NCPA - National Center for Policy Analysis


May 8, 2007

Lower prices on drugs sound great.  So Congress has passed an amendment to the Food and Drug Revitalization Act allowing the importation of medicines from a number of countries in which governments "negotiate" -- that is, impose -- prices, says Benjamin Zycher, senior fellow at the Manhattan Institute.

Foreign prices are far lower than those paid by Americans, even in economies approximately as wealthy as ours.  The reason: Europeans and others obtain free rides on the massive investments -- about $1 billion per drug -- needed to bring new medicines to market.  It is that free lunch that is the siren song for Congress, which now wants in on the action.

However, "free," of course, is the last adjective appropriate for such legislative outcomes, says Zycher:

  • The amendment forces the pharmaceutical producers to sell to the foreign exporters all the quantities that they demand, including supplies intended explicitly for the U.S. market.
  • Lower prices inexorably will reduce the willingness of the market to invest in the research and development of new and improved medicines.
  • Recent research shows that even small price effects -- barely more than 1 percent annually -- compounded over time yield a loss of almost 200 medicines over a 20-year period.

Say goodbye to some substantial number of new medicines and to the increased life expectancies that would have resulted, says Zycher. That effect has been quantified as well:

  • The expected loss of life years would equal at least 5 million annually.
  • At only $100,000 per expected life year, that loss can be valued conservatively at $500 billion a year, far more than the entire U.S. market for drugs.

Source: Editorial, "Drug Imports: The Unappreciated Downside," Investor's Business Daily, May 8, 2007.


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