As the CEO of a few small, publicly-traded biotechnology companies during the past several years, I find the rationale for determining which companies or industries receive government assistance these days to be a highly confusing subject.
Originally it appeared that banks received special attention, until Bear Stearns was deemed too big to fail, while Lehman Brothers was not. Next, the apparent random acts of kindness were extended beyond the banking sector to include the insurance industry with the decision to keep AIG afloat. Finally, the shoot-from-the-hip strategy was abandoned with passage of the $700 billion government bailout package, which was purported to broadly target Wall Street and the mortgage market. Despite all of these actions, trillions of dollars have still been lost in the markets this year, which raises the question as to whether the government’s bailout efforts will work, and more importantly – where they end.
On that note, the U.S. automotive industry is now lobbying for its share of the bailout package to help General Motors, Ford and Chrysler survive. The rationale is based, in part, on a November 14, 2008 research memorandum produced by the Center for Automotive Research detailing how termination of the Detroit Three U.S. operations would result in a loss of nearly 3 million direct and indirect jobs, with a resulting reduction in U.S. personal income by more than $150 billion in the first year, and generate a total loss of nearly $400 billion over the course of three years. While there has been resistance to approve an auto industry bailout, President-elect Obama has voiced support to allocate bailout funds for the companies.
So, the common theme is that government appears willing to intervene any time it believes a failure to act would have serious consequences on the economy, which I believe is germane to a discussion of the biotechnology industry. According to the recent dire statistics from the Biotechnology Industry Organization (BIO) in Washington “in the U.S., 38% of 370 small biotech companies are operating with less than a year’s worth of cash and nearly 100 publicly-traded biotech companies have less than six months’ cash.” Based on these statistics, the current credit market crisis will force many small biotechnology companies to file for bankruptcy, postpone or abandon cutting-edge research and human clinical studies, and lay off workers within the next 12-months. This is bad news if you, or someone you love, is suffering from cancer, heart disease, diabetes, Alzheimer’s, etc.
The adverse economic impact of these actions clearly dwarfs those of the automotive industry. According to a study by Battelle and BIO released in June 2008, total U.S. employment in biosciences reached 1.3 million in 2006 with indirect and induced employment from the bioscience industry totaling an additional 6.2 million jobs spread throughout the remainder of the economy. Together, these direct, indirect and induced jobs account for a total employment impact of 7.5 million jobs – more than double that of the comparable figures for the automotive industry.
However, the rationale for extending assistance to the biotechnology industry goes far beyond the specter of massive job losses and personal income. In 2006, University of Chicago economists Kevin Murphy and Robert Topel reported that from 1970 to 2000, gains in life expectancy added about $3.2 trillion per year to national wealth, with half of these gains due to progress against heart disease alone. Looking ahead, they estimated that even modest progress against major diseases would be extremely valuable. For example, a permanent 1 percent reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and that a cure would be worth about $50 trillion.
But rather than trying to understand the rationale for determining which companies or industries receive government handouts, perhaps more attention could be focused on fixing some of the structural aspects that are negatively impacting our troubled industries. For biotechnology, this means improving both the time and cost of bringing new medicines to market without simultaneously risking patient safety. In 2003, DiMasi, Hansen and Grabowski reported that the time from the start of clinical testing to marketing approval was approximately 7.5 years, which was in addition to any preclinical development time, and that the costs incurred during this period reached $802 million.
Based on those timelines and expenses, if anyone needs a bailout – it is biotechnology. And if taxpayers are going to subsidize any industry, it should be one that is meeting the needs of American workers and consumers.
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