I want a new drug

Rich Tucker
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Posted: Aug 08, 2003 12:00 AM

 Where do prescription drugs come from?

 Do they fall from the sky? No. Do they come from Canada? No.

 The answer is that prescription drugs come from prescription drug companies. Sure, that sounds obvious. But apparently it’s not crystal clear to everyone.

 In the Aug. 4 Washington Post, political cartoonist Tom Toles lambasted the drug industry. It was represented by an obscenely fat man (helpfully labeled by a pin that said “Drug Co.”) cheerfully taking a wad of cash from a frail-looking older man.

“Drug Co.” explains, “The exorbitant prices you pay for your drugs is [sic] for all the research we do.” In the next panel he enters the “Research Department,” peopled by “TV ads,” “goodies for doctors,” “lawyer fees for patent extension” and “cash for politicians.” “Drug Co.” says, “Today we’re studying where investing $100 million produces the fattest boost in our profits.”

Now, let’s be fair: Drug companies do make a lot of money. And they invest a chunk of that income -- tens of millions of dollars, in fact -- in promoting their products. That includes spending on ads, lobbyists, and samples for doctors. They also attempt to maintain patents on their successful (and profitable) drugs. What industry doesn’t try to hold on to its patents as long as it can?

But this spending on promotion is far exceeded by investment in Research and Development, which is where prescription drugs really come from. According to the Pharmaceutical Research and Manufactures of America, an industry group, drug companies roll one out of every five dollars of revenue back into R and D. They usually don’t get a big return on their investment. Only three out of 10 drugs on the market sell enough to recoup the cost of R and D.

It costs an estimated $500 million to bring a single new medicine to market. And on average, for every drug that makes it to the pharmacy, about 5,000 are rejected. Those are pretty daunting odds, since a drug company is never going to make a dime off a drug that doesn’t make it to market.

This is also why prescription drugs don’t come from Canada.

The Canadian health-care system is “single payer.” That means the government sets the price of drugs, so they’re often cheaper to buy there than they are on the free market in the United States. But the trade-off is that many prescription drugs aren’t available, or are severely rationed, north of the border, because the government isn’t willing to pay market prices for them.

It’s because of these price controls that Canada doesn’t have the successful drug industry we do.

The House of Representatives recently voted to allow “reimportation” of drugs from Canada, at that country’s reduced process. But as Nina Owcharenko of The Heritage Foundation notes, that could end up hurting people in both countries. “The effect of reimportation,” she writes in a recent paper, “in all probability would be the opposite of that intended by its proponents: Prices would be more likely to increase in Canada than they would be to decrease in the United States.”

Prescription drugs are making life better, and even making life possible, for millions of Americans. In fact, prescription drugs are probably the biggest difference between medicine today and medicine 40 years ago. Back then, they were so rare that Congress didn’t bother to include a drug benefit in Medicare -- a matter lawmakers are still wrestling with today.

Today, drugs help patients regulate their blood sugar, blood pressure, cholesterol and allergies. They help AIDS patients stay alive while scientists search for a cure. Drug companies are racing with government researchers to find that cure, and my money’s on the drug industry.

Eventually, they’ll also find cures for Alzheimer’s, Parkinson’s, arthritis, and other diseases -- unless we strangle Research and Development by trying to limit the profits made by the drug industry.

Consumers and insurance companies, of course, want the lowest prices possible for prescription drugs. But let’s make sure that in striving for that goal, we don’t end up killing the goose that lays the golden eggs: The R and D departments of our drug companies.
The free market is working here in the United States, and it’s making life better for all of us -- not just drug-company executives.