TCS Daily

Confusing a Bargain and a Good Deal

By David Gratzer - September 10, 2003 12:00 AM

Sometimes a bargain isn't a good deal. That is what health ministers in the European Union are discovering as they review pharmaceutical pricing in their countries. A careful study of the continent's price controls disclosed that Europeans might be paying too little for their drugs. Jobs with pharmaceutical companies in Europe have plunged below 100,000 even as they've climbed to nearly 200,000 in the United States. Britain's Department of Health this month issued a consultation paper to the nation's pharmaceutical industry on the prospect of deregulating prices there as they are in the United States.


Here's the irony: just at the time that the EU is discovering the problems of price controls, U.S. lawmakers are eyeing it for Americans.


Late last month, the House of Representatives in Washington approved a bill on drug reimportation by a whopping margin of 243-186. Reimportation would allow Americans to purchase pharmaceuticals from nations like Canada where governments fix drug prices. In other words, it's a back door for introducing price controls into the U.S. "It's about money, the money that the pharmaceutical companies are making on the backs of the American people," Congressman Dan Burton, R-Ind., explains.


Actually, it's about research and development. And here's the connection between Europe's dawning wisdom and Congress' folly. Pharmaceutical innovation is pinned on profitability. While 20 years ago pharmaceuticals were largely developed in Europe, European price controls made drug development an American enterprise. Fifteen of the top 20 selling drugs worldwide this year were birthed in the United States. And even European firms like GlaxoSmithKline have moved essential work across the Atlantic, to American shores. No wonder the EU is reconsidering its regiment of price controls.


Drug development isn't an academic issue, something debated in the quiet halls of Brussels with no relevance to the outside world. Consider the story of cyclist Lance Armstrong. Just as the House prepared to vote, Armstrong won the 2003 Tour de France, winning the 2,100 mile competition for a fifth straight year and thus establishing himself as one of the greatest cyclists of all time. Lance Armstrong is also a cancer survivor. In 1996, he was treated for testicular cancer that had metastasized. He had 40 tumors in his lungs and 2 in his brain.


Thirty years ago, a diagnosis of testicular cancer was essentially a death sentence with almost everyone succumbing to the disease. Twenty years ago, survival rates started to improve but the cure was only marginally better than the disease. Chemotherapy then lasted up to two years, often leaving patients with nausea and other harsh side effects. Today, roughly 96 percent of Americans survive the illness, just as Lance Armstrong did. The biggest improvement in care? Better drugs. Chemo typically takes under three months and is highly effective. At a press conference earlier this year, Armstrong observed: "I owe my life to cancer research."


That's an important point. While congressmen and the usual industry critics rail against moneymaking, the fact is that profit helps fund the incredible expenses of medical research. A new drug may cost half a billion or more to bring to the market. Without powerful monetary incentives (and the capital needed to underwrite the process), no one would take on the challenge. If Americans want innovative new prescription drugs, they need a profitable pharmaceutical industry. Price controls, such as the ones used in Canada and Europe, kill research and development.


Of course, cheaper drugs offer a siren song. It's enough of a saving that the small town of Springfield, Mass., has already begun reimportation for city workers. "As far as I am concerned, it would be irresponsible not to take advantage of the savings," states Mayor Michael Albano. According to Rep. Jo Ann Emerson, R-Mo., "A bottle of tamoxifen, used to fight breast cancer, costs $360 in the United States. It costs $60 in Germany. If the drug companies have their way, the sorry status quo will be maintained."


Tamoxifen, a pharmaceutical that interferes with the female hormone estrogen, is an example of the incredible success of cancer research. A study published in the Lancet, the prestigious British medical journal, finds that taking tamoxifen after treatment for breast cancer reduces five-year recurrence by 42 percent and mortality by 22 percent. Tamoxifen, in other words, is a lifesaver. It's also an American drug.


One final point: countries with price controls don't exactly offer patients nirvana. In a sweeping review of price regulation and product launch times, University of Pennsylvania Professor Patricia Danzon finds that the more meddling in price, the slower the introduction of new drugs. Taxol, a highly effective drug used in the treatment of advanced breast cancer, is a case in point. Approved by the EU in 1995, it didn't reach British patients for a half decade. Perhaps it's not surprising, then, that five-year survival rates for breast and testicular cancer are better in the United States than in Europe.


Next month, Lance Armstrong will lead the Tour of Hope, a 20-day cycling event designed to raise awareness for and appreciate of cancer research. Given the unjustified anger at American pharmaceutical companies, his campaign may prove a more daunting task than winning the Tour de France.


The author is a Toronto-based psychiatrist and a fellow at the Manhattan Institute.


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