Ethics or Economics?
Public Health or Private Wealth?

by Sarah Sexton

first published 6 June 2002

Summary

Most discussions about human genetic research focus on the ethics of pursuing it. This presentation at Potsdam University in Berlin, Germany, instead surveys the economics. It explores who pays for genetic research, who regulates it, and who is expected to pay for any products resulting from it. It concludes that economic considerations, rather than health ones, underlie much of the funding for such research, including public funding, and determine what is researched in the first place. Debates of ethics need to pay attention to these economic foundations and assumptions that underpin genetic research and developments.

Contents

Introduction

When Dolly the cloned sheep was announced to the public in February 1997, a shocked world immediately began talking about the ethics and morals of applying the technique to humans. Since then, it seems that many of those with an interest in genetics have been talking ethics ... including the Financial Times (Britain's pre-eminent financial newspaper); Britain's Department of Trade and Industry; and Pharmaceutical Proteins Limited (PPL), the commercial wing of the Roslin Institute whose Dolly research was largely paid for with public -- that is, taxpayers' -- money.

But because ethics have been effectively placed in the foreground of most public debates on genetic issues, this essay explores instead some of the economic aspects of human genetics: its funding, its regulation and its potential markets. It focuses on human rather than agricultural genetics for three reasons: because society often seems prepared to allow anything as long as there is the prospect, albeit remote, of improving someone's health; because medical applications are in fact the biotechnology industry's main focus; and because, according to the Biotech Investor's Bible, the medical applications of biotech are the most attractive investment opportunity (Wolff 2001).

Who pays for genetic research?

Most biotech scientists are driven by curiosity and a desire to solve the puzzles they (and their colleagues and mentors) have set themselves. But what are those who have financially supported them driven by?

Throughout the 1930s and 1940s, molecular biology in the United States was mainly supported by the private sector -- not big business directly, but private foundations, such as the Rockefeller Foundation -- as part of its goal of social control (Morange 1998). But then came the Second World War which in the US in particular "spurred the federal government, universities, and industries to collaborate with each other and with the military in unprecedented ways" (Creager 1998: 57). After 1945, the perceived success of this "mobilization of science for war" was used to justify large-scale government funding of basic research in the US, Britain and France (Creager 1998, 57). As part of its military defence strategy, moreover, the US government actively supported the development of computing which has proved essential to genetic research.

The 1970s brought about a new development. A crucial year was 1973 --when researchers first spliced genes from one species into a different species -- genetic engineering. That same year, an international oil crisis prompted a worldwide economic downturn. The US became worried that Japan's economy was doing better than its own and wondered what it could do to regain a competitive edge. Biotechnology was one discipline the US government decided to support -- partly by ensuring that national legislation did not reduce America's competitiveness in this field (Ferrara 2001).

In the history of biotechnology, much is made of the 1980 US Supreme Court decision to allow a patent on a bacterium created to 'eat' crude oil -- the first time that a patent had been awarded on something living. But just as significant is the 1980 US Patent and Trademark Amendment Act, which allowed universities to take out patents on their discoveries, even if the research had been publicly funded. This decision was part of a government effort to inject new life into the stagnating US economy by bringing academic discoveries out of the universities and into the commercial arena. Supporting sick people might get public approval, but supporting a sick economy had a higher priority. Gradually, university professors in the United States not only took out patents on genes they had discovered but also set up their own companies to commercialize the results of their research. By 1987, about half of biotech's molecular millionaires had made their fortunes from biotech firms while holding university positions (Shand 2001, 223).

The commercial biotech boom in the US was made possible by two factors: a long history of state funding for basic science which provided an infrastructure of trained scientists; and venture capital which bankrolled these firms (Shand 2001, 224).1 In these initial stages, pharmaceutical and chemical companies, which are now such key players in genetics, watched from the sidelines to see how things would develop. Only when some of the research seemed commercially promising did they step in.

