For politicians looking to score points, pharmaceutical companies' large profits on "block buster" drugs make for an easy target. With drug prices higher in the United States than in other countries (where prices are usually fixed by the government), the push to "do something" can be intense.
The problem here is the long-term costs of fixing prices in the pharmaceutical industry.
What do we get for the higher prices we pay? We get such drugs as Byetta. Introduced last year by Amylin Pharmaceuticals and Eli Lilly, this anti-diabetic drug works in a different way than insulin does - and without some of the side effects, such as weight gain, that lead many patients to take less-than-prescribed doses of the medication. Byetta results in lower levels of hemaglobin A1c (a measure of blood-sugar control), is known to promote weight loss and may stimulate the pancreas to regrow insulin-producing cells.
Yes, Byetta is more expensive than other medications used to treat Type II diabetes. But most health insurers still cover it, realizing that preventing the expensive complications of diabetes, a disease that afflicts almost 21 million Americans, is the most cost-effective route in the long run.
Combined with other steps to treat diabetes (such as watching one's weight and taking one's medication faithfully), Byetta could, over the next 30 years, help save as many as 1.2 million lives, prevent 4.5 million heart attacks, reduce cases of kidney failure by 600,000, prevent 1 million cases of blindness and reduce medical costs by at least $150 million, says Dr. Robert A. Rizza, president of the American Diabetes Association.
What else do we get for those higher prices? Vaccines, like Merck's Gardisil.
Gardisil is effective in preventing infection by two strains of the human papilloma virus (HPV) that together cause about 70 percent of all cases of cervical cancer. The Gardisil vaccine also may protect against vaginal and vulvar cancer, two other gynecological cancers linked to HPV. The payoff in terms of lives saved - regardless of how much it saves the health-care system to keep such costly diseases from spreading - justifies the increased price.
Pharmaceutical companies do indeed profit from their blockbuster drugs, and patent-protection laws safeguard these profits. But without these profits and protections, drugmakers would have no reason to enter the expensive and risky business of heavy research and development (R&D). For every breakthrough drug, many drugs fail, even after companies have spent considerable amounts on them. These big losses are inevitable, though. And when you take the costs of R&D and marketing into account, the drug prices are much closer to what you would expect in a normal, competitive market.
R&D is a lengthy process. It can include five to six years of testing and pre-clinical investigation, then several years of clinical trials, before the Food and Drug Administration approves a drug for marketing. Of the drugs that make it to clinical trials, only about 20 percent eventually get to market. The entire process can take from 10 to 20 years.
The average cost, a 2003 study published in The Journal of Health Economics shows, can be as much as $800 million. And once a drug is approved, companies must invest a significant amount in marketing to maximize profits before the drug's patent expires. Not surprising, this all creates an uncertain business environment.
Price regulation just isn't compatible with investment in R&D. Several studies have reached this same conclusion, including a 2005 study from the National Bureau for Economic Research that suggested that a 40 to 50 percent cut in drug prices would yield 30 to 60 percent fewer R&D projects' being undertaken.
A 2004 Commerce Department study looked at 11 countries that have relied heavily on price controls in the pharmaceutical market and found that the regulations were responsible for an $8-billion-a-year drop in R&D investment. That equates to four or five potentially life-saving or life-altering drugs each year - a steep price to pay.
Besides, can we be sure federal officials would be able to fix prices at the right level? Or that their judgment would preserve the right incentives for advanced pharmaceutical R&D? One thing is certain: We can't afford the price if they're wrong.
The promise of pharmaceutical R&D has never been greater. In the area of cancer treatment alone, a recent survey suggests that almost 400 new drugs are currently in the R&D pipeline, many with the potential for being breakthrough treatments. And research in the areas of genetic diseases and aging likely will transform the health care of the future.
If government shackles the drug industry with price controls or similar schemes, we will surely jeopardize that future in return for the short-term goal of cost containment. The present generation may escape the full impact of this tradeoff, but it's a price our children and grandchildren can ill afford.
Dr. John O'Shea is the Harvard graduate fellow in health policy at the Heritage Foundation.
First appeared in the New York Post