Drug war: Trump takes on big pharma

0:10Hello and welcome to The Intelligence from The Economist. I'm your host, Rosie Bloor. Every weekday, we provide a fresh perspective on the events shaping your world.

0:25Earlier this year, North Koreans stole$1.5 billion worth of cryptocurrency in one of the most extraordinary heists in history. Our correspondent explains how the hermit kingdom became the hacking kingdom. And Alvaro Mangino was one of 16 people who survived a plane crash in the Andes in 1972 We recount that incredible story and remember his life

1:01But first

1:10You may have noticed that Donald Trump has been quite disruptive in the past few months. Sector after sector has faced upheaval and uncertainty. Now under scrutiny is Big Pharma. Mass layoffs at the FDA are causing major delays in drug development. Layoffs demanded by the so-called Department of Government Efficiency have hit the agencies that approve new medicines. The Secretary of Health and Human Services is a vaccine skeptic. Vaccines are exempt from pre-licensing placebo-controlled trials so that there's no way that anybody can tell the risk profile of those products or even the relative benefits of those products.

1:48And on Monday, Donald Trump issued an executive order. Drug companies must cut the price of medications in America to the lowest level they charge in other rich countries. Sounds great for consumers, but things aren't quite that simple. On average, branded drugs in America cost more than three times the price in other rich countries. Shalas Chitnis is a business writer at The Economist. And efforts to lower prices in America are not new. A lot of governments have tried that for a while. But Trump's approach in terms of what he's proposing with the executive order combined with the tariffs that he's threatened on the industry, that has a lot of industry executives worried.

2:29They are warning that it could actually end up raising costs for the patients, it could disrupt supply chain, and eventually slow the development of new drugs. Shalash, the pricing of drugs in America is always very opaque. So how is he planning that this price cut should happen? Yes, you're right. Drug pricing in America is incredibly opaque because there is a network of insurers, middlemen, which is the pharmacy benefit managers, and a whole host of other players, that the end result is for the patients. And generally, drug prices in America, like we talked about, are a lot more expensive than anywhere in the rich world.

3:07Now, the way Trump is trying to go at this is he's instructed his administration to ensure that drug makers align their prices to the lowest price in anywhere in the rich world. And so what that means is still very vague. The exact definition of what the most favored nation as the term is called, what that calculation would mean, how many drugs are involved, all these kind of operational details have not really been spelt out. But the executive order does call out that companies that fail to comply would face quote unquote aggressive measures. Again, what those aggressive measures are is not very clear.

3:44And so there's a lot of ambiguity in the way the executive order has been worded. It's quite broad in that sense. And to implement it will essentially require Congress to pass laws to be able to actually go through all the rules that it has set. So far, it feels like it's quite unlikely to get congressional approval. The Speaker of the House expresses opposition to it. So we'll see. But chances of this going through as is seem pretty slim. Assuming it does happen, it's quite hard to feel sorry for Big Pharma, isn't it? I mean, Trump's got a point. So is it so bad that he's trying to cut them? Now, having said that, there's a nuance to this argument.

4:23So yes, drug prices in America are high. But when you talk to pharma executives, when you talk to a lot of researchers, they will also argue that drug prices in a lot of the rituals are too low. And so there's this imbalance there. And for pharma companies, if you think about it, the U.S. market is really important. It makes up around 40 % of their sales, but almost 65 % of their profits. So right there, there's an imbalance. And so anything that reduces revenue or profits in their most important market will have an impact in their R &D that they spend. Now, there are a couple of different ways I've heard that pharma companies, if this executive order does go through, would deal with this.

5:03First and foremost is they may just strike deals with a lot of the other governments to be able to have a very high list price, but then confidential agreements to give them rebates so that the net price paid by the governments is lower. This already happens in a lot of different countries. The second approach is more drastic, where they would say that if you're comparing us against a country that has very low prices and we don't want to match it, we may simply leave that particular market rather than risk our profits in America. Of course, all of this is very speculative, but it's hard to see pharma executives reducing their profits in their most important markets without first trying other alternatives.

5:40International drug price fixing. Fascinating. Tariffs have been something that we've talked about a lot on the show, and I'm interested in how far they will affect the industry. So that's true. I think tariffs and the threat of tariffs is something that has the executives a lot more worried than this particular executive order because of all the uncertainty that we talked about. With tariffs, initially the industry was relieved when on April 2nd, on the so-called Liberation Day, pharmaceuticals were exempt from tariffs. But pretty much at the same time, the government launched an investigation to determine if the US relying on overseas manufacturing is a national security threat.