During this period, Europe and Japan had world class genetic research of their own. They, too, had a long history of state funding for basic science. One of the discoverers (or perhaps inventors or creators) of the theoretical model of DNA, the double helix, James Watson, was an American who did his postdoctoral research in Britain in the 1950s because his US supervisors thought that European science was more imaginative than its American counterpart. And Europe had world class pharmaceutical and chemical industries: BASF, Bayer and Hoechst to mention a few.

In the late 1970s, European policy makers realized that their science was not duplicating what they saw as the successful US model of industrializing genetics. So, by the early 1980s, most European states had devised national biotechnology strategies to prepare for an international "high tech race" (Gottweis 1998, 105). This theme of catching up and of competing in an international race is still the prevalent rationale given today for many genetic policy decisions in the US, Britain and Germany, as is that of industry and/or scientists threatening to go abroad if legislation doesn't become more favourable to them.

But the conditions of financing were different in Europe because the region did not have substantial venture capital. As a result, biotech research has mostly stayed with large chemical and pharmaceutical firms or is dependent on government funding. Moreover, unlike the US, Europe does not really consider it acceptable for university researchers to be engaged in making money while still in academia.

Thus the world's genetics industry today is US-dominated. Over 70% of firms are in the United States. Around half of these are in just two states: California and Massachusetts (WHO 2002, 2). Some of the leading biotech research has been carried out at the University of California and Harvard University and their associated hospitals. Boston is now known as 'gene town'.

US government spending on health research and development is higher in absolute terms and as a percentage of GDP than in any other country -- nearly one-fifth of GDP in the year 2000. US public spending on genetics research is around four times higher than that in Europe (WHO 2002, 6), most of whose genetic spending is accounted for by Germany, the UK and France (WHO 2002, 56). Europe is still a key global biotech player, however, through its pharmaceutical companies. Indeed, two industries are now crucial in genetics research: pharmaceutical ... and computing.

Pharmaceutical companies increasingly need biotech because the patents on their 'blockbuster' prescription drugs are running out and they have little in their own research pipelines to replace them. Once a drug goes off patent, sales drop dramatically because other companies can produce it without paying royalties to the patent holder. Pharmaceutical companies now put in more than $6 billion every year to the biotech industry (Wolff 2001, 250) -- and they have had the money to do so. The pharmaceutical industry has consistently been one of the most profitable in the world.

Meanwhile, biotech needs computers -- big computers. When you go into a genomics company -- a company that is researching what genes do -- you don't see test tubes but keyboards and computer screens (Wolff 2001, 43). The head of IBM Life Sciences, Carol Kovac, says that biotech is "one of the greatest growth opportunities in the whole of IT [information technology]" (Cookson 2001, II) -- because genes are just information and "making sense of genetics research requires a massive data processing exercise"(Dyer 2001, I). Much of the work of the US company Celera in decoding a human genome was "performed by an army of analytical robots and a computer farm that has been called the largest civilian supercomputer in the world" (Wolff 2001,39).

Given this background, is genetic research public or private? Is it funded by governments with taxpayers' money or funded by private, for-profit groups? The traditional distinctions between public or academic and private or commercialized science and research no longer really apply in the world of genetics (Thackray 1998, xi). Public money tends to support the initial hard work. Once a research angle looks promising, then private money, whether in the form of venture capital or of some arrangement with large pharmaceutical or chemical companies, steps in -- and provides many more billions of dollars than the public sector could ever hope to provide. Nonetheless, genetic research is highly dependent on public money. The president of the research institute of Merck, one of the top pharmaceutical companies, pointed out: "About 95% of the fundamental discoveries that point you in the right direction come out of basic science funded by government and not-for-profit sources" (quoted in Cimons and Jacobs 1999).

Does it matter if public money goes to private biotech companies as long as society gets new drugs in the end? Isn't it possible to have public health out of private wealth? An example from the US suggests this may not necessarily be the case. The drug, Taxol, is used to treat breast and ovarian cancer. The government National Institutes of Health, the main public funder of biomedical research in the US, developed the drug, which is derived from the yew tree, and paid for all the clinical trials -- testing whether it was safe and effective. It gave exclusive production and manufacturing rights, however, to pharmaceutical company Bristol Myers Squibb for zero royalties. Bristol Myers charged $10,000 for an annual course of the drug, even though it cost just $500 to manufacture. When the US government was challenged about the arrangement, which yields $1 billion a year to the company, the US government argued simply that what benefits Bristol Myers benefits the US economy. Currently in the US, patients (or their insurance companies) with multiple sclerosis, breast cancer, colon cancer, heart disease and AIDS pay up to 100 times the actual cost for prescription drugs that have been developed with funding provided by the US government.

