2011-10-07

How Capitalism Drives Human Health

If you wonder why I place such a high level of importance on capitalism's ability to supply us with health care services, perhaps I can use this Bloomberg new story as an illustration.  

Bloomberg reports that venture capital firms are pulling out of biotech investments and moving that money overseas because the US regulatory process for pharmaceuticals has become so lengthy that waiting that long is no longer profitable for investors. 

Venture capital firms are investing less in experimental drugmakers and medical device makers because of what they say are regulatory hurdles, a survey found.

Almost 40 percent of 150 venture capital firms that responded to the survey have decreased their investment in life sciences during the past three years, the National Venture Capital Association said today in a statement. The same proportion expect to continue to reduce their spending on these companies over the next three years, a potential $500 million loss, the association said.
“The process has gotten to be so long, and the capital required so deep, that it’s becoming more and more difficult to generate venture-type returns and therefore make it worth your while to do it,” said Terry McGuire, co-founder and general partner of Polaris Venture Partners and past chairman of the association, in an interview.
For all the silly moralizing we can do about how producing medicine "shouldn't" be about profit, the fact of the matter is that researchers and investors are different people.

Researchers have a medical and scientific interest in producing innovative chemicals that preserve human life. Despite all of that, their research costs money. Where does the money go? Well, part of it goes to the researcher's own grocery bill. Developing new medicines is a process that literally takes years. Researchers need to eat during that time. They need clothing, they need shelter, they need to pay their families' expenses. They aren't just "greedy," they actually need to survive while they pursue their research.

Another part of the money goes toward purchasing the raw chemicals and machines used in the research itself. So there are basic costs involved here. You can't just whip up a batch of agar and start cultivating "medicine." It takes controlled conditions and highly expensive laboratory equipment that needs to be maintained.
Now, those of you who believe medicine should exist without profit should ask yourselves how those researchers are supposed to cover these costs - which work their way well into the millions of dollars - without the aid of profit-seeking investors. 
Those investors do our society a valuable service by providing venture capital into promising new technologies, such as medicine. Of course, if medicine provides no return on investment, the investors will not invest. Why lose money? Why deprive other valuable new technologies of support and investment? 

Unfortunately, if capitalists stop investing in new medicine, highly refined new medicines will cease to be produced by anyone at all. 

It's a scary thought for someone who yearns to live to see the day when diabetes is cured.