NCPA - National Center for Policy Analysis


May 24, 2005

Members of the Washington, D.C., city council want to regulate the pharmaceutical industry, says Doug Bandow, senior fellow at the Cato Institute.

The city council has given preliminary approval to legislation that would create a new "illegal trade practice" -- selling drugs for more than city politicians decide is fair. The bill would allow Washington, D.C., to seize the companies' patent rights in response.

D.C. city councilman David Catania, chairman of the health committee, leads the campaign and apparently believes in the eternal "free lunch," where slashing prices has no impact on pharmaceutical availability. Unfortunately, says Bandow, new medicines do not magically appear on the ground every morning like manna from heaven:

  • The U.S. pharmaceutical and biotech industry spends about $50 billion annually on research and development and only one of every 5,000 to 10,000 substances makes it to market; just 30 percent of those that do make it actually earn enough to cover their own development costs.
  • Estimated drug-development expenses in the 1980s were about $100 million per successful drug compared to about $800 million in 2003; costs continue to increase as demand grows for more clinical information and more clinical trail data.

No arbitrary government-imposed price could reflect all of these considerations, says Bandow. Even businessmen cannot be certain of product value before actual sales. Some expected big sellers flop; some medicines produced with only modest hopes flourish.

Yet price controls remain politically attractive because in the short term they can cut medical expenses without reducing product availability of medicines a decade or two hence, says Bandow. Government price-setting would sacrifice our future health, a far too high a price to pay to help re-elect election-minded politicians, whether in Congress or city councils.

Source: Doug Bandow, "Who Should Define What's "Reasonable?"" Tech Central Station, May 11, 2005.

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