Economics and Biotechnology

by jeeg 19. June 2010 00:11

Mike Mandel, from the Mandel on Innovation and Growth blog, has a lot to say about the economic repercussions from the failure of genomics to translate into clinical applications.

He says:

My nomination for the most significant economic event of the past decade:  The failure of the Human Genome Project to  thus far deliver medically significant results.

Let me explain my thinking, and why there may be reason to be guardedly optimistic about the future.

Right now there are three depressing aspects to the current course of the U.S. economy.  First, the growth of healthcare spending, if it continues, will put a stranglehold on employers and taxpayers.  Second, the apparent inability of the private sector to generate well-paying jobs for college grads, if it continues, will put a squeeze on young workers.  Third,  the apparently inability of the U.S. to export enough to close a huge trade deficit,  if it continues, will leave the country exposed to a  dollar collapse and a sharp fall in living standards.

I could have arranged and described these differently, but that’s the outline of the negative picture.

The Human Genome Project had–and still has–the potential to be a powerful antidote to all three of these problems.  Let’s start with healthcare spending.  I’ll quote from today’s New York Times article (“A Decade Later, Gene Map Yields Few New Cures”):

..the primary goal of the $3 billion Human Genome Project — to ferret out the genetic roots of common diseases like cancer and Alzheimer’s and then generate treatments — remains largely elusive.

….At a [2000] news conference, Francis Collins, then the director of the genome agency at the National Institutes of Health, said that genetic diagnosis of diseases would be accomplished in 10 years and that treatments would start to roll out perhaps five years after that.

Cancer. Alzheimer’s. Diabetes. These are the expensive medical problems that eat up so much of our economy’s resources.  The possibility of a cure, say, for Alzheimer’s, could potentially turn the horrible economics of healthcare upside down. (see, for example, ”Forecasting the Global Burden of Alzheimer’s Disease“).  Similarly, a cure or at least effective treatments for diabetes could sharply reduce healthcare outlays for diabetes, which are expected to triple over the next 25 years  from $113 billion to $336 billion (inflation-adjusted dollars).

What about jobs? Successful new innovations create new jobs–that’s what history tells us. If the Human Genome Project had led to a wave of new diagnostic test and treatments, the jobs would have followed.

Instead, what happened is that the pharma industry invested heavily in ‘genomics’ and got hit hard when it didn’t produce a flood of new diagnostics and treatments.  As a direct result, big pharma companies have been merging and laying off workers, not adding them. When’s the last time you heard someone talking about biology as a hot field for jobs?

Over the past decade, just when you ‘d think that the mapping of the human genome would have created more jobs at pharma companies to take advantage of new discoveries, the opposite happened.  The drug pipeline dried up, and the big drug companies went into job-cutting mode.

This had an unfortunate domino effect. Cities around the U.S. had built their economic development strategies around attracting biotech jobs,  which looked like a great idea for getting ahead of a growth wave. But recent cuts have meant that the jobs gains have been relatively small.  Take St. Louis,  for example, which has been among the most successful areas in attracting  biotech research.  In 2006, for example, an article proclaimed “St. Louis And Its Companies Benefit From Biotech Push”:

St. Louis is coming of age as a biotech center…It has spent six years and added $500 million dollars in venture capital to build itself into a biotechnology hub. It has attracted new talent for companies already here, such as Monsanto Co. (MON), Pfizer Inc. (PFE) and Sigma-Aldrich Corp. (SIAL), and now is home to more than 15,000 employees at 400 more ventures, particularly in plant and life sciences.

Research, yes, for sure.   The number of jobs in the St. Louis area at “scientific research and development services” (including biotech) rose from  3500 in 2002 to 8300 in 2008.  That increase of +5K is  a fantastic performance, under the circumstances.

But research alone is not enough to make up for the loss of manufacturing jobs (down 28K over the same period).  You need production of real products, which require real production workers. Unfortunately,  employment in “pharmaceutical and medicine manufacturing”  in the St. Louis metro area appears to have peaked in 2006 (based on data through 2008). In November 2009 Pfizer announced that it was cutting 600 out of 1000 employees in its St. Louis research facility.

In fact, the “Biotech Strategy” used in St. Louis and elsewhere would have produced much bigger job gains if the research had been more successfully commercialized over the period.

Now let’s turn to trade. China, India, and the rest of the developing countries sell the U.S. an increasingly diverse array of goods and services. What does the U.S. provide in return? There’s the usual list of suspects, such as commercial aircraft (which is increasingly drawing on parts made outside of the country).  But they are not enough to avoid a huge trade deficit, even now.

The logical candidate for the next wave of U.S. exports should have been biotech products and knowledge. The U.S. is the acknowledged world leader; the research is expensive and lengthy; the production processes are complicated, delicate, require skilled technicians,  and cannot be easily offshored. And the category–treatments to deal with major medical problems–is something that everyone wants.

But what happened? Without compelling new biotech products, the big pharma companies were “me-tooed” to death. In fact, pharma trade went from roughly balanced to a big deficit.

Okay, it must feel like I’ve punished you all with negativism. I promised up top that I would be guardedly optimistic.  Here’s how I see it: The U.S, and more broadly the “advanced” countries, did what they were supposed to. They invested heavily in the cutting-edge new technology, biotech, which promised to make the biggest difference in the most important areas–health, food, energy.  The research has gone great, tremendous progress has been made. Commercialization thus far has sporadic–but the gap between research and commercialization is one which has been repeatedly bridged in the past. So I’d say that the odds are good that the Human Genome Project will have a significant economic impact over the next 5-10 years.

The big danger–that there are structural impediments in the U.S. innovation system which are slowing down commercialization. These include a lack of communication between academic scientists and pharma companies; excessive regulation by the FDA; a misguided patent system; and excessively short term thinking at pharma companies.  (You can add your own possibilities to the list).

I’m thinking about putting together a conference called “Fixing Pharma,” with the goal of identifying structural impediments to successful application of genomic knowledge. That’s just so important economically.  Anybody who wants to know more, drop me a note.

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