http://www.forbes.com/opinions/2008/10/30/obama-drug-medicine-oped-cx_ch_1031hooper.html
Obama And The 'Drug Killer'
Charles Hooper 10.31.08, 12:00 AM ET
One of the unpleasant things I do as a consultant is recommend
that pharmaceutical firms halt the production of uneconomical new
medicines. I'm a drug killer.
If American voters hand Barack Obama the presidency and a
filibuster-proof Democratic Congress, I'll be doing a lot more of this
unhappy work.
Say a biotech company is developing a new drug for breast cancer. My
consulting firm, Objective Insights, looks at the financial value of
the project. If the expected value--probability-adjusted value--of
the project is negative, we suggest discontinuing development. Often,
millions of dollars have already been spent.
A lot of new medicines are tossed into the trash for reasons that
have nothing to do with safety and efficacy. We have helped kill
drugs for brain cancer, ovarian cancer, melanoma, hemophilia and
other debilitating conditions. It breaks my heart. But we would never
recommend that a company knowingly lose money unless some other crucial,
nonfinancial objective was being achieved.
The economics are daunting. A study by Joseph DiMasi, an economist at
the Tufts Center for the Study of Drug Development in Boston, found
that the cost of getting one new drug approved was $802 million in 2000
U.S. dollars, or $1.02 billion in 2008 dollars. Most new drugs cost
much less, but his figure adds in the expense of each successful drug's
prorated share of failures.
.....
As I wrote in the Concise Encyclopedia of Economics: "What complicates
the picture is socialized medicine, which exists in almost every country
outside the United States and even, with Medicare and Medicaid, in the
United States. Because governments in countries with socialized medicine
tend to be the sole bargaining agent in dealing with drug companies,
these governments often set prices that are low by U.S. standards. This
comes about because these governments have monopsony power--that is,
monopoly power on the buyer's side--and they use this power to get good
deals. These governments are, in effect, saying that if they can't buy
it cheaply, their citizens can't get it."
Drugs are not too expensive in the U.S.; they're artificially cheap
elsewhere. It's also not much of an exaggeration to say that new drugs
are developed for, and as a result of, the American market because of
its pricing flexibility.
Every person benefits when drug companies have an incentive to invest
in the public good of pharmaceutical research and development. But each
individual government looks out for its narrow interests--for one, to
negotiate a low drug price for its own citizens and let people in other
countries pay the high prices that generate the return on research and
development investments.
Each government, in other words, has an incentive to be a free
rider. And that's what many of them are doing today. The temptation
in this country, especially among liberals, is to stop Americans from
bearing more than their share of drug development by having the U.S.
government set low prices. But if Americans try to get a free ride,
there might not be a ride at all. There will certainly be fewer new
drugs on the market.
If Obama is elected, I'll be killing a lot more drugs. And neither you
nor your physician, whose preferences are insignificant in the eyes of
the government, will have any choice in the matter.
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