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Essentially, companies are selling their products abroad at prices well below their long-run development costs, but above their current manufacturing costs. While the drug companies can make some money this way, it's not enough to generate the profits necessary to fund their enormous R&D costs. Indeed, it is because of our relatively unregulated market that the U.S. provides the rest of the world with new drugs. Over the past two decades, companies in the U.S. have produced nearly 50 percent of the world's leading pharmaceuticals. Today, U.S. drug companies make all 10 of the world's best-selling drugs. Due to other countries' price controls, pharmaceutical research and development has increasingly been centered in the United States.
With regard to Congress' reimportation scheme, former Secretary of Health and Human Services Donna Shalala refused to certify the program on the grounds that she "could not demonstrate that it is safe and cost effective." However, if Tommy Thompson, the new HHS secretary, approves the program, it will be Canadians and not Americans who will be in for a rude price shock. "The drug companies will not sell to Canada at the current rate," says Calfee. "They will raise their prices to Canada in order to not undercut their markets in the U.S." As evidence, he cites a 1999 General Accounting Office report which found that a "law requiring drug companies to grant Medicaid the best price offered to managed care firms effectively raised the managed care prices rather than lowered Medicaid prices." Instead of lowering prices, reimportation and matching-discount requirements eliminate any incentive to give discounts at all.
We are entering a golden age of pharmaceutical research. With the completion of the Human Genome Project, "all pharmaceutical targets until the end of time are now known," said Biogen's Kees Been, at a presentation in December at the Massachusetts Institute of Technology. At the same meeting, Sean Lance, CEO of Chiron, a biopharmaceutical company located near San Francisco, predicted, "We are going to win over HIV, malaria, and tuberculosis because of biotech."
Such certitude -- bordering on arrogance -- would be irredeemably smug, if not for the pharmaceutical industry's track record in raising the quality of life. "In the 1950s and '60s, doctors performed millions of tonsillectomies and put grommets in the ears of children to prevent earaches. Now we know that they don't work," said Lance. "In 10 years' time, we're going to look back and laugh at what we're thinking are complicated issues and technologies today."
If we want the pharmaceutical and biotech companies to find and market new life-saving, life-enhancing drugs to cure and treat heart disease, cancer, dementia, diabetes, AIDS, and other illnesses, then Congress and President Bush would be wise to let the sort of relatively unfettered market competition that has worked well in the past continue into the future. "There is no substitute for the profit motive for inducing and guiding research," says Calfee. In a recent article in Science, Jurgen Drews, chairman of International Biomedicine Management Partners and former head of global research at Hoffman-La Roche, concludes that "free markets will be capable of generating the technical and institutional instruments that are needed to apply scientific advances to the solution of societal problems." True enough. But only if we let them.