Townhall.com, September 28, 2004

Let us now behold the rising sun of Marcia Angell’s new book attacking the pharmaceutical producers, as its rays cast darkness and confusion upon every issue relevant to the problems of drug innovation and prices. Analogous to a Kitty Kelly of pharmaceutical policy, Angell lives on a planet upon which no assertion is too silly, no argument is too preposterous, no policy nostrum is too destructive to have been excluded from her writings. To wit:

Angell argues that drug producers are making tons of money---supposedly, their “profit margins” are 17 percent, while those of the rest of the Fortune 500 firms are 3.1 percent---so that price controls would not reduce the incentive to invest in drug R&D. Really? Then why not bury a $100 bill in the hope that a money tree will sprout? Price controls by their very nature must reduce expected returns for investment in any given new drug, and the overall “profit margin” for the industry, however measured, is utterly irrelevant. Kelly, oops, Angell fails to understand that drug investment is highly risky; investment in new drugs takes fifteen years or more to pay off, even in the relatively rare cases in which such efforts pay off at all. Without profits sufficient to compensate for that risk, the industry would go into a long-term decline, precisely the outcome in Canada and Europe.

Angell for some reason dislikes competition among drugs; her term is “me-tooism.” This disdain for competition is strange given her overriding complaints about drug prices, but her implicit disregard for patient wellbeing is even more shocking: Different drugs affect individual patients differently even if the drugs’ effects are comparable in the aggregate. “Me-tooism” means that patients in consultation with their doctors can pick and choose. Or has Angell forgotten about patient welfare?

Angell argues that pharmaceutical producers profit significantly from research conducted or financed by government and university laboratories. Even the government refutes Angell’s assertion: A 2001 study by the National Institutes of Health found that of 47 major drugs, four had been developed in part with NIH funding. Indeed, private-sector pharmaceutical R&D spending is about $32 billion per year, an amount greater than the entire NIH budget. More importantly, the long delays imposed upon the availability of new drugs are substantially the result of government regulatory policy; subsidies for basic research are one crude method with which to compensate for that problem. Is there any evidence at all that Angell has ever thought of this?

Then there is the complaint about “marketing,” loudly prominent as Angell markets her book. Is drug marketing wasteful? Well, no, in that information about alternative paths toward improved health care simultaneously is valuable---that presumably is why Angell views her book as important---and not freely available. Are patients harmed when informed that a certain drug might treat a given condition, and that consultation with a physician might be useful? Not in this world. And pharmaceutical marketing expenditures to a large degree take the form of free drugs given to physicians, who tend to use them to determine which drugs deliver the greatest benefits to particular patients and to give them to the uninsured. Is either of those practices a bad thing?

And so we then arrive at the real crux of Angell’s argument, having far less to do with the science of health care than with the attendant politics. Angell complains that the U.S. is the only advanced nation that does not regulate drug costs (read: prices), and that, accordingly, other nations spend far less on drugs than does the U.S. And so Angell’s real goal is a politicized pharmaceutical sector, with which her political allies can use policies on drug pricing and investment to subsidize favored interest groups at the expense of others; that is the very nature of regulatory policy---taxation by regulation---under democratic institutions.

What Angell ultimately seeks is the treatment of the pharmaceutical sector as a public utility, with all of the perversities characterizing other regulated sectors in the U.S. Would there be political pressures affecting choices among diseases and conditions receiving priority attention and investment? Would we see a long-term decline in innovation and the actual alleviation of human suffering? The questions answer themselves. So much for the children.

Sally C. Pipes and Benjamin Zycher are, respectively, President/CEO and senior fellow at the Pacific Research Institute for Public Policy. They can be reached at spipes@pacificresearch.org and bennyz@pacbell.net.