Stalling the Engine of Economic Recovery

As America struggles to get people back to work after the deep recession, the best strategy is to focus on unleashing those industries most primed to create high-quality jobs, to innovate, and to strengthen our manufacturing sector so we can boost exports.

President Obama apparently disagrees. The pharmaceutical industry fits the description of an industry ready to contribute to U.S. recovery, yet the president is proposing policies that will impede the industry’s ability to do what it does best – innovate, generate big profits for shareholders, and create jobs in the process. He wants to make it more difficult for the industry to invest in cutting-edge medicines, and he also wants to replace industry-driven research with government-run research. This will stifle innovation, hinder job growth, and delay life-saving treatments in reaching the market.

America’s biopharmaceutical research companies have a demonstrated track record in contributing to innovation and economic growth. They employed about 655,000 people in the U.S. in 2008, and each of those jobs supported 3.7 additional jobs, for a total of nearly 3.1 million jobs supported by the sector. Across all occupations involved in the pharmaceutical industry – from scientist to technician to production worker – the average salary is higher in the pharmaceutical industry than in any other major private sector industry, reflecting the skills required in this high-tech sector.

The pharmaceutical industry also is one of America’s leading innovators. In 2010, pharmaceutical research companies invested a staggering $67.4 billion in research and development. Per employee, pharmaceutical companies invested almost ten times the average in research and development for all manufacturing industries between 2000 and 2004.

If the government doesn’t block it, the pharmaceutical industry is primed to continue this innovation. Between 2005 and 2007, more than 1,200 new compounds – each of which could become a lifesaving drug – were introduced to the development pipeline, nearly double the number of new compounds introduced between 1997 and 1999.

Countries around the world are doing everything they can to attract investments in pharmaceutical research and manufacturing. Yet despite the overwhelming evidence that the pharmaceutical industry can be the engine of economic recovery, President Obama is taking dangerous steps that could shut down that engine.

On the one hand, Mr. Obama is going out of his way to make the process of developing pioneering medicines riskier and more expensive. For example, one of the most promising and cutting-edge fields of pharmaceutical research is a class of drugs known as biologics – organic compounds that represent the new generation of drug treatments. In the short time since biologics entered the market, they already have demonstrated major breakthroughs in the treatment of diseases including rheumatoid arthritis, breast cancer, multiple sclerosis, Crohn’s disease, and other crippling and deadly diseases.

One would expect the government would be doing everything in its power to encourage the development of this new, life-saving class of medicines. But sadly, that isn’t the case. Mr. Obama is instituting policies that will hinder the development of biologics. For example, traditional drugs generally have 12 to 14 years of patent protection before generic copies of the drugs can be made. But the president has recommended that biologics – which are exponentially harder and more expensive to develop than traditional drugs – should only get seven years of market exclusivity. Seven years will be too little time to recoup the nearly $1.3 billion invested, on average, to bring a new drug to market.

The result of the president’s proposal will be to prevent companies from investing in research into new biologics. And if these new life-saving drugs aren’t created, there will be fewer jobs in research, manufacturing, and all of the other complex steps it takes to bring a drug from the laboratory to the patient.

On the other hand, Mr. Obama is proposing pumping more money into government-sponsored medical innovation centers. There is no evidence that government has the expertise to bring new drugs to the market or that it can possibly match with taxpayer dollars the industry’s investment in research and development.

A smarter approach would focus on reducing the hurdles to innovation. One way to do this would be to speed up the process for new drugs to complete FDA trials. Between 1999 and 2005, the length of clinical trials for new medicines grew by 70 percent.

During this time, the cost of developing drugs skyrocketed (from an average of $800 million in 2000 to $1.2 billion 2005), and competition from generics and overseas drug-makers intensified dramatically. Rather than adding new barriers to innovation, the government should find ways to safely streamline the drug approval process.

What Mr. Obama fails to realize is that government can’t do the job of industry. Making it harder for pharmaceutical companies to innovate and expanding government control over healthcare research will not improve healthcare innovation.

Instead, it will stunt innovation, kill jobs, and prevent life-saving drugs from ever reaching the market. If these policies prevail, Americans in the future will wonder what happened to this vibrant industry and to the miracle cures that instead stayed on the laboratory shelves.

Posted on RealClearMarkets, May 13, 2011.

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