Who regulates genetic research?

Many people in Britain understand regulation as a form of lawful intervention to ban, or at least supervise strictly, unethical, unacceptable or unsafe practices. But regulation also refers to the government setting rules in general for companies. In the past two decades, the biotechnology industry has pushed for deregulation (the weakening or removal of laws that limit its activities), possibly followed by self-regulation (such as voluntary codes) and then re-regulation in its interest.

For example, by 1982, in both the US and UK, control of research and industrial processes in the genetics field, particularly governing the containment of genetically engineered organisms within the laboratory, had largely been dismantled. Researchers attribute this deregulation to lobbying from the pharmaceutical and chemical industries. "No other sector operated with the same range or clout," says US science historian Susan Wright (Wright 1998, 100). If genetic engineering had been just a powerful and risky research tool, Wright believes that members of the US Congress would not have been persuaded to deregulate it; the fact that it promised to generate a new commercial industry, however, convinced them to do so (Wright 1998, 92).

When governments have considered implementing regulation, industry has often adjusted its practices rather than risk government intervention. Thus the sudden outburst of proposed regulations in the mid-1990s governing embryo cloning and research, and genetically engineered crops prompted bioindustry organizations to issue a range of voluntary codes of conduct.

But the biotech industry recognizes that it sometimes needs certain legislation that is in its economic interest or that helps to maintain public confidence in its activities.

Public or state mechanisms have supported the burgeoning biotechnology industry by facilitating changes in legislation governing intellectual property. These changes have transformed knowledge into property suitable for the new knowledge-based economy. Key to this transformation has been patents on genes or gene fragments.2

In the 1970s, the US government, heavily lobbied by the biotechnology industry, rewrote intellectual property laws to allow for patents on biological products and processes and then on plants and animals or parts thereof. Crucial in the history of patents on life was the 1980 US Supreme Court decision to grant -- by a margin of five votes to four -- a patent on a micro-organism. The industry also lobbied the European Commission, the body within the European Union which initiates legislation, to introduce a directive on "the legal protection of biotechnological inventions" in order to keep up with the US. One prominent and long-standing member of the European Parliament said it was "the largest lobby campaign in the history of the EU" (Willi De Clercq, quoted in Emmott 2001, 381). The campagin resulted eventually in the EU adopting a Directive in 1998.3

The rationale given for a patent is that it rewards an inventor. But patents protect markets, not ideas. Although companies often claim that they need patents to recover their research and development costs, large pharmaceutical companies spend about three times as much on marketing, advertising and promotion than they do on drug research and development (Wolff 2001, 252).

Ironically, many of those working in biotech now realize that the extension of patent law to living organisms such as genes is hindering rather than helping them, even though they lobbied so hard for legislation allowing patents on genes. This is because when genomic data began pouring out of automated gene sequencing machines, companies hurried off to the patent office to stake a claim on any and all newly discovered genes without necessarily understanding their function (Wolff 2001, 66). Thousands of patents in the biotech field have been granted and many thousands more applied for. The US Patent Office is now handling as many applications as it can manage (Wolff 2001, 14-15). It is now unclear in several cases just who has a patent on what, leading to lengthy, expensive legal battles between corporations each arguing that they have the first patent on a particular gene fragm ent (Shulman 1999, 171).

From a corporate perspective, patents have begun to be unreliable as a means of controlling markets; politically unpredictable;4 and even technologically untrustworthy as other companies now invent around patents or develop new technology to circumvent them. Some companies are considering using database protection instead of patent protection, arguing that a gene is just a string of data. Others are opting for 'super patents' to regain control. Patents are pending in the US and Canada, for instance, not only on gene sequences but also on the digital representation of those sequences in computers. If granted, it would be illegal for someone to have gene data or a picture of a gene on their computer unless they had paid royalties to the patent holder (ETC Communique 2001c, 16).

