Senator John McCain recently told health care executives gathered in Phoenix that the pharmaceutical industry has justifiably gone from revered to reviled in the eyes of the public.

Unfortunately, the Senator may be correct in part of his assessment. An examination of the facts, however, calls into question whether the image deterioration is justified.

Consider the two issues that the industry opposes that upset McCain: Direct federal negotiating of drug prices and staunch resistance to importation of drugs from foreign countries such as Canada.

Yesterday's, today's, and most important, tomorrow's life-enhancing pharmaceutical products are expensive to produce. It takes roughly $800 million to bring a new drug to market. Private industry invests more than $61 billion annually in R&D, double in inflation adjusted terms than it did a decade ago, and more than twice what the federal government invests. These investments are only made with the expectation of profitable returns, and the profitable returns depend on property rights supported by patent protection and the ability to freely price products.

The industry is correct to fight direct federal negotiating of prices, as negotiating with goliath is the equivalent of having goliath set the prices. And we only have to look to Europe to see what government price controls mean for pharmaceutical innovation. European-based labs produced 81 new drugs from 1993 through 1997 compared to 48 from the United States. Over the next five years, European-based labs accounted for just 48. U.S.-based labs produced 85 new drugs.

Importing drugs from foreign countries is the equivalent of importing foreign price controls. Beyond the economics, however, is the larger issue of public health. Counterfeiting is a real threat to the public's health, a threat recognized by the FDA, Republican Rudolph Giuliani of New York and Democrat John Garamedi of California. It's a growing problem in Europe, where fake drugs account for one in ten pills. It's a problem in Canada, where officials are investigating at least three counterfeit drug rings in Toronto alone.

Pharmaceutical products are a large part of the solution to escalating health care costs, not the problem. Research by Columbia University's Frank Lichtenberg shows that each $1 spent on new pharmaceutical products reduces overall health care spending by $6.17, as drug therapies are less expensive than more invasive procedures. On average, the price of pills poses few problems for Americans. According to the U.S. Bureau of Labor Statistics, Americans spend more each year on televisions and radios -$730- than on pharmaceutical products, $467. Our restaurant tab at $2,211 dwarfs the pill bill.

That's not to say some don't struggle to pay for medications. But the most vulnerable Americans-including 7.5 million Americans on Medicare--have long had their drug bills picked up by the state and federal Medicaid program. For those with incomes above the cut off for Medicaid, the industry sponsors more than 150 discount programs that can be accessed at 1-888-477-2669.

The pharmaceutical industry is not perfect. But would the United States be better off with the government producing or setting the price of pills?