Mr. Clinton's prescription.

|The pharmaceutical industry is spending $1 billion more each year on advertising and lobbying than it does on developing new and better drugs. Meanwhile, its profits are rising at four times the rate of the average Fortune 500 company."

The President's statistical indictment of the drug industry ignores crucial evidence to the contrary. Most industries spend far more on marketing their products than on developing them. The drug industry spends about equal amounts on each - a ratio more than justified by the number of new products that require detailed explanation.

Since 1982, drug-industry profits have averaged about 13.5 per cent of sales, according to the Department of Commerce. That's slightly above the profit rate for the soap, food, and soda industries. And with only one out of every four thousand drugs screened making it to the market, the industry probably doesn't offer investors a rate of return commensurate with the risks involved.

Nevertheless, Mr. Clinton's remarks suggest that drug companies will bear the brunt of his near-term efforts at cost control. Senator Pryor (D., Ark.) has already introduced legislation to curtail tax benefits of drug companies that raise prices faster than the CPI. In the proposed vaccination program for children, drug makers will probably be required to provide vaccines at whatever price the government deems reasonable.

The political rationale is obvious: Unlike doctor or hospital bills, drug expenses are usually paid out of the patient's pocket. Medicare, for example, doesn't cover prescriptions.

In purely economic terms, however, the drug industry is an odd first target. Since 1965 drug prices have risen only two-thirds as fast as the prices for all medical care; pharmaceutical costs have declined from 8.9 per cent of overall health-care spending in 1965 to 4.8 per cent in 1991. Americans spend a smaller fraction of GDP on prescriptions than Germans, Frenchmen, or Japanese. Even Canada, where the government controls drug prices, could do no better than match the U.S., at 1 per cent of GDP.

Furthermore, much of the rise in prescription prices is unrelated to actions taken by drug companies. Almost the entire rise in the price of whooping-cough vaccine (up 6,000 per cent since 1970) has been attributed to the courts. Drug companies have been forced to buy hefty liability insurance, even though the vaccine was found to be safe.

Seven conditions - osteoporosis, diabetes, depression, arthritis, Alzheimer's disease, cardiovascular diseases, and cancer - account for more than half of total health-care costs in the United States. There are 262 drugs currently being developed for these seven conditions. New drugs have already eliminated the need for most ulcer surgery and have reduced the costs of treating schizophrenia.

Bashing the pharmaceutical industry may kill the only truly painless way to control health-care costs.