57 – The End of Pharmaceutical Research?

I’ve made the point several times in these Commentaries that the liberals were successful in stopping the teaching of basic economics to our children about fifty years ago. As a result, two generations have grown to adulthood without the most basic understanding of how the various parts of the economy—material costs, wages, overhead costs, interest, prices, taxes, etc.—relate to each other.

We’ve all seen the results of that ignorance, in kids who can’t make change without a computer to tell them how much to give. Those instances are frustrating, but we can shake our heads and walk away from them. They don’t affect our lives in any long-term way.

Unfortunately, that may be about to change. A few of those children who grew to adulthood with no understanding of how our economic system functions have now become politicians, serving in our various state and federal legislatures.

Democrat politicians now serving in the federal House of Representatives have proposed a plan that could kill the pharmaceutical research industry. If that happens, our way of life and our very lives are at risk.

Since most of my readers probably don’t know how the pharmaceutical research industry works, allow me to give you a brief tutorial. I promise to keep it brief.

For the purpose of our discussion, let’s create a hypothetical disease. Let’s call it John Doe Syndrome, or JDS for short.

JDS is considered a “dread disease,” which means that (A) there is no known cure, and (B) once contracted, the disease is almost always fatal. There are a few cases of spontaneous remission, but doctors have no understanding of how or why remission occurs.

It’s a fairly significant disease, too, with about 10,000 cases diagnosed every year.

Research into a cure is almost always triggered by the offer of a grant. In our case, let’s suppose that the Cure JDS Foundation offers Acme Pharmaceutical a grant of ten million dollars to look for a cure for JDS.

Acme knows the ten million is just a drop in the bucket. It probably won’t cover more than the first few months of research, but they look at the numbers—10,000 cases a year—and decide it might be worth their time and money to look for a cure.

I promised it would be a brief tutorial, so let’s skip over the next five to ten years of try this, try that, animal testing, human testing, documenting negative side effects, and all the other things that went on. Let’s say that they end up with a medication that cures ninety-eight percent of the cases of JDS. All it takes is six doses of the medication—one dose a month for six months.

Now they’re ready to market the drug. But for how much? Here’s where the economics comes in.

The average drug costs six hundred million dollars in research costs from the time the research starts to the time it’s ready to go to market. Yes, that’s a huge number, but it’s accurate. In fact, those who disagree with the figure say it’s too low. Some analysts believe it should be as high as 1.2 billion dollars.

For the sake of this Commentary, though, let’s say that Acme Pharma brought the drug to market for our average cost—six hundred million.

The government allows Acme to patent the drug for a period of twenty years. For the next twenty years they will have exclusive rights to manufacture and market the drug. So they need to recover their six hundred million dollar development cost over a period of twenty years.

You’re welcome to check my math—I’ve given you all the necessary information. The bottom line is that in order for Acme to recover their six hundred million dollar development cost over a twenty-year period, they must charge five hundred dollars for each of dose of the medication.

The full six-dose regimen is going to cost each patient three thousand dollars—but afterward, he will be cured.

Invariably, some liberal (who doesn’t understand economics) will scream, “It only costs Acme five dollars to produce each dose, and they’re making the patient pay five hundred for it! They’re robbing the patients! They’re robbing the insurance companies! They’re robbing Medicare!”

That’s the basis of the Democrat House proposal. What they’re proposing is that the Health and Human Services Department should have the right to negotiate drug prices with the manufacturers.

(Parenthetical comment: when you’re dealing with the federal government, the word “negotiate” really means “dictate.”)

So some bureaucrat in the HHS is going to look at the JDS medication and say, “Five hundred dollars a dose? That’s ridiculous. We’ll allow you to charge ten percent of that—fifty dollars a dose.” If Acme sells their medication for the HHS price, they’ll only recover sixty million dollars of their development cost over the twenty-year patent term. They’ll lose five hundred and forty million dollars.

But wait—we don’t live in a socialist dictatorship.  (Not yet, anyway.) In a capitalistic, free-enterprise system the federal government can’t force Acme Pharma to sell their medications at a loss. What if Acme just says, “No, we’re not going to sell for that price. If the patients want the medication, they’re going to have to pay five hundred dollars a dose for it.” What happens then?

