Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, March 31, 1993 TAG: 9303310327
SECTION: EDITORIAL PAGE: A7 EDITION: METRO
SOURCE: MITCHELL E. DANIELS JR.
DATELINE: LENGTH: Long
An American industry universally acclaimed as the most competitive and technologically advanced in the world is in deep trouble. Layoffs and mass firings are rampant. The stock-market value of the industry plummets by a third in one year, as more than $100 billion of capital flees to more promising uses. The industry leads the world both in exports and innovation, but a new president committed to economic competitiveness and technology leadership singles out the sector for direct castigation.
What gives?
The industry is pharmaceuticals, and the damage, though severe, is totally avoidable. American drug companies, on the front lines of both medical research and world economic competition, can defeat both disease and foreign rivals, but may not survive the "friendly fire" of their own government.
A two-year campaign of disparagement is climaxing this month in a series of congressional show trials and presidential media events. The pharmaceutical industry stands accused of "excessive" prices, "obscene" profits and other malefactions.
Following this public flogging, prosecutors like Sen. David Pryor, D-Ark., will request additional sentencing: still higher taxes, price controls and, indirectly, a government takeover of medical research.
Does any of this make sense? The cost of drugs does strain the budgets of many citizens, and that is a problem for us all to work on. The industry, which gives millions annually in free medication to indigent patients, is acting to expand these programs. In 1992, the industry had the lowest price increases in many years, and virtually all leading companies have announced 1993 pricing at or below the level of inflation.
But the price-control proposals of today's attacker are recklessly irrelevant to the problem they lament. Why should we make modern medicines, already the best bargain in health care, artificially cheap for wealthy Americans? Especially when doing so would unquestionably damage research and delay the new drugs without which the increasing agony and expense of AIDS, Alzheimer's, cancer and other unconquered diseases will be uncontrollable.
Prescription drugs, though only 5 cents of the health-care dollar, are the most cost-effective nickel we spend. Drugs' share of medical spending is higher in every other developed country, and twice as high in Germany and Japan. So it is ironic and wrongheaded that our current system biases decisions against efficiency.
Increasingly, Americans pass on to a third party almost every medical bill - no matter how costly, redundant or ineffective the service purchased - except for drugs. Those bills we mostly still pay ourselves. So we are unimpressed that a modern medicine that costs us $30 saves society $50 for a return doctor visit we don't make, $700 for an extra day we don't spend in the hospital or even thousands for surgery we avoid.
Would-be price controllers belittle warnings about the danger of their policies to medical research, but the danger is real. Drug research is probably the riskiest economic venture we know; only one of 5,000 possibilities researched ever becomes a marketed product. The recent cataclysmic plunge in market capitalization means that more than one in every three dollars previously risked by investors in drug discovery has fled for less risky territory.
The $100 billion that has gone elsewhere amounts to more than 10 times the budget of the National Institutes of Health. Those members of Congress who hold forth about "reasonable" profits and "cost-plus" price controls have yet to catch on that if investors - workers' pension funds, venture capitalists or your Uncle Harry - are happy to be limited to a single-digit return, they won't gamble on an up-and-down, win-or-lose business like drugs or biotechnology; they will buy T-bills or the nearest utility. Of course, we don't look to the local electric company for brilliance in scientific innovation.
Finally, Washington's crusade against this industry clashes strangely with today's fashionable emphasis on "economic security" and high-tech superiority. It's an odd economic-growth strategy to hammer a sector that brings in billions in net exports and, until the recent assault started, was adding American jobs by the thousands every year.
Let's acknowledge the need for change in health care, including the small sliver that we devote to pharmaceuticals. But let's make change that makes sense. Price controls and recreational business-bashing help those who don't need it without solving the problems of those who do. Instead, let's provide broader coverage of drugs, universal coverage beyond some percent of income, or any other initiative that enables patients to utilize cost-effective modern medicines free of economic fear or hardship.
Meanwhile, Drs. Clinton and Pryor, do no (further) harm. This is one industry that seeks no special treatment. We pay well above average taxes now and aren't complaining. Neither do we seek protection against foreign competition. We can beat them in the marketplace and in the race for tomorrow's miracles.
In the years ahead, we can beat AIDS, Alzheimer's, cancer and the rest. The only adversary we can't beat is our own government; the only protection we need is against the irrational hostility of our own leaders.
Mitchell E. Daniels Jr. is vice president for corporate affairs at Eli Lilly and Co. He wrote this for the Los Angeles Times
by CNB