- The Washington Times - Monday, April 11, 2005

SAN DIEGO — The California biotechnology industry recently gathered for its annual CALBIO conference. Participants were excited at the prospect of developing new medical miracles. But the potential of government interference hung over the proceedings like dark clouds on the horizon.

Nearly $50 billion was spent last year in pharmaceutical and biotech research and development. The big drugmakers devoted $38.8 billion to finding new cures. A bevy of smaller biotech companies spent another $10.5 billion.

The United States dominates the biopharmaceutical industry worldwide. America’s advantage is not that its citizens are smarter, better educated or nicer. Rather, America is freer.

Despite manifold regulation by states as well as the federal government, it is still easier to conduct research, create products and sell medicines in the United States than overseas. In contrast, Europe faces a full-scale scientific brain drain in many industries due to its stultifying economic environment.

American dominance results in increased economic activity, particularly sales and employment.

Biopharmaceutical leaders are financial leaders. Pfizer ranks No. 24 on the Fortune 500. Johnson & Johnson comes in at 30 and Merck at 84. There are a half dozen more in the top 500 companies and another 11 in the next 500.

Biotech concerns typically don’t rate a Fortune 500 mention.

Nevertheless, the nearly 1,500 firms are enormously important, offering diverse entrepreneurial possibilities.

Revenues for the top three drugmakers alone run $123 billion. Their total employment is 288,000. Indeed, Pfizer and Johnson & Johnson have larger work forces than Exxon Mobil, No. two on the Fortune 500 list.

A new study for the Milken Institute figures that the biopharmaceutical industry collectively employed 406,700 people in 2003. Moreover, “Each job in the industry creates another 5.7 jobs elsewhere in the economy, substantially above the average for all industries.”

Particularly notable is the kind of employment. Notes the institute, “The pharmaceutical industry is one of the most enduring and most critical knowledge-intensive sectors in the U.S. economy.” The results are higher than average wages and higher than average real output per worker, $72,600 and $157,300, respectively, in 2003.

Biopharmaceutical concerns are research-oriented. Observes the Milken Institute: “Biopharmaceuticals accounted for 8.2 percent of all industry research and development in the United States in 2002, despite representing only .3 percent of total non-farm employment.”

This research and development is what generates the industry’s other important public benefit: life-saving and -enhancing drugs.

Last year the U.S. biopharmaceutical industry won FDA approval of 38 new products. A half dozen of the medicines treat cancer. Three address infectious diseases, two ease pain and two help eliminate radiation contamination. Others treat alcoholism, blood disorders, depression, diabetes, immune deficiency, kidney disease, pulmonary disease and more.

There’s the prospect of more and better drugs in the future. Unfortunately, however, making drugs isn’t cheap.

Pharmaceutical companies spend about one-fifth of their sales revenue on R&D. Spending has more than doubled over the last decade. The Tufts Center for the Study of Drug Development figures that the average cost of creating one drug has increased about two-and-a-half times since 1987, to $802 million.

Yet only three of every 10 medicines that get to market — the latter only about one out of every 5,000 to 10,000 compounds originally examined — actually earn enough revenues to cover their R&D cost. And the three successes have to pay for dry holes and everything else.

The business is made more difficult by politicians dedicated to winning votes by demagoguing the industry. Although there probably isn’t an American alive today who hasn’t benefited from a new medicine developed in the last decade, over the same period the drugmakers have increasingly been compared to tobacco companies, polluters and corporate outlaws.

Participants at the CALBIO conference spent most of their time discussing how to better create new products. Yet the attendees also worried about regulatory efforts, especially attempts to drive down prices through price controls, restrictive drug formularies and “reimportation” of their own products from abroad. Such steps threaten even industry leaders.

Far more vulnerable, however, are smaller biotech concerns, especially recent start-up companies which have no ongoing sales or accumulated income and thus must depend entirely on investment capital. C. Boyd Clarke, CEO of Neose Technologies, a Pennsylvania biotech concern, observes that “more than 90 percent of such companies remain unprofitable 30 years into the biotech age.”

It is far better to get sick today than it was 10 or 20 or 30 years ago. Still, too many people tragically die.

But, thankfully, fewer are likely to die 10 and 20 and 30 years from now. Biopharmaceutical researchers are offering Americans a bright future filled with unbounded opportunities.

However, these possibilities will go unrealized if politicians kill the golden goose. Alas, wonder drugs cannot be produced for nothing. Those of us who benefit so much from the wonders of biopharmaceutical research must be willing to pay for them.

Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Reagan.

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