A Winning Issue that deals with Gross Trading Abuse

by Steve Forbes, Editor-in-Chief, FORBES

HERE’S A HUGELY winning issue for President Donald Trump that would deal with a gross trading abuse and simultaneously advance his goal of reducing the prices of prescription drugs: Insist that foreign buyers of American pharmaceuticals–almost without exception government agencies–pay their fair share of the research and development costs of these medicines. Currently, Americans are subsidizing overseas users of our drugs.

Here’s how that works. The average price of successfully bringing a new medicine to market in the U.S. is about $2.4 billion. The entire approval process takes some 12 years before a drug receives its final green light. The expenses include all the would-be medicines that fail to make it out of the research labs or falter during the Food & Drug Administration’s expensive, time-consuming clinical trials.

Pharmaceutical companies get 20-year patents for their drugs, which means they really have about 8 years of monopoly power (20 years for the patent minus the 12 years for clearing all the hurdles before a particular prescription can actually be sold). No wonder the initial price for a new drug is sky-high, even though the actual manufacturing cost per pill is minuscule. (Ideally, when a drug goes “off-patent,” imitators rapidly bring copies, called generics, to market, slashing the price. Unfortunately, FDA regulations have gummed up this process. New FDA head Dr. Scott Gottlieb has been removing obstacles, which is why the rate of drug approvals has more than doubled.)

When a pharmaceutical company sells a new drug overseas, buyers demand a price that’s a fraction of what American customers pay. The demand is more in line with a gangsteresque “We’ll make you an offer you can’t refuse” process than normal business bargaining. The implicit–and sometimes explicit–threat is that if a company doesn’t cave the country will allow a knockoff of the medication to be produced by another company.

The U.S. should now make fair pricing of American drugs overseas a top trade priority: If you don’t want to pay for our R&D, you won’t get our pills. Period. And if you try the imitation game, we’ll take painful retaliatory measures.

Success with this would mean significantly lower costs for American consumers. The publicity surrounding the issue would also educate Americans about how costly–and antiquated–much of our current approval system is, thus generating political support for the kinds of reforms Scott Gottlieb is pushing at the FDA . . .

This story appeared in the March 31, 2018 issue of Forbes.

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