From a scientific perspective, patents are now hindering research, restricting innovation and blocking new discoveries. Scientists can no longer freely share genetic discoveries with each other, which is how many of the developments that underpin today's biotechnology and genetic engineering came about in the first place, without risking a lawsuit. William Haseltine, chair of Human Genome Sciences, a leading biotech company that has a collaborative deal with pharmaceutical giant GlaxoSmithKline and that has thousands of gene patents, has said "Any company that wants to be in the business of using genes, proteins or antibodies as drugs has a very high probability of running afoul of our patents. From a commercial point of view, they are severely constrained -- and far more than they realise" (ETC Communique 2001a, 5).

Patents on genes are not about to disappear as a strategy to protect corporate genetic monopolies. But corporations are actively looking for other means to achieve long-term control over new technologies. Those worried about the negative effects of patents on genes or parts thereof need to be aware of these other means as well.

Although the genetics industry in general seems to prefer minimum governmental control over its activities, it does tend to support regulation that maintains public confidence. Indeed, possibly even more than funding and even more than patents, genetic research needs public support, or at least tacit approval. The European Commission acknowledged in 2002 that "Without public acceptance and support, the development and use of life sciences and biotechnology in Europe will be contentious, benefits will be delayed and competitiveness will be likely to suffer" (European Commission 2002,12). Human reproductive cloning and genetic privacy or discrimination are just two controversial areas in which more forward looking sectors of the biotech industry recognize that they actually need regulation to reassure the public.

When countries around the world rush to condemn or ban so-called reproductive cloning, even though few scientists or companies are working on this, the public is reassured and the companies feel more confident to continue whatever research they are pursuing.

Similarly, legislation may be necessary in order to guarantee that no one -- particularly employers or health insurance companies -- gets to see or use the results of an individual's gene test (unless the individual gives permission). Otherwise people may well refuse to have gene tests altogether. Craig Venter, as President of Celera, urged the US government to prohibit discrimination based on genetic testing, saying that a law is "essential if the biotechnology revolution is to be realized" (Wolff 2001, 255). Indeed, rather than human cloning, biotech investors think "the biggest ethical issue arising from the genome revolution is the privacy problem" (Wolff 2001, 255).

The fact that the genetics industry and its supporters are so wary about who has access to genetic information gives citizens much more power over the industry and its development than they often think they have.

But just how has the business sector managed to shape a political climate favourable to deregulation, self-regulation and regulation in its interest? One means of doing so is the 'revolving door' whereby a person spends a few years working with a company, then a few years with a government department, then back to a company while serving on a government committee. The president of the California Institute of Technology, a leading biotech university, gives another example. "Most senior biologists are entangled with one or more companies," he said. "I am [on] the board of [biotech company] Amgen, and I would have to think twice before arguing that drug prices are unconscionably high" (quoted in Shand 2001, 233). The threat of industry and/or scientists going overseas influences governments, as does reference to a potential economic or job loss. Meanwhile, those who have dealt with pharmaceutical companies for many years conclude that the pharmagenomics industry is one of the most powerful lobbying machines in the world.

So just who is regulating the welter of activity among biotech companies, asks a Financial Times article on biotechnology regulation. "Firstly, the financial markets" is the answer. Only later comes limited regulation governing safety, efficacy and ethical issues (Pilling 1998, VIII).

Who will pay for the products deriving from genetic research?

If genetic research is now largely funded by those whose paramount goal is to make profits, it is important to consider how they believe they are going to do so. Who is going to consume these products? Who is going to pay for them? While the prospects for human cloning, stem cell therapies and designer babies grab the headlines and divert our attention, the biotech industry is pursuing a much more strategic agenda: gene-based tests and drugs for the sick and the well (ETC Communique 2001b).

Genetic tests could supposedly predict an individual's susceptibility to a disease; determine an individual's genetic makeup so as to prescribe the most appropriate drug; and detect abnormalities prenatally. Many of these are already available, partly because it is generally quicker to get regulatory approval for tests than for drugs.