6:23And if it is deemed to be a national security threat, then the president can impose tariffs, can then compel a lot of companies to onshore their manufacturing. Trump has floated numbers between 25 to 200 percent and nobody really knows where they'll end up if they actually do end up happening. And so it does look like this is a very serious threat to the companies. But the way the manufacturing of a drug, similar to a lot of other high-tech products, it's quite distributed. And so it would not be that simple to kind of onshore this manufacturing that quickly. To give you an example, when you think about a drug and the drug is imported, it's not just the price of manufacturing the drug overseas.

7:05A lot of drug companies also domicile their IP, which is the intellectual property related to making that particular medicine outside the US. And they do this for tax purposes. So you typically domicile your IP in, say, Ireland or Netherlands or a country like that. And then when you import those drugs in, you end up effectively paying a lower tax. And so for a lot of the drug companies, what they will need to do is not just onshore their manufacturing, but also see if they need to then onshore their IP, which is not very trivial, as you can imagine. And is there any hope of heading that off? So a lot of pharma companies in the early months of the Trump administration, which has been only four months, it seems so much longer, but in the early months of the Trump administration, they made really big announcements in terms of investing in building up their manufacturing capacity in the US.

7:55So Johnson & Johnson, which is a very large drug maker, they promised to invest$55 billion over a period of years. Roche, which is another big drug maker,$50 billion. Eli Lilly, the maker of Zebbound, the weight loss drugs, they've invested$27 billion. So combined, I think we've already seen announcements of upwards of$150 billion over a period of years to essentially build manufacturing capacity in the US. Now, to be clear, building manufacturing capacity for a biologic or a branded drug is not trivial. It takes a long time, anywhere between three to five years. So this is not something you can expect immediately.

8:32And there's a cost to this as well. David Riggs, who's the boss of Eli Lilly, he has warned that if actually tariffs are implemented, the cost to drug makers go up because they can't really pass on the full price of the drugs to the insurers because of just the complexity of the contractual agreements. and what ends up happening is they'll have to eat some of these costs and then they'll have to cut back somewhere and most probably that will be in the R &D, research and development. So the message I'm getting is that Big Pharma is in for a tough ride under the second Trump term. That is true. I think in the initial few weeks of the Trump administration, a lot of people were expecting that Pharma is going to have a pretty good time going ahead, but so far it has not turned out to be the case.

9:13And we have talked about the executive order on pricing, we have talked about tariffs. Another thing that's worrying pharma is the changes that are happening with the drug regulator, the Food and Drug Administration. So Robert F. Kennedy, who's the Secretary of Health, oversees the FDA. And he's a known vaccine skeptic. And combined with that, because of all the workforce reductions that have happened in the federal government, almost 3 ,500 workers at the FDA have been let go. So there's been a huge turmoil at the FDA. and for the drug makers so far they've been clear that has not translated to any delays in approvals but that's the fear.

9:50Drug development takes anywhere between five to ten years and so for drug makers certainty is really really important when they embark on any new drug development. And to put this in context this is not just a story about U.S. pharma. The innovation that happens in America that is funded and developed by a lot of big pharma companies, the biotechs, everything, that has a huge impact on the new medicines that are brought to market, not just in America, but in the rest of the world as well. And so whatever happens in America in terms of its drug industry has huge ripple effects for the rest of the world.

10:23Shalash, thank you so much for talking to me. Thank you for having me. And you can hear more on America's trade war with China on this week's episode of Money Talks, our economic show out later today. You'll need to be a subscriber to listen.

10:49North Korea's hackers are the world's most formidable cryptocurrency thieves. Noah Snyder, our East Asia Bureau chief, has been reporting on an extraordinary heist that took place earlier this year. Independent investigators and America's FBI pointed the finger at North Korea after the largest ever heist in the history of crypto. Hackers have stolen almost 1.2 billion pounds worth of cryptocurrency. The Dubai-based cryptocurrency exchange Bybit says that someone gained control of an Ethereum digital wallet. Pulling off a heist like that shows that North Korean hackers are becoming more skillful, more ambitious, and ever more of a threat to a growing crypto industry.

