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Kevin Hassett
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Resident Scholar and Director of Economic Policy Studies
American Enterprise Institute for Public Policy Research |
Where will tomorrow’s medical discoveries come from? Over the past decade, the answer increasingly has been the United States, home to the world’s most dynamic and vibrant economy. The “can-do” spirit behind American enterprise has uniquely succeeded in rewarding pioneering researchers and businesses for the costly risks associated with the research and development of novel products. This is particularly true for new pharmaceuticals, the sector of our economy where the gap between the U.S. and the rest of the world likely is the largest.
There are many different metrics of that leadership. One such measure is the invention of new molecular entities, which are new medications never before approved in any form. According to recent studies, the U.S. has assumed the lead in the development of these innovative drugs, accounting for more than any other major market, including Europe, over the observed period of 1998-2002.
To some extent, the leadership reflects past successes, but there is ample reason to believe that the U.S. advantage has widened recently. For example, as a matter of scale, the U.S. outstrips the global biotechnology sector by a significant margin, with 142,900 employed in the U.S. biotech industry, compared to Europe’s 33,304, Asia’s 9,764, or Canada’s 7,785. A recent report by the Milken Institute quantifies the significant contribution that biopharmaceutical research makes to the U.S. economy. According to the report, biopharmaceutical companies employed 406,700 people in 2003, and indirectly supported over 2.7 million jobs. Even large foreign firms have begun locating their research facilities in the U.S., with Novartis and GSK two recent examples.
Yet even as the U.S. expands its leadership over Europe in pharmaceutical research and development, policy proposals are being considered that would make the U.S. look more like Europe. Adoption of price controls (whether those of other countries through importation of drugs or direct price setting by the U.S.) is a prime example.
Simply put, implementation of government price controls on pharmaceuticals today will mean fewer new breakthroughs tomorrow. John Vernon of the University of Connecticut has estimated that a U.S. price control policy will reduce the intensity of our research and development by 36 to 48%. F.M. Scherer of Harvard University recently noted in the New England Journal of Medicine: “The more pervasive and tougher price controls are, the less stimulus there will be to develop new, more effective medicines.”
Policy research in this area is unusually demanding. We understand that the U.S. is first, but we can not be sure that changes to the system will not alter that standing significantly until we know how policies layer into the entire tapestry in which R&D occurs. Accordingly, policymakers should require of reform proposals very detailed and careful analysis of their economics.
The U.S. undoubtedly faces significant challenges in improving the quality and affordability of health care. The approach that policymakers take in trying to reach these goals could have a substantial impact on the number of new medicines discovered in the U.S. Proposals should be carefully examined with an eye toward maintaining our global leadership in R&D, rather than following Europe down the path of stagnation. A policy shot in the dark could well imperil the next life-saving shot in the arm.
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