Three months after the end of the war in the Pacific, in December 1945, Alexander Fleming, Howard Florey, and Ernst Chain won the Nobel Prize in Medicine for their roles in the discovery of penicillin. Few outside the British medical research community knew that by then the three men had fallen out over mutual recriminations about which of them deserved most of the acclaim. By the time the Nobel was awarded, King George VI had knighted Fleming and the Australian Florey had been given a Knight’s Batchelor. Chain recalled that during the frenzied wartime research at Oxford, he felt as if “Florey’s behavior to me… was unpardonably bad.”1 Except for exchanging a few letters, Florey and Chain never spoke after the Nobel. Meanwhile, Florey stopped talking to Fleming after the British press had lavished the lion’s share of credit for the drug on the Scottish researcher. Florey thought Fleming, who alone received honorary doctorates and medical association awards for penicillin, had not tried to correct the record.2 As for Norman Heatley, who had been a key member of the Oxford team, being left out of the Nobel was the ultimate slight (it took fifty years before Oxford acknowledged his role by bestowing the first honorary Doctor of Medicine degree in its eight-hundred-year history, and today the penicillin researchers’ original lab is the Heatley Laboratory).3 I 4
Many in the Oxford team had expected that since the British and American governments had provided the funding, most of the revenue that came from sales would go to public research for other significant drugs.5 Some money, it was expected, might even find its way to the financially strapped academic research departments that had done the critical work when drug companies were uninterested. But pharma had no intention to share the spoils. The government had not insisted on any conditions to the tsunami of money it had doled out during the war. George Merck’s view was typical of other CEOs: they might not have discovered penicillin, but without the ingenuity and capability of American pharmaceutical firms, the Oxford team would have still been conducting failed lab experiments to increase the yield. The companies deserved every dollar of profit, he contended. There was so much money to be made in penicillin with a surging worldwide demand that none of the pharma chiefs complained at the end of the war when Congress passed a law transferring quality control for the drug’s production from the military to the FDA.6
The ways in which American pharma firms exploited penicillin after the war were the envy of foreign competitors. The British medical luminaries who had scolded Chain as “money-grubbing” when he had raised the patent question were incensed after the war when a U.S. government microbiologist, Andrew Moyer, acquired a U.K. patent for his method of manufacturing penicillin. Moyer was an anti-British isolationist who had worked with Oxford’s Heatley at the Peoria lab and made his time there hellish. Chain’s wartime prediction—without a patent that Britain would have to pay royalties to use the drug—came true.II7 Sir Henry Harris, who had worked with Florey, said: “It is often said in the press here that they got the penicillin out at Oxford and the Americans pinched it.”8 In the U.S., Merck, Pfizer, Squibb, and others aggressively pursued “process patents” that protected unique methods for synthesizing, extracting, purifying, or manufacturing a drug. Eleven American pharma firms that manufactured penicillin after the war owned a remarkable 250 such patents.9
British pharmaceutical firms, meanwhile, were infuriated that the American government sponsorship of a British invention had given a handful of U.S. firms a critical several years’ head start on a blockbuster drug. Pfizer had concentrated on penicillin to the exclusion of other drugs in its pipeline. That paid off handsomely after the war since it was responsible for nearly half of the world’s production. Squibb had doubled in size by becoming the only firm that manufactured, packaged, and sold penicillin directly to hospitals and pharmacists.
At the start of World War II, German pharmaceutical firms accounted for 43 percent of all drug sales.10 After the war, as German industry struggled to recover, American pharma firms, fueled by their dominance in antibiotics, took the top spot, with nearly half the world market. In the U.S., fifteen firms selected by the War Production Board had 80 percent of all drug sales and a stunning 90 percent of profits.11 Even sixty years later (2005), the top ten American pharmaceutical companies traced their rise to their selection for the wartime penicillin program.