Drugs based on knowledge of genes are also taking much longer to develop. They promise to treat diseases for which there are currently no treatments, to work better than existing drugs, to be tailored to an individual's genetic profile and thus have minimal adverse effects, and to be cheaper to manufacture.

The major targets for genetic research are the diseases of industrialization and old age such as cancer, heart disease, obesity and nervous disorders (depression, Parkinson's and Alzheimer's). Prescription drugs to treat these diseases already yield most of the pharmaceutical industry's revenue. The Financial Times points out that "consumption of medicines begins in earnest when people reach their 50s, so ageing populations should mean expanding revenues" (Dyer 2002). Indeed, older people in the US would seem to constitute the best market of all. The United States accounts for half of all worldwide sales of prescription drugs and half of pharmaceutical company profits. The prices of pharmaceuticals there are among the highest in the world. The US is the only pharmaceutical drug market in the world where the companies are largely free to set prices as they see fit (Michaels 2002).

But who is going to pay for the new tests and drugs? It would have to be either the public health system, such as in Britain; the insurance system, whether mandatory such as in Germany or The Netherlands, or commercial/optional such as in the United States; or the patient (who is rapidly being regarded as a consumer).

Public health systems buy the majority of prescription medicines. They are under growing pressure to cut their health care costs. Are public health systems going to be willing and able to pay for expensive gene-based tests and drugs?

The US spends more than any other country on health care, both in absolute terms and as a proportion of its GDP -- and state funding for drugs for the elderly is spiralling off the balance sheet. Nonetheless, the elderly do not receive public assistance for prescription drugs when they are not in hospital. So busloads of pensioners go across the border to Canada or Mexico to buy cheaper pharmaceuticals.

In Europe, public health care systems have long set ceilings on how much they will spend on pharmaceuticals. Governments of the five largest European markets -- Germany, France, Italy, the UK and Spain -- are trying to curb the amount they spend on pharmaceuticals. The pharmaceutical industry is lobbying hard for Europe's health care systems to be deregulated in various ways -- for instance, to allow over the counter sales and direct advertising to consumers of pharmaceuticals -- which would open the way for increased sales of drugs at higher prices and possibly for approval of new, more expensive treatments.

Will insurance companies pay for these new drugs and tests? In the US, sometimes they do, sometimes they don't. They assess whether doing so saves or costs them money in the long run. If a treatment doesn't promise to be economically advantageous, then insurance companies may well not cover them. In Germany, one pregnant woman was informed by her doctor of the prenatal tests that the insurance company would pay for ... and was then told about the far longer list of those that wouldn't be covered but which were still advisable to have.

So will patients themselves pay for genetic products, particularly if the public and insurance systems won't? As genetic activist Ruth Hubbard from the US has pointed out: "If an atmosphere can be generated in which none of us feels safe until we have assessed the likelihood that we or our children will develop sundry diseases and disabilities, we will be willing to support this new industry in the style to which it would like to become accustomed" (Hubbard and Wald 1993, 118).

At present, drug companies make the most when people are just ill enough to be repeat buyers of their products but still well enough to keep their jobs. The best drug is something that alleviates the symptoms but which you have to keep on taking. After all, sick people either get better and stop buying the product, or they die ... and stop buying. Thus the best candidates for mass marketing are fairly healthy individuals, not sick ones. Well people generally have jobs and can afford to pay for medicines; with biotechnology, they can get even better. The head of pharmaceutical giant AstraZeneca said in July 2001: "I say everyone should die healthy" (ETC Communique 2001b, 9).

