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No. 475

May 8, 2003

Demonizing Drugmakers

The Political Assault on the

Pharmaceutical Industry

by Doug Bandow

Executive Summary

Few sectors of the economy have provided

drugs is to invest heavily in research and develop-

more benefits to consumers than the pharmaceu-

ment. The $30 billion spent annually by U.S. drug-

tical industry. Drugmakers have been vilified by

makers dwarfs the budget of the National

patients and politicians alike, however, because of

Institutes of Health and investments by foreign

what they see as unreasonably high drug costs.

drug companies. Profits of U.S. firms tend to be

Yet medicine is not the most important com-

high, but not uniformly so, and they create a "vir-

ponent of the recent rise in health care expenses.

tuous cycle" that encourages more R&D to create

Moreover, the primary reason for current increas-

new medicine.

es in total drug costs is that more and more peo-

Yet industry critics propose everything from

ple are using newer medicines--which means that

socialized medicine to price controls and limits on

consumer benefits are rising even faster.

patents. Such measures would, however, reduce

Simplistic comparisons between drug costs in

incentives to create new medicines. It is true that

the United States and those in other countries have

some people, especially poor people in less-devel-

little value. Economic wealth, exchange rates, prod-

oped countries, lack sufficient access to pharma-

uct liability rules, price controls, and other factors all

ceuticals. Private charity at home and abroad

contribute to the price of drugs.

should make pharmaceuticals more available to

More important, prices for U.S. pharmaceuticals

people who are most in need, and Washington

are not excessive relative to the benefits they offer.

should include a drug benefit as part of overall

Drugs have contributed to the sharp reduction in

Medicare reform. In the meantime, states should

mortality rates from many diseases, including AIDS

help needy seniors through limited pharmaceutical

(Acquired Immune Deficiency Syndrome). Phar-

access programs.

maceuticals also reduce the cost of alternative treat-

Policymakers must avoid taking steps that

ments. Thus, restricting access to the newest and best

would, intentionally or not, wreck a world-leading

drugs can be economically counterproductive.

industry and deny people access to life-saving

Unfortunately, the only way to develop new

medicines.

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Doug Bandow is a senior fellow at the Cato Institute.