The unprecedented federal role in penicillin also had an unintentional consequence for a handful of companies. The U.S. Department of Agriculture had acquired thirty-two key patents on fermentation methods.12 The government’s priority was producing a lot of penicillin, not making money. So, the USDA licensed those patents free of charge to companies interested in making the drug. The pharma firms had been granted a national security exemption from antitrust laws to encourage sharing their research with one another. When they developed mass fermentation for penicillin, it was a departure from the low-yield, synthetic chemistry that had defined the industry. Before World War II, no drug firm had imagined there could have been such a tremendous worldwide demand for any single medicine, much less that it could be mass-produced on an unprecedented scale. The influx of millions in direct federal subsidies changed everything. Drug companies expanded and retrofitted their plants with the large costly equipment required for commercial-scale production. Thirty-foot-tall steel tanks held penicillin mold, while submerged fermenters sterilized it, and enormous vats aerated the cultures at volumes exceeding ten thousand gallons to ready the drug for clinical use. In total, the pharma firms spent $23 million to build sixteen state-of-the-art antibiotics plants. Due to a special accelerated amortization provision, they recovered half their investments with savings on federal income tax. The government also sold to the drug companies—at less than half their investments—the six state-of-the-art penicillin production plants it had built at taxpayer expense during the war.13
Although penicillin had remade the industry, pharma companies were already looking for new and better drugs. That is because penicillin is a narrow-spectrum antibiotic, meaning that it is effective only against a limited range of bacteria (so-called Gram-positive).14 While it was successful against many deadly illnesses, it failed to work against a long list of often lethal Gram-negative bacterial infections, such as tuberculosis, typhoid, cholera, meningitis, gonorrhea, salmonella, and certain pneumonias. The postwar Holy Grail for American pharma was to find a broad-spectrum drug, one that treated illnesses caused both by Gram-negative and Gram-positive bacteria.
That turned out to be streptomycin.15 It was discovered as a microbe in a farmyard soil sample in 1943 by Selman Waksman, a Rutgers University soil microbiologist, and a PhD graduate student, Albert Schatz.16 Waksman, who coined “antibiotic” the previous year to refer to chemicals taken from microorganisms that destroyed bacteria, was searching for a tuberculosis cure.17 The lethal airborne pathogen dubbed the “Great White Plague” had killed an estimated two billion people in the preceding two centuries. Neither Waksman nor Schatz was medically qualified or licensed to do animal experiments. Waksman figured that since dangerous bacteria do not survive in soil, there were undoubtedly countless undiscovered microbes in dirt that killed bacteria. Since many of those antibiotic-producing organisms might also be toxic to humans, Waksman needed to conduct clinical tests. He used Merck’s much better equipped laboratory only fourteen miles from Rutgers to extract enough of his drug to study at the Mayo Clinic. Those tests demonstrated that streptomycin might be the long-awaited first broad-spectrum antibiotic.18
The Office of Scientific Research and Development used its extraordinary wartime powers to classify it along with penicillin as a national security medication. That opened the federal money pipeline, fueling a crash research and development program. Three quarters of the drug’s production in 1945 and 1946 went to the armed forces, and the remainder was set aside for drug trials at the National Research Council, which coordinated technological and scientific research between the military, private research laboratories, and universities.
Merck’s contract with Waksman gave the company exclusive rights to any drug produced from his research. That meant Merck would have monopoly control of streptomycin once the government freed the drug for commercial sales.
