(This commentary was selected for the Weekly Health Blog Carnival,1-09-07
and by the Health Wonk Review, 1-10-07
Many policymakers in Washington, D.C. think that having direct negotiations with drug manufacturers in Part D wouldn’t harm the pharmaceutical industry's ability to innovate. Well, it turns out that we have a controlled experiment in drug pricing and innovation, since the U.S. lacks price controls and the E.U. has them. According to this article, from The American, the resulting contrast is startling:
Europe's pharmaceutical research and development is vanishing. The United States, which takes its "healthy" pharmaceutical R&D for granted, should take note.
The European pharmaceutical industry is moving its research and development activities almost wholesale from continental Europe to the United States. Though most Europeans seem unperturbed, the shift has been momentous: "in 1990, the... pharmaceutical industry still invested 50% more in Europe than in the US... today, the same industry is investing 40% more in the US compared to Europe.: Alarm bells are even ringing at the European Commission; Industry Commissioner Günter Verheugen observes, "In 1992, 6 out of the 10 top medicines in worldwide sales were European, while in 2002 this figure had fallen to just 2."
European job losses in the pharmaceutical R&D sector abound. In 2002, pharma giant Novartis said it would "move the headquarters of its worldwide research organization from Basel, Switzerland, to a new $250 million, 255,000 square–foot laboratory and office facility... in Cambridge, Massachusetts." In November 2006, Novartis announced that it seeks to expand its R&D headquarters in the U.S. by adding as much as 500,000 square feet of additional R&D and office space. Europeans will not be enjoying these jobs–Americans will...
Why is Europe losing its pharmaceutical industry and why is the United States gaining pharmaceutical investment? In Europe, even more than in the United States, pharmaceutical companies face onerous obstacles to healthy business functions. Government price controls on drugs arguably present the greatest impediment to a flourishing European pharmaceutical industry. Thanks to the controls, pharmaceutical companies often can't recoup their R&D costs by selling their drugs to European consumers–for that, they need higher-paying American consumers. While European consumers (and European governments) benefit from price controls in the short term because they pay less for drugs, in the long term, they suffer. New medicines sometimes no longer reach European consumers, hurting public health; and Europe is losing many quality R&D jobs to the United States, hurting employment.
Pricing isn't, of course, everything. Companies also want to be close to the FDA, close to America's tremendous university tech–transfer system, and NIH researchers, to say nothing of our vibrant capital markets. But pricing is one component of a system that places a premium of biomedical innovation, and reducing those incentives will affect future pharmaceutical R&D.