Steve Bullock’s Senate campaign is targeting greedy pharmaceutical companies and demanding that the government negotiate drug prices. It misleadingly claims that Sen. Steve Daines “gave billions in tax breaks to [big drug companies], while blocking lower prices to you.”
If Bullock wants to be altruistic, he ought to raise taxes to subsidize the costs of these drugs. Making the companies that develop these drugs pay for his altruism will mean fewer life-saving new treatments in the future.
Americans are understandably upset that Canadians buy drugs at a far lower price than Americans do, especially since nearly all of their prescription drugs are made in the U.S. in the first place. Canadians and Europeans are able to enforce price controls because they threaten the pharmaceutical companies with the loss of their patents. If pharmaceutical companies don't accept the price that these governments are willing to pay, they can't sell their drug there.
Under World Trade Organization rules, if the drugs aren't sold, for example, in Canada within two years of when they hit the U.S. market, the company loses its patent and Canadian companies can copy the drug. The company that created the drug is left with absolutely nothing.
These foreign countries use the threat of stealing patents to free ride on our investments. U.S.-based drug companies spend vast sums to develop new drugs, and Americans pay market prices for them to cover the R&D costs. Once developed, drugs are reasonably inexpensive to produce, and foreign countries force companies to sell the medicines at a price that is little more than the cost of manufacturing and distribution.
The American consumers thus cover the R&D costs. Over the long haul, companies will not keep developing new drugs unless they can recoup the massive costs of research and regulatory approval. In effect, the U.S. underwrites the cost of a critical chunk of the world's health care. If Americans paid the same price as Canadians, new drugs wouldn’t be made.
While American consumers would get the short-term windfall of lower prices under Bullock’s price controls, they would end up suffering and not living as long as they could have if promising new therapies had been developed.
Drug-price controls are particularly pernicious. While controls on oil and other products tend to be short-lived — voters eventually object to the resulting shortages — the effects of drug regulations are more difficult to observe since they prevent new medicines from being invented. Even if people realized that controls were preventing new drugs from being developed, it’d be hard to convince them to pay higher prices for benefits coming years down the road. Pharmaceutical companies would also have to be convinced new controls wouldn’t not be imposed as soon as the new drugs are released.
The average cost of developing a new drug and overcoming the regulatory hurdles and bringing it to market are enormous: $2.87 billion. Even then, only 3 in 10 drugs that are brought to market generate enough revenues to cover these average costs.
In 2018, U.S. pharmaceutical R&D totaled $80 billion. Despite the high risks of not recouping these costs, drug companies in the past 30 years have developed powerful new therapies for conditions such as high cholesterol, sepsis, depression, Alzheimer's, HIV/AIDS, and asthma. These conditions had previously been difficult or impossible to treat.
Politicians such as Bullock like to promise cheap things that others have to pay for. The problems may not appear for many years, but they will be real. If you think we have all of the breakthrough drugs that we will ever need, Steve Bullock is your candidate.
John Lott is the president of the Crime Prevention Research Center and the author most recently of “Gun Control Myths.”