When you combine healthcare with investing, a moral dilemma is inevitable
23-Apr-2018 •Dhirendra Kumar
Here's a spate of headlines that appeared last week. Goldman Sachs asks in biotech research report: 'Is curing patients a sustainable business model?'; Goldman Sachs warns biotech clients that curing patients may not be 'sustainable'; Goldman Sachs Says Curing Diseases May Not Be Economically Viable; Financial giant questions if curing diseases is bad for business.
I didn't see this being covered in the Indian media so perhaps few of my readers will be familiar with the details in the news stories. Here's what the Wall Street banks' biotech report titled 'The Genome Revolution', shared with its investment clients, said: 'The potential to deliver 'one shot cures' is one of the most attractive aspects of gene therapy, genetically-engineered cell therapy and gene editing. However, such treatments offer a very different outlook with regard to recurring revenue versus chronic therapies. While this proposition carries tremendous value for patients and society, it could represent a challenge for genome medicine developers looking for sustained cash flow.'
The report then goes on to discuss the example of an American company called Gilead Sciences, whose treatment of the deadly disease Hepatitis C has cure rates in excess of 90 per cent. Goldman Sachs points out that Gilead's US revenues hit a high of $12.5 billion in 2015 and have since fallen to less than a third of that. In fact, it points out an even bigger problem with such an effective medicine: ...the success of its hepatitis C franchise has gradually exhausted the available pool of treatable patients ...In the case of infectious diseases such as hepatitis C, curing existing patients also decreases the number of carriers able to transmit the virus to new patients, thus the incident pool also declines.
Do you understand the implications? Curing diseases is bad for businesses, and curing infectious diseases is doubly bad because cured patients don't infect others and create more patients. The implication is clear, and I don't really need to spell it out.
As an investment analyst who has always promoted equity investment, I cringe at the idea of what this document implies about the activity of equity investing, and the profession of investment research. Goldman's research report was heavily discussed on various online fora. There were two dominant kinds of responses, one at each end of the spectrum. There were those who said something in these lines, "What else would you expect from a capitalist scum?" Opposing them were those who said, "What else would you expect from a competent equity researcher?" Neither of the two types of responses admitted to any surprise at what was happening here.
However, I think that a lot of people on both sides would agree that there is an inevitable and unavoidable crisis when you combine healthcare with returns-on-investment driven business. A few months ago, when the dengue 'treatment' provided by Fortis Hospital to a child was in the headlines, I had written about this issue. At the time, I'd written that I did not know anyone, literally anyone, who was not of the firm belief that there is a huge moral and ethical crisis in the way private hospitals are run in India. Hospitals are in the business of taking as much money as possible from their customers. That's roughly true of any business. The problem with hospitals is that--unlike other businesses--they get customers who suffer from a severe information disadvantage, are often facing an emergency situation, and are generally not capable--at that point--of going to an alternative, competitive provider. A hospital customer in India now has more in common with a kidnapped victim than the customer of a business.
This crisis has perpetrated in all aspects of healthcare, even though it's at its most severe in hospitals. So many of us firmly believe that goods and services provided by private enterprises are intrinsically superior and good for the customer. However, it should be clear to anyone thinking independently that this is not true for healthcare. Moreover, investors who are hoping to earn money out of these businesses should do so with the self-awareness that many of these businesses are morally compromised in a very fundamental way.