The 'worried well' are those who will have gene tests and consume products that they have been persuaded will keep them healthy ... or even super healthy. Industry's latest, and potentially most lucrative, market are drugs developed and approved for sick people which have a much higher market value if they are consumed by healthy people. Viagra, for instance, started out as a heart drug, soon became one for sexual dysfunction and is now for everyone. Human growth hormone, which is derived from genetically engineered bacteria, has been approved for use in the US for children who have insufficient naturally occurring hormone. An Internet advertisement for this hormone, however, stresses that it is available without a prescription; is natural, organic and safe; decreases body fat, wrinkling, cholesterol and insomnia; increases physical strength, muscle mass, energy level, sexual function and mental alertness; stimulates youthful skin and hair appearance; improves neurological function; and rejuvenates cell and organ tissue. What the advert does not say is that long-term use might elicit diabetes, arthritis, high blood pressure and congestive heart failure.

Other prospective gene-based drugs with large potential markets are those to treat diabetes and obesity being used as diet drugs; those to treat muscle wasting diseases being used by athletes; those to combat memory and brain function loss being used to improve healthy people's memories and intelligence; anti-depressant drugs being used to treat shyness; and drugs which prevent the skin thinning as it grows old so can be used to treat incontinence being taken to lessen the appearance of ageing. The market for anti-ageing cosmetics is the fastest growing sector of the global cosmetics market.

Just as agricultural biotech needs the hungry, the starving and the malnourished to convince the public that genetically modified foods are necessary, even though they actually feed those who have the money to buy them and who are already well-fed, so human or medical biotech needs sick and dying people, but its major market is those who are (already) healthy.

Lastly, it is important to emphasize the importance of looking not just at current developments but at future ones as well, just as the genetic industries and researchers are doing. Commercial companies have their eye on publicly-funded and publicly-provided health care systems around the world. In the US, pharmaceutical companies are beginning to buy up hospitals -- thus company drugs, and possibly only company drugs, would be dispensed in a company hospital. What if a company was to team up with a health insurance company? The insurance industry, even more than pharmaceutical companies, is the commercial sector most interested in wage-earning, long-living clients. A merger between pharmaceutical drug companies, life insurance companies and hospitals could deliver life insurers even more profits. The critical issue of genetic privacy or genetic discrimination becomes rather irrelevant if your doctor is also your insurance agent (ETC Communique 2001b, 16).

Conclusion

So is human genetic research an issue of ethics or economics? Is it driven by the goals of public health or private wealth? The answer to both these questions is not so straightforward.

The economics of the industry are clearly threatened by ethical issues. As the Biotech Investor's Bible says, "The most immediate dangers facing the biotechnology industry are broad ethical and legal concerns" (Wolff 2001, 254). But debaters of ethics also need to pay attention to the economic foundations and assumptions that underpin, and in some cases direct, genetic research and developments.

Meanwhile, there will always be some people who feel that their health or quality of life could be improved by some of the products of biotech research. The genetic push, however, may not really serve to enhance people's rights to health. Moreover, many of those who might benefit from such products are unlikely to have access to them if current trends of health care financing and provision do not change. Along the way, however, the genetic push is also redefining just what constitutes health. Judging by the funding of genetic research, private wealth would seem in large part to depend on public wealth, whether this is public money provided directly for research, public money used to buy the finished product or the genetic samples freely given by members of the public for research.

Whatever answers one finds, it is impossible, as genetic activist Hope Shand stresses, "to understand biotechnology without examining the power and global reach of the giant, transnational enterprises that are in the business of engineering, controlling, patenting and profiting from life" (Shand 2001, 222).

Notes

1 The goal of venture capital is to help increase a company's value and then to sell the company for a higher price.

2 A patent consists of monopoly rights granted by the government to an inventor for something that is novel, useful and not obvious to those with knowledge of the relevant field (the inventive step). The patent is for a set time, now generally 20 years. A patent allows the patent holder to exclude anyone else from making, using or selling the invention for that time unless the patent holder gives them permission. The patent holder can demand royalties for allowing someone to use the invention. Since the 19th century when patents were first established, it had generally been understood that products of nature are not patentable because they can be discovered but not invented.

3 Patents on living organisms, or parts thereof, are also being pushed through one of the 28 agreements of the World Trade Organisation (WTO), the Trade Related Intellectual Property (TRIPs) agreement.

4 This is not least because of public campaigns in recent years highlighting the consequences of patents on pharmaceuticals such as higher prices for AIDS drugs in Africa.

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