11:40Noah, that's an astonishing amount to have stolen in one job. Do you have any idea of how much North Korea is making from crypto theft overall? It's a great question, and it's one that independent crypto investigators have been trying to pin down. Some of the best analysis comes from a firm called Chainalysis. And they reckon that in 2023, North Korean hackers took$660 million worth of cryptocurrency. And then last year, they more than doubled that take with$1.34 billion stolen across 47 separate heists. Now, that was equivalent to 60 % of the global total of stolen crypto last year. And this Bybit hack is, of course, equivalent to more than the entire 2024 take.

12:28So it just shows how much the stakes are growing, both as the industry's size grows, but also as North Korea's hackers' skills grow. And you say these hackers are North Korean, but do we know if they're state-sponsored? Everything that happens in crypto world is a bit hard to track for sure. Of course, there's a lot of anonymity in these operations, But there are signatures that investigators trace and have linked to specific groups that are believed to operate under the auspices of the North Korean state. And it's hard to imagine that hackers of this caliber would be operating out of North Korea without state backing, given the severe restrictions that exist on Internet access and even computer access.

13:10And that really sort of leads to a paradox of sorts or a counterintuitive moment in this story, which is that a state that is known for having very limited Internet access has managed to produce some of the world's best hackers. And it's really the result of a decades-long investment in computer science that goes back at least to the 1980s and really ramped up in the wake of the first Gulf War, when the North Korean leadership recognized the importance of computers and networks for modern warfare. And over time has evolved into a kind of multifaceted cyber operation, which in recent years has really focused its resources on cryptocurrency and on stealing cryptocurrency.

13:56Noah, who are they stealing from? Basically, the targets are cryptocurrency exchanges, which you could think of as a part of the banking infrastructure of the crypto world. So individual investors who want to be trading cryptocurrency will deposit funds with an exchange in order to make trades. And unlike a traditional banking system, there's no federal deposit insurance that's covering those funds. So when a North Korean hacker steals from a cryptocurrency exchange, they are stealing from the depositors or the users of that exchange. The exchange itself can choose essentially to guarantee their deposits and ultimately take a loss.

14:38But ultimately, it trickles down to cryptocurrency holders themselves. And how do they actually do it? There are basically two main phases to a crypto heist. The first is breaching the target systems. You can think about it like the digital equivalent of finding the underground passageway to the bank vaults. You've got to get into the computers of the target so that you can access the wallets where the cryptocurrency is stored. They do that through phishing emails, you know, fake links that seem to be from a colleague, but which end up inserting malicious code on a computer. But also through more sophisticated operations recently.

15:20And North Korean operatives are known to pose as recruiters on platforms like LinkedIn and get software engineers to click on infected files during the course of fake job interviews. They've also been stealing identities, setting up fake identities in order to get hired as essentially remote tech workers at foreign companies. And once they're on the payroll and inside the systems, they can insert some of that malicious code from there. So that's phase one. Then once they get the crypto out of the Target's account and into their digital crypto account, then the laundering process begins. And how does the laundering process work?

16:02Well, with crypto, it's a bit trickier than perhaps with normal cash, because all of the transactions are publicly visible on the blockchain. So you can see where crypto is moving if you know where to look. So these hackers have to spread it around and mix it up, essentially so that it gets lost in the slush of crypto moving through the Internet. They move money across separate digital wallets. They combine it with clean funds. They transfer it between different cryptocurrencies, a process that's known in the industry as chain hopping. And then finally, at the end of this, they need to cash out their crypto into a hard currency that the regime can use to its more traditional ends.

16:50And there is a whole network, a whole array of underground services that are essentially catering to people looking to cash out dirty crypto. And in fact, our colleague Su Lin Wong documented how this network works in her brilliant podcast, Scam Inc., which if you haven't listened to, I highly recommend. And North Korea's hackers sort of intersect with that underground world, or at least that's what investigators believe. And those services are, in fact, quite efficient. There's enough of a market that they've managed to get costs down, as it were. So some of the crypto investigators who I've been talking to reckon that North Korea can hope to cash out perhaps 80, maybe even 90 percent of the crypto that it steals.

17:35And Noah, we think of North Korea as a poor, cutoff country. So presumably this is a pretty valuable source of income for it. It's really become a lifeline for the regime in recent years, especially as they've struggled under ever stiffer international sanctions and then the COVID-19 pandemic. The United Nations panel of experts, a kind of oversight group for international sanctions, reported in 2023 that North Korean crypto thefts accounted for half of their foreign currency revenue. It's helping Kim Jong-un both to prop up his regime internally, but also fueling the threat they pose externally through their missile and nuclear weapons programs.

