Wednesday, January 24, 2007

Politicians and Drug Companies

From Fox News, an explanation of the effects of political threats on innovation in the drug industry.
For a while there it seemed like there wasn’t much a pill couldn’t cure.

Everything from high cholesterol to “erectile dysfunction” to something that I really thought was a joke when I first heard about it: “Restless Leg Syndrome” (which sounds a bit more dignified with its “RLS” acronym).

But you may have noticed that the number of breakthrough pharmaceuticals for serious illnesses is decreasing. And the question is … why?

Well, Hillary Clinton is one answer. George Bush is another. Politicians scare the hell out of drug companies, almost as much as trial lawyers. And when drug companies get scared, they don’t spend as much on research. They hoard their cash, as rainy-day funds for lawsuits and lobbyists. Pfizer has $13 billion; Johnson & Johnson of New Brunswick, N.J., $15 billion; Merck, based in Whitehouse Station, N.J., $9 billion; and Madison, N.J.-based Wyeth, $8 billion. Swiss drug-maker Roche Holding AG has $17 billion.

But why are drug companies scared of politicians? Because politicians get off on controlling things ... like prices. And when you begin to fiddle with prices, ripple effects go all the way down the supply chain to the point of origin.

For pharmaceuticals, the point of origin is the laboratory, where new drugs are created.

It takes many years to create a breakthrough drug like, say, Lipitor. The payoff is enormous — Pfizer has sold about $12.2 billion worth of Lipitor. But the cost of Lipitor’s development was enormous, too. Politicians focus just on the payoff, saying these drug companies don’t deserve all that cash. But without the huge incentives of striking it rich, would any company have spent so much time and money developing a drug like Lipitor?

For politicians, incentives don’t matter. For the folks who actually invest their own time and money on things, incentives are all that matters.
The issue here is hardly a new one. Since the era of democracy in ancient Greece, politicians have sought to curry favor with voters by confiscating the property of those who have a lot and distributing it to political supporters.

In other words, politicians like Hillary have been around for close to 2,500 years.

Of course, politicians won’t admit they are confiscating property. Rather they will talk about “reforming the patent system” or price controls on drugs or having the government “negotiate prices” with the drug companies (with the intentions of using governent’s monopoly purchasing power to drive down drug company profits).

The Founders of this country were acutely aware of this problem, and thought they had designed a political system to deal with it. Assuming President Bush is willing to veto any confiscatory legislation, they will be proven right.

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