Though The U.S. Is Healthcare’s World Leader, Its Innovative Culture Is Threatened

The United States remains the world leader in medical innovation, having produced more than half of the world’s new medicines over the last decade. But our edge is slipping away because of crippling domestic regulatory and tax policies.

A new report by Battelle, an international science and technology company, found that other countries are working aggressively to lure research facilities and high-paying jobs away from the United States. They are offering friendlier regulatory policies so companies can get products to patients faster, and they are lowering taxes and offering other incentives to boost private investment in new medicines and medical devices.

Our edge is not gone yet, but U.S. legislators must quickly act to stop the drain. Today, 12 of the top 20 medical device companies are headquartered in the U.S. Last year, U.S. companies had more than 3,000 new pharmaceutical products in development.

This superior medical innovation not only creates life-saving drugs, but boosts our economy. Battelle also found the biomedical industry contributed $917 billion to the U.S. economy in 2009 and supported more than four million jobs.

The cost of developing a new drug now exceeds $1.3 billion and takes an average of 12 years, and only a small percentage of new molecular entities ever reach the market. Instead of mitigating the risks that go along with these huge investments, the U.S. government has been erecting ever higher hurdles.

High American corporate taxes, in particular, deter investment. The top corporate income tax rate in the U.S. is 38 percent compared to an average of 15 percent in other countries.

In addition, many countries have instituted strong and permanent incentives for research and development, but the United States has kept its R&D tax credit “temporary” for decades. America now ranks 17th out of 21 countries in the Organization for Economic Cooperation and Development in the effective rate of its R&D tax credit.

The new health law also has created major new hurdles for investment in the biomedical sciences. Consider ZOLL Medical Corporation, a medical device company that now finds itself in the bull’s eye of ObamaCare. The law imposes a 2.3 percent tax rate on the revenue that medical device manufacturers collect — revenue, not profits! This will increase ZOLL’s tax rate to more than 50 percent, completely wiping out its R&D budget.

As ZOLL President Jonathan Rennert explained in a recent forum, “every one of the jobs in our company is now in the United States. But [when the medical device tax takes effect in 2013] we will have every incentive to move jobs offshore … the tax will lead to less innovation, fewer jobs, and fewer lives saved.”

Many other American companies, large and small, are driving innovation in the medical field — working to promote healthy lifestyles and develop new, life-saving treatments. Washington needs to support reforms that will allow their groundbreaking advances in the health sector to continue.

The engine of enterprise in the U.S. can continue if Washington were to understand the competition U.S.-based firms face from other countries and reverse its destructive policies.

In one small step, companies are working with the FDA to improve clinical trials so they can be smaller and better targeted, getting drugs to patients faster. Pfizer, for example, was able to bring its newest drug for lung cancer, Xalkori, to market in just four years using new research models that target drug trials to patients genetically tested to be most likely to respond. In one study reported at an American Society of Clinical Oncology meeting, 60 percent of patients were alive after two years, compared to only nine percent in historical trials.

The United States remains the undisputed leader in biopharmaceutical research for now, but our continued leadership is far from guaranteed. While other countries fight ferociously to lure biotech jobs and medical breakthroughs, our outdated regulations and burdensome taxes put the biomedical sector at risk. Once these jobs are lost, it will be extraordinarily difficult to get them back.

Real solutions in the health sector have come not from government, but from entrepreneurs working to find new treatments and improve care. These are the people and companies who will bring transformational change for the 21st century — provided Washington gets out of their way.

Posted on Forbes: Health Matters, May 23, 2012.

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