18:21Absolutely fascinating. Thank you so much for talking to me, Noah. Thank you very much for having me.

18:43The first bite for Alvaro Mangino was the hardest. Catherine Nixey is a culture correspondent for The Economist and is standing in for Anne Rowe this week. They had laid the meat, it was whitish, cut in slivers as thin as matchsticks, on a makeshift aluminium tray. Later, they would find that if they cooked it, it tasted better, like beef, but softer. But on that first day, they didn't know that. So they just ate the meat raw, almost frozen. One boy swallowed it like medicine. One ate it seasoned with snow to mask it. One boy joked that it was like a fine, delicatessen ham. Alvaro could not eat it at all.

19:27They all knew that eating was their only hope of living. They also all knew that to eat human flesh, they had to die a little first.

19:42Flight 571 should have just been a little fun. It was taking a rugby team, mostly students, and a few others from Uruguay to Chile for a match. And at first it was fun. Then the plane started to jolt violently. One boy started to say, here's our father. Mountain peaks appeared in the windows far too close. The boy switched to the Hail Mary, a shorter prayer for speedier salvation. Salvation never came. A little after 3.30pm, the plane clipped the ridge. The right wing sheared off, then the left. Slim as a toboggan, the fuselage slid down the mountain at 200 knots per hour, before coming to rest in the Valley of Tears.

20:26People had often wondered what would happen to young people if they were somehow stripped of society. Almost two decades earlier, William Golding had answered with the Lord of the Flies, with anarchy and with cruelty. Alvaro and those on flight 571 answered instead with a new society. Their proto-society started to form almost as soon as the plane stopped moving. Two medical students, Roberto and Gustavo, started to move among the injured. Roberto was dressing wounds, taking pulses, making tourniquets. Others among them comforted the injured. By the next morning, a hierarchy had appeared, and jobs.

21:02Some of the students melted snow for water. Others started to plan expeditions to get help. Everyone worked together. Later, they would call it the Society of the Snow. Alvaro couldn't do very much for this society at first. After the crash, he had been completely trapped beneath twisted metal chairs. When they got him out, he looked down and saw that his left leg beneath the knee was completely loose, just hanging there as if it didn't belong to him. Roberto, the medic, had rolled up his trouser leg, looked at the fracture, and then told Alvaro not to look. He gave a sharp motion. The leg cracked.

21:39Alvaro shrieked. Later, years later, Alvaro would ask a surgeon if it should be redone, and the surgeon said, it is not possible to do this any better than Roberto had done it. Roberto had, at the time, seemed so old. He'd been 19. He was so young that after the crash he took to wearing a woody jumper given to him by his mother for comfort. And above all, this society had its infamous initiation. Each member of the society would later justify what they did in their own way. One boy saw what they would do through theology. To eat the bodies of their friends who had died was, he said, like the Eucharist.

22:23Take, eat, this is my body which is broken for you. Roberto the medic saw it through biology. He had studied the Krebs cycle. He knew that fat could transform into protein. He knew that all the proteins they needed to survive were there in the dead bodies of their friends. Alvaro would later describe what happened almost through bureaucracy. There were, he said, three lists. The list of those who survived the crash, the list of those who had survived a later avalanche, and the list of those who survived to the end. To make it into the third list, you had to eat. It was still the hardest decision of his life.

23:01It was so hard that on that first day, he couldn't manage to do it. But he dragged himself out of the fuselage of the plane, and along the snow to watch the others eat, to say, I am with you guys. He took a hard job, too. He became a cutter of the meat. His job was to chop it up into minuscule pieces, so small that there was no hint of what it was. They all found it easier to eat if they didn't know what body part it was from. He found it easier to cut if he didn't know who it was from. At first, the boys ate the muscles. But eventually, they ate everything. The kidneys, the liver, the heart. Finally, they took an axe and cracked open the skulls and ate the brains.

23:50Alvaro had three lists, but there was one final list. The parents of the children on Flight 571 knew that survivors had been found and that some of their children were still alive. But they were not told whose. Alvaro's father flew to Santiago. When he arrived, he was handed a list of names, the survivors. He took it and he read. There, eleventh on the list of sixteen, was Alvaro His father let out a howl

24:25Catherine Nixie on Alvaro Mangino, who has died aged 71

24:45That's it for this episode of The Intelligence. We'll see you back here tomorrow.