Shooting Ourselves in the Foot

When you think about the industries where the U.S. has been preeminent, it's mostly a list of has-beens -- steel, autos, heavy equipment. Those few industries where the US is still a world leader include pharmaceuticals and medical devices. But this is changing.

Today, pharmaceutical and medical device manufacturers rely on patents to protect their innovations as they compete in the commercial markets. In most cases, innovators have 17 years from the date of patent issuance to recoup their investment. But having a patent is not the same as having a product. First you need FDA approval.

That's when the real work begins. Experts estimate that it costs approximately $1 billion and 10 years to bring a new drug to market. There are lots of patents sitting on the shelf, never to see the commercial light of day. Molecules may not perform the way scientists had expected in the earliest stages of discovery; side effects may prove to be problematic and so development stops in the middle of clinical trials. And getting the biggest US insurer - the Centers for Medicare and Medicaid Services (CMS) to agree to reimburse the product is a further hurdle that must be crossed.

Given the substantial time and financial commitments required to bring a new drug to market, Congressional and public pressure to further reduce the length of patent protection represents a major challenge for the US medical products industry. What most people don't realize is this very pressure puts at risk one of our few remaining industrial jewels. The argument put forth in support of more limited protection is the opportunity to bring generics to market faster ... and at a significantly lower cost than branded pharmaceuticals.

That generics come at a cheaper price should come as no surprise to anyone. Generic manufacturers don't have to invest in risky R&D, don't bear the brunt of regulatory approval, and don't have the same commercialization costs to bear. But the focus on bringing generics out faster to lower overall healthcare costs misses one critical point. Pharmaceuticals, while highly visible, represent only about 10% of the cost of healthcare in the US. And they enable greater productivity on the part of people taking them for the most part! If we're serious about lowering healthcare costs, then we need to look elsewhere.

Finally, increased regulation in this country makes it more difficult to get drugs approved in the first place. So much so that venture capitalists, in evaluating investment opportunities, commonly reject proposals from start-ups who want to launch their new products first in the US. They regard such plans as reflecting business naiveté.

If the risk to innovation and access to life saving new compounds isn't significant enough, consider this: 6,000,000 jobs -- good jobs -- are connected to the pharmaceutical and medical device industry. There was never a time we could afford to put 6 million jobs at risk - and certainly not now.

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