LIMITING DRUG COSTS PRICE CEILINGS COULD HALT DEVELOPMENT OF NEW MEDICINES.

Byline: Garry M. Galles Local View

FOR years, America's war on illegal drugs has attempted to reduce their availability by taking the profitability out of the industry.

But we want to increase the availability of prescription drugs, because we want to save and extend lives, control chronic, debilitating and previously untreatable diseases, alleviate pain, reduce side effects, etc. Unfortunately, though, proposals are circulating in Washington to impose price controls on prescription drugs that would treat potential breakthrough drugs like illegal drugs by taking the profitability out of discovering and developing them.

Pharmaceutical company critics focus on the fact that, with the cost of their development behind them, including those of the many failed attempts (less than one compound in 1,000 makes it to clinical trials, and only about one in five of those is approved for use), prices on existing drugs often far exceed their added production costs.

Critics see the resulting profits on those drugs that are successful (even though only three in 10 prescription medicines have revenues greater than average research and development costs) as excessive, so that holding down their prices by imposing price ceilings would benefit users with no ill effects other than to reduce ``undeserved'' drug company profits.

But that ``free lunch'' view seriously misdiagnoses the prescription drug industry.

Even though the prices of some existing drugs can be forced down by government coercion without driving them off the market, that focus on keeping pharmaceutical companies from recovering the costs of past development investments ignores their far more important effect on the future.

If companies know they won't be allowed to earn enough to make the arduous, lengthy and risky task of developing new drugs profitable, they will drastically reduce the huge investments they are making to find the next generation of miracle drugs. Bringing a new prescription drug to market can take 15 years and costs an average of $500 million.

Squeezing the profits out of current successful drugs will also squeeze out new discoveries driven by the prospects of future profits. Given the dramatic achievement of drugs developed this century (e.g., cutting fatalities from heart attack and stroke in half over the past quarter-century), and the quantum advances in pharmaceutical knowledge we are on the cusp of (a 1992 Battelle Institute study estimated that pharmaceutical research would save $750 billion over the next 25 years from just five illnesses - Alzheimer's, AIDS, cardiovascular disease, arthritis and cancer), this is a very high price to pay for a political free lunch.

The political pressures to impose drug price controls come from growing expenditures on drugs. But what is driving increased expenditures on drugs, however, is not rising prices for existing drugs, but increasing spending for drugs that did not exist before.

And spending more to buy drugs that can do what was once impossible is good, rather than a problem, because it demonstrates that users find those drug therapies superior to hospitalization, surgery or just living with (or dying from) diseases.

To the extent that drugs substitute for more expensive surgery or hospitalization, as well as reducing the pain and lost productivity from longer recovery, growing drug expenditures reduce the total costs of health care to Americans as well. To the extent that they attack previously untreatable diseases or conditions, denying Americans access to those drugs by eliminating the profitability of developing them may reduce the direct budgetary costs of health care, but it will condemn Americans to what would have been avoidable pain, suffering and death.

But, as critics claim, if prices for many drugs are cheaper in other countries, doesn't that disprove the argument that higher prices in the U.S. are justified? No. All it proves is that the government price controls imposed by other countries allow them a free ride on the drugs developed in the U.S. because companies can capture much of the value of those advances here.

If price controls are also applied here, the incentives for dramatic new drug discoveries will largely evaporate. Rather than extending lower prices to Americans, without the profits from the largely unregulated U.S. market to justify the investment in discovery and development, it will primarily mean that no one anywhere will have access to the advances eliminated in the process. Further, the lower prices do not extend to all drugs (a study of the top 15 generic drugs available in the same dosages in the U.S. and Canada found them 129 percent more expensive in Canada), with the most costly new wonder drugs delayed or kept unavailable in other countries.

Some 4,000 years of experience with government price controls shows them to be dismal failures as ways of benefiting citizens.

But when such controls threaten to dramatically reduce investments in future medical advances, just as our exploding knowledge and abilities make those investments more promising than ever, they are stupider than ever.

CAPTION(S):

Cartoon

Cartoon:

(Little old lady) "I drive to Tijuana to buy affordable prescription drugs."

(The President) "If only they'd let me socialize medicine you'd already be enjoying Mexican-quality health care right here in America."

Mike Ritter/North America Syndicate