were getting inspected every three months or so, but it’s a difficult process even with generics.

OCI: Could you talk a little bit about the modern business model of Big Pharma? How has it evolved over time and how much of the competitive advantage today of a Pfizer or a Merck is in the sales force and the ability to distribute at scale versus in R&D? Is the future for large firms in purchasing promising drugs from smaller companies and getting them across the finish line and marketing them, which of course there is nothing wrong with, or is it still in having highly productive R&D and having the scale in R&D to diversify?

GP: It’s a great question. I think both. The economics of scale are absolutely key. It allows companies to go ahead and research drugs that may be unsuccessful. That’s fantastic because not every drug produces results. For a smaller company to take a risk like that, they have to bet the entire company and when that drug fails the darling biotech that had been up 500% drops to pennies per share.

There’s also no doubt that they can, and do often, buy up smaller companies. They have sales forces that can get to the market in both the U.S. and Western Europe in unparalleled ways. They have a reputational advantage among physicians and can pry a doctor’s loyalty away from existing brands to a new brand and that’s very important. Physicians feel comfortable with Pfizer and Johnson & Johnson and Sanofi (SNY) and the like. They know their drug production quality is often very high.

OCI: What’s been your take on the industry’s reaction to the pandemic so far? Besides Remdesivir, might we be a point where we’ll be seeing more treatments? How are we doing with vaccine development? In talking to your sources, how likely are we to have a vaccine six months from now?

GP: I think that we will see some more treatments approved by maybe this fall that are in the clinical trial stage now. They won’t be panaceas. Antivirals are very difficult drugs. People who have taken Tamiflu know that they can sometimes have side effects and they don’t cure you, just minimize the effects of the virus.

In terms of vaccines, I talk to infectious disease experts several times a week and I must tell you that they are all convinced that there will be a vaccine. Some people may think that of course there will be, but those that don’t know a lot about vaccines should remember that HIV appeared in the 1980s and we still don’t have a vaccine. Ebola emerged in the 1970s and we didn’t get a vaccine until last year. So, viruses can really flummox researchers for a long time. But, in this case we have a head start because work was already being done on various coronaviruses, this is a novel one, but ones like MERS and SARS were already being worked. I think we will have one if not at the end of this year, then by early 2021 the first of the vaccines should be ready.

It’s critical that I say this, though. Many people think it’s a race to get “the” vaccine and we’ll get a vaccine and that will be the end of everything. Even if there was one vaccine, it would take pharmaceutical companies a long time to manufacture hundreds of millions of doses. First, you would prioritize health care workers and then maybe the elderly. It could take a year or two to manufacture the billions of doses needed around the world. I also don’t think there will be only one vaccine. The first one that comes will get all the press and attention, but that doesn’t mean that if one company or group of researchers get a vaccine that everyone else will just stop. Vaccines work in different ways and in this case, I think we will end up with two or three vaccines and depending on the needs and accessibility of a country, you may see one or multiple vaccines being used in specific areas.

OCI: Any thoughts on the leading contenders? From what I’ve read it sounds like Oxford may actually get there first.

GP: From studying the industry, I can’t tell you how many times drug companies and scientists think they have a successful product only to be disappointed. I mean, that’s why you have clinical trials. You might as well go to Vegas and put money on the roulette wheel. Oxford’s obviously looks good. Moderna’s (MRNA) looks good and it’s completely different from anything tried before, it would be revolutionary. Pfizer has a small biotech as a partner. Sanofi is definitely near the forefront as is J & J. Israel has some good projects as well. Some will falter and fail out and others will emerge as winners.

OCI: I have been under the impression that the ability to create a vaccine is closely related to how quickly the virus evolves. Some viruses, like measles, don’t really mutate. Others, like the flu, mutate very quickly. How much should people pay attention to news on the rate of evolution of the virus in assessing the prospects and efficacy of a vaccine?

