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Money ScienceToday we are going to take a quick look at the impending death of most of humanity. No, it's not a joke, it is a definitive possibility. It so happens that up to very recently (1928) antibiotics did not exist. What are antibiotics? They are chemical substances that when taken internally (i.e. ingested or injected) they are deadly to bacteria (not viruses) but (mostly) harmless to us.

Up to 1928 bacterial infections were one of the leading causes of death world-wide. Now days this seems quite silly. Almost nobody dies because of bacterial infections. Doctors prescribe antibiotics as if they were going out of style…which they are. Chest infections, sinus infections, ear infections, lacerations, wounds and so forth, they are all treated with antibiotics.

Unfortunately, bacteria are quite clever. Well… not really. They are actually "promiscuous" and "unstable" when it comes to DNA, and therein lays the problem. As bacterial DNA changes faster than we change underwear, they improvise, they adapt, they overcome…antibiotics. And this is not good.

Normal bacteria do this naturally. They evolve rapidly to become antibiotic-resistant. This trend has been long going but now we are coming to the end of the road. It so happens that we are running out of effective antibiotics. The old ones do not work any longer, there are very few "third generation" ones and research into new ones has almost stopped.

REINFORCEMENTS ARE ON THEIR WAY

That's it. We are collectively screwed. We are veritably doomed! Or not…

Not to worry! The government is here to help.

US and UK governments and the WHO are "encouraging" other governments and organizations to develop new antibiotics. There have been suggestions that a minimum of 3.5 billion GBP will be required.

This "encouragement" has already bear fruits. GlaxoSmithKline has signed a partnership with the US Department of Human Services Biomedical Advanced Research and Development Authority to develop new antibiotics. Others are sure to follow.

And there you have it, your tax money at work. Proof positive that governments are here to help… or would you like to know the truth?

The truth is that most pharmaceutical companies stopped researching antibiotics because it became incredibly expensive to do so. There were even complaints of 10+ years worth of R&D and tens of millions (USD, GBP, you choose) of costs to develop a single new antibiotic.

THE PIECE OF THE PUZZLE

Pharma companies focus on what they called "low hanging fruits". This is, so-called "new chemical entities" (i.e. new drugs) that are obvious, cheap and have a quick payoff. Antibiotics were not in that list; however, new ones were not needed either because the old ones were working just fine. Again, the free market at work. As basic needs were satisfied (i.e. antibiotics) pharma companies focused of less urgent and less widespread needs.

But now the situation has reversed. It is obvious that new antibiotics will be the next cash cow. Again, the free market at work. Pharma companies have identified this to be so and they are doing something about it. What are they doing? They are taking money from governments to fund their private research. Seems fair, right? Well… no. In order to understand why, we need to understand that big pharma companies are very, very expensive. Their R&D and manufacturing costs are exorbitant; and yes, their profits are also very large. Part of these costs are caused by the ridiculous limitations and regulations that governments impose on them. This is a vicious circle. Governments impose regulations which cause major increases in costs which then require Government subsidies to minimize their impacts. This in turn encourages Governments to create more ridiculous regulations and we are back where we started.

This is one of the problems.

The other is that due to the existence of Governments willing to subsidize big pharma companies, these companies are "willing" to accept those subsidies thus perpetuating the vicious circle (and more importantly their exorbitant spending habits).

The very existence of governments makes it possible for pharmaceutical companies not to be effective and efficient. When companies are given free money (in one form or another) they become dependent upon this money and so they lose perspective and focus. They lose the urgency and thriftiness that free markets would normally impose. Companies become dinosaurs on their way towards extinction… extinction which is constantly delayed due to government money injections.

But that's OK with you. You don't believe us, right?

COUNTEREXAMPLE

Fair enough, let's take Cuba as an example. Cuba? The communist state? Example of a free market? Well… not exactly. Allows us to explain.

Cuba is a communist country. As such its economy is "not viable" as in non-sustainable. Until the fall of the USSR, Cuba operated solely on USSR support. Once this support was gone, they began to shift towards free markets mostly through their tourism industry. However, what is clear in this scenario is that Cuba is not exactly a wealthy country. Most Cubans live on 20 USD/month, yet their life span is roughly equivalent to any EU or North American country. It is obvious that Cuba achieved that goal with far less money than the rest of the "free world". And this is a strange example of a communist process that actually worked. There aren't too many of these ones and we are the first ones to give them credit where credit is due.

Does this mean that we are suddenly prising communism? Not at all. We have always said that communism does not work and this is still true in Cuba. We have always said that communism is incredibly inefficient, and this holds in Cuba. But, we have also said that communist countries are indeed capable of producing many things and be successful in some of them. It could not be otherwise because communist entrepreneurship depends on people and people are the same world over. The problem with communism is that it is not sustainable and produces low standards of living. On average. But averages are produced by many data points and some of the will be outstanding. Cuban health care is one of those.

But why would we mention this example as an example of the free market in action? Because the conditions in which Cuban researchers operate are extremely tight. They don't have the money that monster pharma companies in the west receive from governments. As such Cuban researchers had to do more with less. They had to outthink diseases instead of outspending them. And this is the free market way. As such they developed their own vaccines for meningitis B, hepatitis B, monoclonal antibodies for kidney transplants, a new (investigational) vaccine for lung cancer and a long list of other immunology-related medications.

The Cuban approach of "do more with less" is entirely consistent with free markets. Actually, it is the hallmark of free markets. The old saying that "necessity is the mother of all inventions" holds true, free markets being masters at creating necessities. Ironically enough, it is the existence of governments that enables big pharma companies to be fat and inefficient. Big pharma is constantly gaming governments to ensure highly demanding regulations are in place (high entry barriers for competition), subsidies are received (mostly by them), monopolistic laws are passed (patents to protect them against competition) and now monopolistic and restrictive treaties are imposed (such as the TPP, the Trans-Pacific Partnership). None of these "initiatives" would have taken place in a true free market, where big pharma would be unable to "run to mommy" for help. A free market is a classic "swim or sink" scenario and this scenario has the tendency to focus quite sharply on the realities of life such as the "necessities" of customers and the "necessities" of companies. A free market fosters creativity; more creativity for less investment and we can see this in Cuba. Governments foster the exact opposite.

And so we will have Government-Private Sector "initiatives" and "cooperation" and "subsidies" and other boondoggles which will do nothing but delay the much needed fourth generation of antibiotics.

CONCLUSION

So the next time you find yourself infected by a nasty bug and the doctor tells you that there is nothing that can be done about it and that you have to "hope for the best", you will know who to blame. Mind you, you may not mind this situation at all because by then you may be already dead. But that's OK. You will go happy to your grave in the knowledge that Governments are "doing something about it". Oh, we forgot, would you like that phrase engraved on your tombstone in Arial or Italic fonts?

Note: please see the Glossary if you are unfamiliar with certain words.

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