NCPA - National Center for Policy Analysis

EUROPE'S DRUG INDUSTRY IS A MODEL FOR UNITED STATES TO AVOID

March 20, 2006

Just a decade ago, Europe conducted more than two-thirds of all drug research, whereas now the United States accounts for two-thirds, says Grace-Marie Turner of Galen Institute.

Europe's deliberate government policy, in the form of price controls imposed by national health care systems, slowly choked a once-thriving economic sector. After all, Europe's government buys most drugs and therefore sets drug prices 40 to 60 percent lower than the free-market prices in the United States. However, these controls seriously hurt innovation, says Turner.

Consider the impact of Europe's price controls:

  • Major European drug makers -- such as Aventis, Novartis and GlaxoSmithKline -- shifted significant portions of their research operations from the Europe to the United States and beyond.
  • Human talent follows the research money; some 400,000 European science and technology graduates now live in the United States, with thousands more leaving every year.
  • In 2002, the United States introduced 85 new drugs, whereas Europe only introduced 44.
  • The loss to research caused by price controls, according to an international study by the U.S. Department of Commerce, caused a $5 to $8 billion annual reduction in funding for drug research and development.

Ironically, says Turner, the U.S. Congress added a new prescription drug benefit to Medicare, and to deliver the benefit, the government encourages negotiation for the best prices among private, competing pharmaceutical companies -- essentially setting prices for all 40 million Medicare recipients.

If this happens, research-based pharmaceutical companies will move on to Asia, where technology and education continually improve, says Turner.

Source: Grace-Marie Turner, "Europe's Drug Industry is Model for U.S. to Avoid," Heartland Institute, February 2006.

 

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