GP: Well, that’s a key question. It will mutate because viruses are smart. You mentioned influenza, which is a fairly fast mutating virus so that every year we have a vaccine based on last year’s influenza. There’s enough overlap that it provides some protection, some years more than others, and it reduces the effects of infection. This is a slowly mutating virus. The scientists who are studying it say with a fair degree of confidence that it will continue to mutate at a fairly slow rate. HIV, in contrast for example, mutates very, very fast and it’s one of the reasons they’ve failed time and time again to come up with an effective vaccine.

Now, that being said, readers of this should think about the fact that thirty-thousand genomic parts have been broken down on COVID. So, if you imagine a thirty-thousand word manuscript and let’s say there are one-hundred words per page and so you’re dealing with a three-hundred page book. Now the words change occasionally, and that’s the mutations that’s happening. But, the words that change might not be that critical. Those are small mutations. It’s the big mutations they worry about, the kind of mutations that take whole pages and turn them into gibberish. It’s those large mutations that they worry about. They haven’t seen those mutations yet and they don’t expect to see those mutations.

OCI: Looking into the future beyond COVID, where is innovation coming from? It definitely seems as though pharma goes through innovation cycles. What are the most likely breakthroughs we could see? Where is the frontier of medicine?

GP: The frontier of medicine is actually very exciting. There are certainly cycles. There are innovation cycles and profit cycles and they aren’t necessarily the same. In the 1950s antibiotics was where all the money was. Amphetamines in the 1960s along with benzodiazepines were the best selling drugs and they continues into the 1970s when Xanax becomes the blockbuster drug. During the 1980s and 1990s it becomes SSRI’s along with cholesterol medications and blood pressure medications. Finally, you get the opiate pain killers which become dominant mid-2000s and on. That’s the profit cycle.

The innovation cycle is very different. The development of drugs to treat heart disease, high cholesterol, diabetes with much more refined medications is remarkable. Biotech has changed the industry. Gene therapy, especially in regards to oncology...remember, oncology didn’t exist as a specialty until the 1980s when all of the drugs used to treat cancer without the devastating side effects of chemotherapy and radiation started. We are on the frontier, I think, of cancer treatment drugs that will be specialized and focused and in some cases be able to stop the replication of cancer. We aren’t yet seeing them, but they’ll be revolutionary. The same thing on antibiotics. Antibiotics will no longer be the general drug that’s taken until we see some resistance because we’re just dowsing our entire body with the antibiotic. It will be dosed and specific to the illness being treated.

That type of specificity, of gene therapy, that a lot of companies are working on will make them expensive and not widely available in the beginning, but will be revolutionary in healthcare.

OCI: Looking ahead from a different perspective, it’s very difficult to know how regulation will evolve in the future. When President Obama was elected in 2008, Democrats presided over both the House and the Senate. You got health care reform, but not something that was detrimental to pharma. What happens if Joe Biden is elected and Democrats win both houses of Congress again? Biden is in favor of a public option. But, if we ever do see Medicare-for-all what does that look like for pharmaceutical firms?

GP: Even with a Democratic sweep, Medicare-for-all is unlikely. Look at the first bill that was passed earlier this year for COVID-19 relief. In March, the federal government approved $8.3 billion, of which $3 billion went to pharmaceutical companies for public research on vaccines. In the first draft of the bill was language that would have given the government real tools to keep the price moderate if they thought the company that was successful at the vaccine was pricing it too high and it also made that $3 billion publicly available to every company and no one company would have the intellectual property rights. That language was all removed. The pharmaceutical lobby had gotten it removed, and it wasn’t just Republicans who signed off, it was Republicans and Democrats.

The Heroes’ Act is the much larger stimulus of $3 trillion put forward by Democratic House leadership. There was a small group of progressive Democrats that tried to include language that stopped drug companies from excessive price gouging on COVID-19. The leadership refused to include that. So, the idea that because there could be a Democratic administration there is going to be real reform...I see no evidence of that in reality.

OCI: There has to be an endgame. We’re at 17% or 18% of GDP now spent on healthcare. It doesn’t seem sustainable. I don’t know what that something is that will bend the cost curve, but it seems that at some point it’s going to have to happen.

