Study Says Price Controls Bad for Drug Firms and Consumers

If the U.S. adopts the kind of drug industry regulation that exists in other developed countries, American drug company revenues could drop by as much as 20.3 percent, according to a RAND Corp. study of 19 developed countries published by the policy journal Health Affairs.

The RAND researchers, led by Neeraj Sood, issue a familiar warning in the argument against adopting European-style price controls on drugs in the U.S., which is that reduced profits at pharmaceutical companies will only hurt consumers in the long run because of less spending on research and development of new drugs.

Pharmaceutical regulations might also have negative consequences for consumers today. For example, price regulation can lead to less competition in markets for generic drugs, delay launch and limit availability of new drugs, and could lead firms to follow costly strategies to ‘game’ regulations.

From 1992 to 2004, the trend in developed countries was toward increasing regulation, the RAND study illustrates with this chart:

The study may fall on deaf ears in the incoming Obama Adminstration, if the President-elect’s choice of Rahm Emanuel as chief of staff is any indication. BNET blogger Jim Edwards recently pointed out that Emanuel has long been in favor of drug reimportation to the U.S. as a way to lower prescription drug prices.

There may be a silver lining for U.S. drug manufacturers in the current global recession. Washington policymakers may be reluctant to make any dramatic changes in U.S. drug regulation amid the worst economic crisis since the Great Depression.

Drug companies are exhibiting symptoms of pain in the current crisis, with Bristol-Myers Squibb Co. (NYSE:BMY) announcing this week it was laying off another 10 percent of its workforce by 2010, citing the economy and increased competition from cheaper generic drugs.

Merck & Co. (NYSE:MRK) and Pfizer Inc. (NYSE:PFE) have also announced big job cuts recently to try to meet Wall Street’s profit expectations.

As Research Recap wrote recently, the 2009 outlook for the global pharmaceutical industry is definitely more guarded as a result of fewer new drugs in the pipeline and the loss of exclusive drug patents.

Comments

[herbert hoover:]

Pharma profits will also sink once Obama abandons the Bush policies that prohibited drug pricing negotiations. Their future earnings are going to plummet

2008 Dec 18 12:09 PM

[Dan Jacome:]

and this is on top of the $90b worth of generics hitting the mkt by 2013!!!! Ouch. and you wonder why PFE is @ 10 year low. Fire that CEO and bring in a guy who can grow the top line and do something useful with its horde of cash.

2008 Dec 18 01:55 PM

[Str8upcashh...:]

Its about time we adopt drug policies similar to what other european nations have been doing for years. Whats the point of all the research and new drugs if no one can afford them?

2008 Dec 18 01:56 PM