Litigation, regulation, price controls, and the avian flu. [This reminds me of Atlas Shrugged]

"We are not prepared for a pandemic,” Health and Human Services Secretary Michael Leavitt said earlier this month. We do, however, face a significant risk of being hit by one. A new strain of the avian flu, known as H5N1, has killed at least 60 people in Asia since 2003. So far, humans cannot pass it to one another — virtually everyone infected caught the virus from a diseased bird.

The risk to people is nevertheless grave. The 1918 Spanish flu epidemic, blamed for 50 million deaths, also started among birds, but it mutated and spread to humans. Scientists fear the same thing could happen now. As an expert epidemiologist recently told the Wall Street Journal, “It’s not a question of if, but when.” The Centers for Disease Control (CDC) estimates that an avian-flu pandemic could kill between 89,000 and 207,000 Americans. There is no publicly available vaccine for the new strain.

Now that the threat is upon us, the administration says it plans to bolster vaccine production in the United States and purchase huge quantities of antiviral drugs. But the question is: Why weren’t we ready in the first place?

The United States once had a large vaccine industry. In 1957, 26 companies supplied the market for standard children’s vaccines — but now only four companies do. Three decades ago, at least 10 U.S. firms manufactured vaccines to treat seasonal flu. By the late 1990s only five remained. And in 2004, the entire U.S. flu-vaccine market depended on just two companies — a French firm with a factory in Pennsylvania, and a California firm with a factory in Great Britain. Hence, our sense of crisis during last year’s flu season, when contamination at the British plant curtailed supply.

The only avian-flu vaccine likely to be available soon is made by the French company Sanofi-Aventis — the same firm we rely on for seasonal flu vaccines. The Sanofi-Aventis vaccine against H5N1 is undergoing preliminary U.S. government testing and showing early signs of success, but it’s not clear how soon it could be available. California-based Chiron — the one with the contaminated British plant — says it will have an H5N1 vaccine ready for testing by the end of the year.

To develop new and better flu vaccines is well within the reach of science. So why don’t U.S. drug companies, which dominate the global medicine market, make vaccines?

First, vaccines are subject to excessively strict screening by the Food and Drug Administration (FDA). So, for example, FluMist, a flu vaccine delivered via nasal spray, has only been approved for use for people aged between five and 49. It is our youngest and oldest, however, who run the greatest risk of catching the flu. This means that the cost of researching and developing new vaccines is needlessly expensive.

Second, vaccines are very expensive to produce. Using one older method of making flu vaccine, it costs about $300 million to build a factory and takes almost five years to get it completed and inspected. The company that makes FluMist, Maryland-based MedImmune Inc., could produce 20 million doses a year, but only about two million would get by the regulators. Because flu vaccine doesn’t keep, in 2003 MedImmune was forced to discard four million doses of its product.

Third, out-of-control lawsuits have scared companies away from developing and producing vaccines. For example, a researcher claimed in the 1970s that the whooping-cough vaccine caused brain damage. More than 800 lawsuits were subsequently filed in the U.S. against vaccine makers. Scientists later proved conclusively that there was no link between the vaccine and brain damage, but by that time the manufacturers were already out of business.

If companies stood a chance of recouping their investments, all these high costs of doing business might be manageable. Government price controls, though, make getting a return next to impossible. The Vaccines for Children Program was the final nail in the coffin of the American vaccine industry. Established by the Clinton administration in 1994, it established a single-buyer system for children’s vaccines. The government now buys 57 percent of all childhood vaccines, forcing steep discounts on manufacturers.

In short, litigation, regulation, and price controls have strangled our ability to prevent deadly diseases, among them avian flu. It doesn’t have to be this way. America leads the world in making medicine. Pharmaceuticals created by U.S. firms have made our lives longer, more comfortable, and more productive in ways our forefathers couldn’t have imagined. People everywhere clamor for AIDS and cancer medications invented in the United States. If we remove the red tape that has choked off vaccine production, we could have a healthy vaccine industry too.

Government agencies which control which recipies can be sold have a chokehold that restricts our abilities to respond as individuals. It is true in the area of fuel, too. I am interested in the man who is making his own diesel fuel in Berlin by recycling paper and plastic, but it would be illegal to use it in my car, here. I think that is backwards.
Government is supposed to do what we say, not tell us what to do.

Actually, unless you are willing to tolerate a situation where vaccine production is likely to partially or completely fail from time to tome, the production of flu vaccine is a classic example of “market failure”, straight out of Econ 201:

1) You have to have multiple sources of flu vaccine, otherwise you will eventually find yourself in the situation encountered during 2004 flu season, where a given source fails for technical or managerial reasons and you are short tens of millions of doses of vaccine.

2) Between these sources you must have a projected over-production of vaccine, sufficient to cover the shortage if one (or more) of them fails.

3) The overproduction of such vaccine cannot be sold in the general economy in years where all manufacturing efforts succeed, as there will be more vaccine than potential customers.

4) As the vaccine is re-formulated every year, the surplus vaccine unsold in one year cannot be held in inventory for sale the previous year.

Therefore, only two methods are available to insure a sufficient production of vaccines:

1) The government can formally or informally allow the vaccine manufactures to establish a situation of regulated monopoly, in which they agree to establish a price level and allocate market share in such a manner that overproduction does not depress prices below production costs and that competitive pricing of overproduced vaccine does not drive manufactures from the market.

2) The government can establish a market for overproduced vaccines by directly purchasing a guaranteed quantity of overproduction on a quote basis to insure multiple suppliers.

On close examination every scheme to insure a reliable supply of vaccine is ether a variant of one these two methods or a combination of both of them, and none of them look much like a Randian “free market”.

These problems may be self correcting. One just has to consider the time scale involved. Say a flu pan-epidemic would break out and there is not an adequate amount or no vaccine. A lot of people would die - old geezers like myself, young children, persons with compromised immune systems. People would make tons of money burying bodies. Then, someone would start a vaccine company again. Now however the persons that objected in the first place are dead, or perhaps their objections will be blunted. Then we will start to protect the ordinary person again with commercial vaccinations.

Note: During this time persons in high government positions and persons with enough money to travel anywhere in the world to obtain medical care will survive. However, I estimate, that any population perturbation will smooth out in about 150 years.

Look on the good side. Consumption of petroleum would decrease, the sweet little animals and the large predators could move back into their original range, climatic warming due to CO2 in the atmosphere would slow down or end. The advantages are endless. One only has to look for them. Dead men tell few if any, tales.

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