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Obama Pharmaceuticals, Inc.
The president wants the government to develop drugs.


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Fresh off its successes in the green-energy patch, the Obama team is turning its investment skills to the life sciences. Last Friday, President Obama announced his intention to increase the federal government’s involvement in the business of biotechnology. 

His plan is for a new federal center inside the National Institutes of Health (NIH) that would be focused on the development and commercialization of new drugs. The National Center for Advancing Translational Sciences (NCATS) would engage in early drug-development work, eventually handing off programs to private companies for completion. In return, the government would take a guaranteed royalty stream on drugs that eventually made it to market. The center would get its seed money by tapping other NIH programs. Longer term, the administration’s plan is to provide billions in dedicated federal funding to the new drug center.

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Several legislators have already questioned whether NCATS is needed. Rep. Denny Rehberg (R., Mont.) — chairman of the Labor, Health and Human Services, and Education Appropriations subcommittee, which funds the NIH — has said NIH should not search for a director for NCATS until Congress has given its approval. Last week, the NIH began circulating an advertisement for the new director’s job anyway.

The NCATS idea reflects the belief of the president and NIH director Francis Collins that the for-profit drug industry has ignored promising areas of science because these opportunities appeared financially dubious. Collins has said that government can plow scientific fields that profit-driven companies ignore. He suggested during an interview on CNBC earlier this year that NIH drug developers would also get a break from regulators at the Food and Drug Administration. His reasoning seems to be that government regulators could place more trust in government drug developers.

The president’s move to get the federal government further into the business of developing new medicines is coming at a time when his regulatory agencies have been badly squeezing the American life-science sector. The longer and larger development programs mandated by skittish regulators have made the cost of developing drugs dramatically higher — with fewer new programs getting funded, and a smaller number of drugs reaching the market as a result.

These trends, in turn,  have discouraged private investment. Companies in the U.S., Europe, and Canada raised slightly more than $25 billion in 2010. This is about the same amount of money that they raised five years ago, but more of the money this time came in the form of profitable companies’ entering large debt transactions in a low-interest-rate environment, not in the form of true venture capital to start new companies.

In other words, venture investors are concentrating money in fewer companies because developing and launching new drugs has gotten so expensive. The result is far fewer new biotech initiatives. Five years ago, biotechnology companies raised almost $5 billion in venture capital that went to early-stage ventures. Last year, new companies raised about half that amount.

The new Obama drug initiative is of a piece with the administration’s abiding faith in the virtue of government investment as a trump to private entrepreneurism. At the core of this religion is a faith that that the political allocation of capital leads to better, or at least more “equitable” outcomes.

The achievements of the NIH are monumental, but its domain is basic science. This involves the discovery of scientific principles that can lead to new avenues of practical research. NIH funding has led to the discovery of molecular signals that often became the targets for new drugs. But the NIH was never in the business of actively developing the drugs themselves. That was always the work of the private sector.

For one thing, NIH has never been very good at drug work. The government already spends $30 billion a year on life-science research through the NIH — more than $50 billion once money from other agencies is factored in. Yet by its own count, the NIH has helped to discover only 84 drugs over the past 60 years. By comparison, in recent years, the private sector has spent about $60 billion and launched more than 30 products annually.



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