Whats the most research-intensive industry in America? If you guessed Silicon Valley or the energy sector, guess again.
In fact, its the drug industry. The 31 pharmaceutical companies comprising its main trade group spent $48.5 billion on research and development last year. All told, the pharmaceutical sector has spent $550 billion on R&D since 2000. That half-trillion dollars of research has yielded more than 400 new medicines.
Unfortunately, President Obama appears intent on grinding pharmaceutical research to a halt. His proposed budget would slap price controls on prescription drugs, thereby depriving the sector of billions of dollars in revenue. Thats on top of the tens of billions in new taxes Obamacare assesses on the industry.
More money for the feds means less money for drug research and development. If pharmaceutical research falters, both patients and the economy will suffer.
Under the presidents budget rubric, pharmaceutical companies are expected to face $164 billion in cuts over the next 10 years. That accounts for half of what the budget would cut from health care.
The chief means of delivering those cuts would be an extension of Medicaids best price provision on pharmaceuticals for low-income Medicare beneficiaries.
At present, drug companies are forced to sell drugs to Medicaid at the lowest price they charge private insurance plans or at a 23.1-percent discount from the average price.
Drugmakers already have to charge private buyers more to make up for the money they lose because of Medicaids price controls. Indeed, the Congressional Budget Office recently concluded that Americans pay higher prices as a result of the best-price provision in Medicaids rebate program.
Extending the provision to Medicare would deprive pharmaceutical companies of $123 billion and cause drug prices to shoot up even more.
A twelve-figure hit to drugmakers bottom line would also hamstring their research and development efforts.
Nearly a fifth of pharmaceutical sales revenue currently goes toward developing new drugs. If the federal government takes a bite out of drugmakers revenue through new discounts and taxes, then investments in research will decline.
Theres too much at stake to let that happen.
Consider the economic impact of drug research. Pharmaceutical R&D supports four million American jobs and is responsible for $917 billion of the nations annual economic output. More than 3,400 drugs are currently under development here in the United States a 40-percent increase since 2005.
Then theres the impact on patients. Of the 5,400 drugs in development worldwide, over 70 percent have the potential to be first-in-class drugs meaning that theyre wholly different from any previous drug in their treatment category.
The billions weve already spent on pharmaceutical research have clearly paid off. Since 1980, the average life-expectancy for cancer patients has increased by three years. Eighty-three percent of that increase is attributed to new drugs.
Death rates from heart disease dropped 33 percent from 1999 to 2009, thanks largely to the development of statins and other cholesterol-inhibiting drugs.
AIDS is no longer a death sentence. The death rate from the disease has dropped 85 percent since the introduction of antiretroviral drugs in 1995.
Unfortunately, the cost of producing new drugs is skyrocketing. Drug development costs have increased 50 percent since the late 1990s and quadrupled since the 1980s.
On average, it takes 10 to 15 years and $1.2 billion to develop a new drug, secure FDA approval, and finally deliver it to patients. Of the drugs that do reach the market, only two in 10 make enough money to recoup their research and development costs.
Despite these enormous risks and costs, the pharmaceutical research outlook is as robust as ever. President Obama once recognized as much, saying In America, innovation doesnt just change our lives. It is how we make our living.
If he really believes that, he should call off his assault on pharmaceutical research.