What happens is that the Democrat House proposal says if Acme doesn’t conform to the federal dictate, they will have to pay a fine equal to sixty-five percent of their income from the JDS medication the previous year. If they took in their planned thirty million dollars last year, they will have to pay a fine of nineteen and a half million dollars.

Wait—it gets worse. If that fine isn’t enough to make Acme knuckle under to the federal dictate, the following year the fine is ninety-five percent of their income from the medication. If (against all odds) they still sold thirty million dollars worth, the fine for the second year and each succeeding year would be twenty-eight and a half million dollars.

LAF comment: I equate these fines to the “windfall profits tax” that Prez Jimmy Carter imposed on the oil companies back in 1978. The message it sends is, “It’s okay to rob the customers, as long as you share the proceeds with the federal government.”

So what is the long-term effect of the House proposal going to be? Faced with never being able to recover most of their development costs, Acme and the other pharmaceutical companies aren’t going to do any more research. The dread diseases that are incurable today will remain incurable. New diseases that appear from time to time will be incurable, too. Some of the people who are in their thirties and forties today will die from diseases that might have been cured in the next two or three decades.

So far, the Democrat House proposal is just that—a proposal. It’s not a bill that has been submitted for legislative action. It’s just some suggestions that have been put forward for discussion.

But I have no doubt that within the next few weeks—certainly by the end of the year—a bill will be introduced that will incorporate most, if not all, of the provisions in the proposal.

And while the bill is still being debated on the floor of the House, the Democrat attack on opponents of the bill will start. Representatives who oppose the bill will be presented as people who want to help the pharmaceutical companies rob the public. There will be much publicity about the fact that it only costs Acme Pharma five dollars to manufacture a dose of the JDS medication, but because people with the disease must have the drug or die, they’re making those people pay an exorbitant price to live.

The Democrats, through their propaganda arm, the mainstream media, will present themselves as the compassionate protectors of the public. With this bill they will prevent the evil pharma companies from either robbing the people or condemning them to death.

The House is controlled by the Democrats, so eventually, the House will pass the bill and send it to the Senate. The Senate is controlled by the Republicans, but even before the bill is taken up by the Senate, the attacks will start on anyone who might oppose it. And the attacks will be repeated night and day by the talking heads in the mainstream media.

Will the Senate pass the bill? I don’t know. If they do, I believe President Trump knows enough economics to understand what a disaster the bill would be, and veto it.

I rarely do this. In fact, I don’t believe I’ve ever done it. But I’m going to ask you, my readers, to watch for this bill. If it’s passed by the House and gets to the Senate, please call or write your senators. Tell them to oppose the bill, no matter what the mainstream media says about them.

Your life, or the life of someone you love, may depend on it.

POSTSCRIPT: Upon further reflection, I’m not sure the Democrat plan described in this Commentary is the result of ignorance of our economic system. Most of the leadership of the Democrat Party is in their seventies—old enough to have studied at least some economics in high school or college. That being the case, I have to wonder if the leaders, anyway, don’t understand exactly what a blow this plan would be not only to the U.S. economy but to U.S. leadership in the world.

Think about it. For more than a century, the U.S. medical field has led the world. We’ve developed antibiotics that will cure almost any minor disease or infection. Vaccines that have almost wiped out diseases like polio and measles. Surgical procedures to replace almost any organ in the body, including hearts and lungs. Diagnostic machines like CT scanners and MRI machines.

Economically, the pharmaceutical research field is a multi-billion dollar industry. It employs tens of thousands of people, from research physiologists to the custodial people who clean the labs and the equipment.

During his eight-year reign, Barak Obama told the American people repeatedly that the U.S. glory days were finished. We needed to get used to high unemployment, declining wages, and a declining GDP. Millions of jobs went overseas during his tenure, and he told us those jobs were never coming back.

Obama even ridiculed Candidate Trump during the 2016 Presidential campaign, saying things like, “Trump says he’s gonna reduce unemployment. What’s he gonna do—wave a magic wand and get those jobs back?”

Now the Trump Administration has given us the best economy since the post-WW2 boom of the Nineteen Fifties—and the Democrats can’t stand it, especially since their messiah said those days were never coming back.

I believe they’re so infected with Trump Derangement Syndrome that they’re willing to destroy the economy of the U.S. and reduce us to an impoverished third-world nation to prove Obama was right after all.