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Science Pioneer Cautions Europe on Declining Medical Innovation

Jurgen Reinhoudt
Medical Progress Today
June 8, 2007

The European Inventor of the Year 2007 Awards recently took place in Munich, Germany. This year, accolades for medical research took center stage as Dr. Marc Feldmann of the Kennedy Institute of Rheumatology in London received the Lifetime Achievement Award.

Feldmann was a pioneer in identifying the role of cytokines (proteins that modulate immune system response) in treatment for autoimmune disorders like rheumatoid arthritis. His research has helped bring about new treatments for diseases like rheumatoid arthritis, inflammatory bowel disease, and psoriasis. Thanks to Feldman's research, literally millions of people have received treatments that greatly improve their health and quality of life.

Feldmann's reflections on the current state of European R&D are timely and much needed. Feldmann noted that "the UK is fortunate in that it has a large charity sector that supplements government funding for research." Without that support, he said, "his research would not have been possible." Feldmann added that "in Europe we are spending only roughly half as much on research as in the US," and emphasized the need for more spending on R&D, arguing that "the challenge for Europe is to somehow ratchet up contributions to research and make sure...that the inventors have the resources they need to make the contribution to Europe's welfare."

Feldmann is certainly correct that in many areas of research Europe is falling behind the United States. Take the development of new drugs. EU Commissioner Günter Verheugen noted that, "in 1992, 6 out of the 10 top medicines in worldwide sales were European, while in 2002 this figure had fallen to just 2." Moreover, "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."

Or take the gap between Europe and the U.S. biotech industries: the U.S. biotechnology industry employs twice as many people as the European biotechnology industry (190,000 compared to 96,500) and earns twice as much revenue as Europe (€41.5 billion in the U.S. vs. €21.5 in Europe.). The extra employees and revenues translate into more research: indeed, U.S. bio–techs spend on average three times as much on R&D, according to EuropaBio.

In the financial realm, American bio–techs have better access to capital than their European competitors. In recent years European biotech companies have had access to only one–fifth of the private equity available to their U.S. rivals, restricting their sources of funding and, consequently, their research. Moreover, U.S. biotechs have access to 10 times as much debt financing as their European counterparts.

Ultimately, lost or constrained innovation impacts public health. Access to new drugs, for instance, is far superior for American consumers than European ones. For cancer patients, access to new drugs is crucial: a report by the Swedish Karolinska Institute, published in the Annals of Oncology, found that "The United States has been the country of first launch for close to half of the oncology drugs brought to the market in the past 11 years." The authors of the report observe that "Nearly half of the observed improvement in the 2–year cancer survival rate between 1992 and 2000 at 50 US cancer centers could be attributed to the use of new cancer drugs," evidence that America's embrace of new medicines translates into saved human lives.

The evidence is unmistakable: Europe's pharmaceutical industry is in the midst of a long and steady decline, and Europe's bio–tech industry is lagging significantly behind its American counterpart. What is also clear—but far more controversial—is that by adopting certain aspects of the American R&D system, Europeans could regain their innovative and competitive edge.

Some of the key ingredients of America's thriving biopharmaceutical sector: a system of free pricing of drugs (almost inconceivable in Europe); great dynamism in the bio–tech sector due to a pool of active venture capital; direct–to–consumer advertising of prescription drugs; flexible labor laws and an entrepreneurial spirit; an active and often symbiotic connection between academic scientists and private industry; and a limited role of the state in the R&D process, with private R&D preferred over the large–scale sponsoring of research by the state.

Still, even with the dynamism of the American model on full display, some Europeans pine reflexively for increased government funding for bioscience projects. For example, some lament that not more of Dr. Feldmann's research was performed with government grants. What makes one believe, however, that government funding would have led to better results—or even equally good results—for Dr. Feldmann's research?

Feldmann might have been tied up in bureaucratic knots over the release of his funding; his flexibility might have been hindered; and a creative approach to finding new treatments might have been strongly discouraged in favor of a less effective but more "certain" cure preferred by government grant–committees that dislike exploring the unknown.

Rather than spend more money on R&D, European governments should address the root causes for why private companies are investing comparatively less on medical R&D in Europe. In 2004, private companies financed 64% of total research expenditures in the U.S., but just 55 percent of total research expenditure in the current 27 EU member states. If anything, Europe suffers not from a lack of government funding of R&D but from an excess.

Compared to the U.S., the role of the state in financing R&D is greater in Europe. Yet having European governments compensate for low private sector expenditures by spending more on research is self–defeating: it allows governments to avoid tackling the root causes of the problem while claiming they are "doing something."

European governments can do far more good by removing or alleviating obstacles created by the state, such as stringent price controls on drugs, prohibitions of direct–to–consumer prescription drug advertising, assignments of R&D funds in state universities on the basis of seniority rather than competitively, burdensome regulations on venture capital, cultural norms that look down on cooperation between scientists in academia and scientists in private industry, and a general attitude that the state should take the lead in sponsoring medical research and development.

Europeans should celebrate Feldmann's accomplishments and the role that the private sector—and philanthropic institutions—can play in delivering outstanding medical breakthroughs. By removing roadblocks put in front of private companies by the state, and by alleviating others (such as price controls on drugs), Europe can reclaim a proud heritage of medical innovation that dates back to the Industrial Revolution.

Jurgen Reinhoudt is a research assistant at the American Enterprise Institute in Washington D.C. A native of the Netherlands, he graduated with honors from Princeton University with a degree in Politics.
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