Price controls are bad medicine | EDITORIAL
American companies have produced so many life-saving and seemingly miraculous drugs that it is easy to take the creation of future drugs for granted. Unfortunately, this mindset is likely to reduce the number of new miracle treatments hitting the market. Blame the President and Democrats in Congress for imposing price controls on pharmaceutical companies.
The development of new drugs does not happen by chance. It takes highly skilled scientists and years of research. It also requires colossal sums. Estimates vary on the cost of creating a new drug. A study by the Tufts Center for the Study of Drug Development put the cost at around $3 billion, after including investor opportunity costs. Another study reported that the median cost of developing new cancer drugs was less than $760 million.
Either way, it’s an amazing amount of money. Then there’s the fact that many drugs never make it to market. They don’t work or fail to overcome security issues. The reason pharmaceutical companies and their investors spend so much on research and development is because they believe they can turn a substantial profit later. If investors don’t believe they can make money investing in new drugs, there will be a dramatic reduction in the number of new treatments available.
This is capitalism in action. People invest their money now to make more money in the future. Patients benefit from new drugs.
But the pharmaceutical companies – the diabolical Big Pharma – are easy to demagogue. Americans like lower prices. Progressives have a deep distrust of the free market. When these two factors converge, it often leads to destructive government interference.
Consider the Inflation Reduction Act, which allows the government to “negotiate” the prices of certain drugs and requires drug companies to pay penalties if drug prices rise too quickly in the eyes of regulators. These are de facto price controls, and they are already having a negative effect.
The Wall Street Journal recently revealed that Alnylam has announced that it has suspended development of a treatment for a rare eye disease. In a statement, he said he had to consider “the impact of the law on reducing inflation”. Eli Lilly said he was stopping work on a new cancer drug in response to the Democratic bill because it “no longer met our threshold for continued investment.”
Pharmaceutical companies were already facing competition from generic drugs. But the law gave them a period of exclusivity to ensure they could earn enough profit to justify the initial outlay. This compromise has been in place for almost 40 years. Price controls erode this protection.
Americans have long benefited from drug innovation. What a pity that millions of future Americans do not have the same luck.