TCS Daily

Biotech Destruction

By Robert Goldberg - April 30, 2004 12:00 AM

America's comparative advantage in the world economy has been its ability to invent and produce what has been referred to as "the next new thing". We succeed because we reward risk taking and innovation through patent protection, free markets, relatively low tax rates and relatively high rates of return on investment for the inventive contributions to our economy and well-being.

America's biotechnology and pharmaceutical enterprise exemplifies how entrepreneurial capitalism encourages the synergy between emerging markets, genuine need and the human imagination to create economic growth. In its current configuration it draws upon genetics, bioinformatics, medicinal chemistry, the ability to actually control, prevent and detect disease, the chance to glimpse and alter the molecular and heritable underpinnings of the world's most deadly illnesses. It is at once at once exciting, risky and potentially profitable. And it produces exactly the kind of high paying, low polluting jobs that people such as presidential aspirant John Kerry want to generate.

And yet we are about to squander this advantage. Some of the same politicians who oppose outsourcing of jobs to India have introduced legislation that makes it a violation of the Antitrust Act not to outsource the development and manufacturing of US-based pharma and biotech products overseas.

Under the Pharmaceutical Market Access and Drug Safety Act recently introduced by a group of senators led by Sens. Edward Kennedy and John McCain (Senator John Kerry supports the bill), anyone will be able to import drugs sold at price-controlled prices without regard to violating the patents of those companies that invented them. The Food and Drug Administration will be forced to create two drug approval standards: the gold standard for those developed and manufactured in America and a lesser standard -- something called "a qualifying drug" -- that has the same ingredients and strength as the gold standard version but can vary in many other ways as long as it is made in an plant inspected by the FDA.

And companies -- to insure that importation is a permanent political fixture -- will be forever forced to produce as much of the product abroad to meet the law's dumbed-down quality standards as is demanded (at foreign price controlled prices) or face prosecution and triple damages under the Antitrust Act. The law actually "forces" companies to apply for FDA approval of foreign drugs that have formulation, manufacturing, or other differences from their U.S. counterparts. Failure to apply for approval or ship the products gives the enterprising trial attorney a bonanza.

Not that any of this will save money. Europe has been importing cheap drugs from one country to another for years has saved its health system a whopping .03 percent of total drug spending, according to a study by the London School of Economics. The rest has lined the pockets of distributors, wholesalers and pharmacists. Which means that billions that could have gone into biomedical research are going to middlemen.

That is all of a piece of European regulatory policies that have played a major role in dulling that continent's competitive edge and driving its best scientists and investment dollars to America. Europe imposes price controls and either delays or rations the use of new drugs as they come to market. American investment has been rising at a rate twice that of its European and Canadian counterparts. European companies such as Glaxo, Novartis and Roche have moved their major research centers to America. The number of new drugs launched in Europe between 1998-2002 has almost halved to 44 compared to 81 between 1993-97. Europeans wait 33% longer to get new treatments than we do. And in the low price paradise of Canada, R&D spending has declined by 30 percent since 2000 because of price controls and delays in listing new drugs on provincial formularies. The Kennedy-McCain bill outsources our entire biopharmaceutical industry to this price-controlled paradigm.

Meanwhile, the kind of jobs America's biopharmaceutical industry has been producing and attracting in droves over the past 30 years established U.S. global leadership in the next industrial revolution, that of biotechnology. There is much complaining about how high American drug prices are relative to the rest of the world. But as economist Patricia Danzon and others have pointed out, since 1975 United States companies have launched more new drugs first than any other country. While other nations have introduced truly minor modifications of products to receive quick approval, American companies have discovered and developed products that have truly global appeal because they have brought about significant advances in the treatment of hypertension, cholesterol, depression, cancer, and schizophrenia. We are now poised to usher in an age of gene-based medicine under the system that Senator Kennedy and his colleagues apparently detest. Far-sighted politicians should understand that the system of intellectual property protection and markets that has prompted these advances is one that should be extended around the world, not diminished here at home.

Robert Goldberg is Director of the Manhattan Institute's Center for Medical Progress in New York City.


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