As the war progressed, streptomycin was the only medication under development that had a chance of combating biological weapons—anthrax, yellow fever, or bubonic plague—that many feared the Japanese and Germans were developing. Besides his role on the National Research Council, George Merck was the chief of a secret civilian agency, the War Research Service. It was responsible for developing the American stockpile of bioweapons (Merck was later given the nation’s highest civilian award, the Medal for Merit, for his wartime service).19 Waksman appealed to George Merck, contending that no single company should have sole control of streptomycin as it was too important a public health discovery (The New York Times listed the streptomycin patent as “one of ten that shaped the world”).20 Merck agreed. In August 1944, he canceled the exclusive arrangement. The drug’s rights returned to Rutgers.21
When the government lifted its controls on streptomycin at the end of 1946, eleven American pharma companies, including Merck, Squibb, Lilly, and Pfizer, began manufacturing and selling it. The early enthusiasm that it might eliminate tuberculosis had ebbed as it had proven capable only of controlling, not eradicating, the disease. However, clinical trials had demonstrated it was effective against meningitis, typhoid, and lung and bloodstream infections.22 Streptomycin also tested as far less toxic than the sulfa drugs.23
Merck’s attorneys, meanwhile, in early 1945, had filed an application for a patent in the names of the two Rutgers scientists, Waksman and Schatz. Until then, courts and the Patent Office had ruled that “products of nature” were in the public domain. The Patent Office had raised that prohibition when the streptomycin application arrived.24 And while the application was pending, the Supreme Court issued a 7–2 decision denying the request of a company to patent a bacterial inoculant. The majority’s decision seemed conclusive: “[P]atents cannot issue for the discovery of the phenomena of nature. The qualities of these bacteria, like the heat of the sun, electricity, or the qualities of metals, are part of the storehouse of knowledge of all men. They are manifestations of the laws of nature, free to all men and reserved exclusively to none.”25
There was a small but vocal minority of American medical researchers who thought it was immoral for any firm to profit from a drug developed from nature. They contended that medications needed to stop fatal infections or crippling diseases should be royalty free. The best example of this noble view was the polio vaccine that stopped a disease that had previously left tens of thousands of children paralyzed annually. Edward R. Murrow asked the vaccine’s inventor, Jonas Salk, who owned the patent. “Well, the people, I would say. There is no patent. Could you patent the sun?”26
It was true, admitted Merck’s attorneys, that if all that was before the Patent Office was a microbe found in farm soil, then the patent should be denied. However, scientists and chemists had reworked that single microbe and had made “streptomycin available in a form which not only has valuable therapeutic properties but also can be produced, distributed, and administered in a therapeutic way.” The unwavering conclusion of the Rutgers scientists? “This antibiotic is not a product of nature.”27
Every pharma company knew that the issuance of a patent would change their industry. Earth is a microbial planet. For several billion years before humans appeared, trillions of microbes too small to see existed in everything from hot springs to Arctic snow, soil, rocks, oceans, air, plants, even on and inside animals. As with streptomycin, many of those microbes might turn into a new wonder drug. It meant that the industry, long mired in manufacturing a mishmash of ointments, plant extracts, and biologicals, all of which only occasionally alleviated symptoms, would have an opportunity to produce a range of drugs that delivered cures for the deadliest diseases. All drug companies embraced this theory.
It took three and half years, until September 21, 1948, for the Patent Office to grant Waksman and Schatz the first ever antibiotic patent, No. 2,449,866, for “streptomycin and process of preparation.”28 Since the two scientists had already assigned their commercial rights to Rutgers, the school was free to license it to drug companies in return for a royalty.29 III 30
At the close of 1948, penicillin and streptomycin accounted for 99.7 percent of all U.S. antibiotic production.31 Furious research had been under way for several years as pharma firms hunted for new broad-spectrum antibiotics they could patent. The industry was about to enter a new era in which a flood of “wonder drugs” would transform the way pharma did business.
I. A similar dispute over credit for insulin plagued the 1923 Nobel Prize in Medicine. It went to only two of the three researchers listed on the original Canadian patent as inventors.
II. Moyer could not profit from the patent developed in Peoria since he was a government employee. However, he sold his foreign rights in the patent to Merck, Squibb, and Commercial Solvent. Because of the outcry, the British government created the National Research Development Corporation to make certain that discoveries and inventions by U.K. academics received patent protection.
III. The Nobel Prize in Medicine in 1952 went to Waksman for the discovery of streptomycin. It highlighted the tremendous rift between its creators about who deserved credit. The U.S. Patent Office listed Waksman and Schatz as equal co-owners. The patent affidavit they had submitted in 1945 listed both as joint discoverers. After the Nobel, however, Waksman dismissed Schatz as a disgruntled former graduate student. Schatz contended that not only was he the one who found the microbe in the throat of a chicken but that Waksman had ignored the discovery for months. Schatz eventually sued Rutgers and Waksman for fraud. It turned out that while Waksman had gotten $350,000 in royalties from the drug’s sales, he had sent a paltry $1,500 to Schatz. The parties settled. Rutgers’s president issued a public statement confirming Schatz was the drug’s co-discoverer, and paid Schatz $125,000 for his foreign patent rights. He got a 3 percent royalty on U.S. streptomycin sales in return for dropping the charges of fraud and duress against Waksman and Rutgers. The Nobel Committee, however, rejected Schatz’s appeal to add his name to the 1952 award. Forty-two years later, Schatz received the Rutgers Medal for his role in discovering streptomycin.