GP: Right. Well, political will always comes when there’s a disaster and you can’t go on any longer. The risk really is that if healthcare spending continues to increase and we reach a point where it goes beyond 20% and continues rising and politicians are forced to do something, the easiest thing to attack and cut is usually what is most prominent, which tends to be pharmaceutical firms. Not enough of the public knows about pharmacy benefit managers. The distributors like McKesson (MCK), most Americans aren’t all that aware of them either. But, the concept of cutting back on drug prices? That’s something many Americans can get behind. What I fear is that what will happen will be an overreaction from government and something more draconian could take place in the future like price controls. We could go from one extreme to the other. If we were to force that to happen and just completely remove the free market we’ll have a whole host of other problems. Thankfully we’re not there yet.

OCI: What’s the second order effect? Many economists would argue that European and other governments can negotiate lower prices because very high prices in the United States subsidizes innovation for the entire world. If prices ever declined in the U.S., what’s the second order effect on European and other public health systems?

GP: There’s no question that if you’re a drug company negotiating prices in Europe, you know that whatever price you ultimately negotiate, you know that you have an American market that’s going to be the largest. Let’s say you settle on prices in the U.K. and then Germany and then Spain and then other countries. You will ultimately price that drug in a way in the United States to make up for the discounts you’re giving abroad. We do, therefore, subsidize the research and development.

The companies say that they need these prices because it’s so costly to do the research and development. There’s no question about that. It’s a very costly process. But, the statistic I find most damning to that argument is that in the last ten years the ten largest drug companies have spent more on average every year for marketing and stock buybacks than on research and development. There’s no question that lower prices in the U.S. would lower returns and many shareholders wouldn’t like it, but it wouldn’t be the end of Big Pharma as we know it.

OCI: I’ll leave it there. Without editorializing too much, I guess a couple of takeaways are that you don’t think it’s extremely likely we see near-term regulation that severely hurts pharma and you’re pretty optimistic that before too long we have a vaccine.

GP: One other aspect that you’ll find interesting around the pricing of vaccines. I think Johnson & Johnson and GlaxoSmithKline announced that the original production of any vaccine they develop will be priced at their cost. That’s terrific. It will do a lot of public good. But, I think what they’re actually doing is assuming that COVID will be with us for some time. It’s going to be here for the foreseeable future and that people will need booster shots down the road. So, just as the pneumonia vaccine is now a two-parter versus the one-part before and shingles needs a booster shot occasionally and tons of shots are given every year. So, they believe that the vaccines will need a booster shot in the future at some point either year to year or every two years because COVID may have peaks and come back at times in winter occasionally. And, in addition, countries will have to stockpile millions of doses in case there's another outbreak.

OCI: So, the initial production is a marketing expense in hopes of a franchise?

GP: Yes, and the franchise will be a legitimate one because it’s not likely to be like a light switch and the vaccine comes out and COVID is gone forever. There will be times when it comes back, but we will learn how to live with this just as we have learned how to live with other illnesses and the vaccine will allow us to get back to normal. I just don’t want people to see this as turning off a light switch.

The infectious disease doctors I spoke to believed that a shutdown was initially the right course. But, they’re medical people. So, obviously they're not looking at the financial aspect. But, they also know it’s a very blunt tool just as chemotherapy, you know, being given as a cancer treatment. It's effective, but it effects other parts of the body. When you do a shutdown, it helps slow the spread the virus, but there are a lot of side effects to the economy and people's mental health and everything else. So, it's too blunt a tool and that's why we can't have these developments for drugs treatments and vaccine come soon enough.

If pharma can deliver, and I use pharma in a broad sense here as the companies working on these treatments. If they can deliver safe treatments and a safe vaccine in short order and the pricing is reasonable, then they could boost the entire public image of a tattered industry. The public image of pharma today is similar to used car salesmen and Congress. In WWII penicillin saved hundreds of thousands of American soldiers and millions of American lives, resulting from a joint project that they contributed to and funded by the American government. They were heroes and held in high regard. I’m not going to say that they’re going to go back to being heroes, but I will tell you that it would boost the image of the industry as a whole in a way that they could never buy.

OCI: Really enlightening discussion. Thanks again. Congratulations on the book and please be well.