What Bill Gates Says About Drug Companies

Matthew Herper
November 10, 2011
What Bill Gates Says About Drug Companies

Most of what Bill Gates said to me over the course of two interviews found its way into the cover profile of him I wrote for the most recent issue of Forbes. But one set of ideas didn't really make it: his unique and thoughtful perspective on the pharmaceuticals industry.

Few outsiders have had as clear a view of the drug business as Gates. Over the past decade, Gates has relied on giants like MerckPfizer, and Sanofi-Aventis to provide the vaccines that are a lynchpin of his charitable work. He's had a long-standing collaboration with GlaxoSmithKline over a malaria vaccine. The Bill & Melinda Gates Foundation recruited its last research head, Tachi Yamada, from Glaxo, where he had headed drug R&D. During his tenure, Yamada helped the Gates Foundation develop a meningitis vaccine from scratch to help people in parts of Africa. Yamada's replacement, Trevor Mundel, hails from Novartis, where he ran clinical trials – a sign that some industry insiders say means that the Gates Foundation may be heading even further into the development of new vaccines and drugs.

After a conversation with Gates, one wonders if the drug industry has hurt itself by focusing too much on $100,000 cancer drugs and blockbuster pills that can be sold to millions, and not enough on products that are far more cost-effective. And then, of course, there's the fact that the entire $600 billion pharmaceutical industry has spent the past decade in a research drought, getting comparatively few new medicines to market.

"Fortunately, our vaccine discovery rate has been better than the recent drug discovery rate of pharma," Gates said. "And, you know, pharma doing well is important for the world, so hopefully their discovery rate will go up."

Ten or fifteen years ago, nobody in the drug business would have held up vaccines as profit centers. That was the age of Pfizer's Viagra having the fastest drug launch in history, of the even bigger cholesterol-lowering medicine Lipitor becoming the best-selling drug in history and forcing Pfizer's $116 billion buyout of partner Warner-Lambert, ushering in a new age of megamergers that experts believe may have squelched innovation in drug company labs.

Says Gates: "If you 15 years ago had said, 'How important are vaccines to these various businesses?' They would have said, "You know, our drug businesses are going to do so well. And vaccines are so tough, particularly because of liability issues.'"

But vaccines, Gates argues, "actually have more impact on health than all the new drugs." And the pharmaceutical businesses didn't do as well as expected. For Pfizer, for instance, a big bet on a Lipitor follow-up went down in flames when the drug turned out to increase, not decrease, the death rate. But now Pfizer is betting big on a vaccine, called Prevnar, against the pneumococcus bacteria. After Lipitor loses patent protection, Prevnar may well be the company's top seller.

Gates thinks it is "ironic" that vaccines have done so well, along with AIDS drugs that have been a boon to companies like Gilead, one of the biggest biotechnology companies, and Merck, while heartburn medicines, cholesterol drugs, and antidepressants have failed to pay off.

When it comes to cancer drugs like Avastin and Erbitux, some of the biggest sales successes of the past decade, Gates seems unimpressed. "There's always this divergence between what's financially attractive and what has dramatic profit and the number of life years that you really save." Take for instance, Novartis' Gleevec, the crown jewel of targeted cancer drugs that can put chronic myelogenous leukemia and gastrointestinal stromal tumors into remission. "Do the math on that versus, says, preventing Parkinson's or preventing Alzheimer's. It's in a different universe."

The good news, to Gates' mind, is that right now people are making money in the vaccine business. That means that more research is getting funded, and more innovation is happening.

"The rich world companies do more," he says, "and that means the Chinese and Indian companies see that and they do more. You know, so it's a pretty good virtuous cycle right now in terms of focus on vaccines. "

Part of the drug industry's problem, though, is that the process of inventing new drugs and vaccines has gotten more complex. Forty years ago, Leo Sternbach, a Roche scientist, could invent whole swaths of anti-anxiety drugs, and Merck vaccine researcher Maurice Hilleman, one of Gates' heroes, could develop the bulk of the vaccines still given to children today. "It's like the breadth of software I got to do at Microsoft," says Gates. "Things become more specialized and, you know, and more complex. So the idea that one guy does, like, ten different vaccines, including multiple iterations of them. And the combinations of them. He was on a roll. He got Merck into that. He figured out how it worked. He had the guts to go and try things."

The sad reality: as innovation piles on innovation, doing something new and different only gets harder.