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Saturday, October 28, 2006

Memo to New Jersey voters: The Democrats will gun for pharma 


If you live in northern New Jersey, you know that the profitability of the pharmaceutical industry is the single most important driver of employment and income in your economy. Whether you are an executive at Merck in Whitehouse Station or a secretary at J&J in New Brunswick, you know this to be true. You also know that your industry invests in the drugs that save our lives or just make them worth living because the sales of those drugs can generate a rate of return that justifies the huge risk. You probably know that this has become ever more difficult for American pharmaceutical companies, because most foreign markets are monopsonies or otherwise regulate the prices you can charge, knowing that the marginal pill costs pennies to produce, even if the first pill cost a billion dollars. Faced with no choice, most pharmaceuticals will sell into small markets, such as Canada, at far lower prices than would have justified the investment to develop the drug in the first place.

With that in mind, remember that if the Democrats win control of the Congress they will do everything they can to reduce the rate of return($) on pharmaceutical research and development:

California Rep. Henry Waxman, the vocal corporate critic slated to run a powerful committee if Democrats win the House, said he would aggressively expand oversight of many large industries -- with a focus on drug prices, oil-company profits and Halliburton Co.'s contracting work in Iraq....

Of particular concern, Mr. Waxman said, would be rooting out what he called "profiteering." His aides define the term broadly enough that it encompasses Iraq contracting, the massive growth in homeland security expenditures, pharmaceutical prices and soaring oil-industry profits.

In this country, at least pending the return of the Democrats to control of Congress, the government stays out of the pricing of pharmaceuticals even when it acts as a buyer. The result is that new drugs that are still "on patent" are expensive, profits on those drugs can be large, and the pharmaceutical companies are therefore willing to make big bets on the development of new drugs so that they can do it all over again. A lot of that invested money ends up in New Jersey.

Yes, this post is making a parochial political point. Yes, I obviously believe that it is very unwise to regulate drug prices without reference to the benefits to New Jersey, but that is a longer discussion that I do not have the energy for this morning.

8 Comments:

By Blogger Reagan's Ranger, at Sat Oct 28, 10:05:00 AM:

Thank you. I have been making this point for years.

Democrats are not only killing the Golden Goose, they are also literally killing people who would have been the beneficiaries of life-saving drugs that will no longer be developed.  

By Anonymous Mystery Meat, at Sat Oct 28, 12:15:00 PM:

I recently reread "Atlas Shrugged" for the first time since high school. All this stuff is right there. She was a prescient lady.  

By Blogger 2164th, at Sat Oct 28, 02:03:00 PM:

Not many people would think of that connection. I wonder if the Republicans will think to remind them.  

By Blogger Screwy Hoolie, at Sat Oct 28, 04:08:00 PM:

On the other hand,

Democrats will work towards Medicare Part D reform. The current system makes it illegal for the government to negotiate with drug companies for better prices. The exception to this is with the Veterans Administration. A Democratic priority is to reintroduce competition in contracting with Medicare.

This is good, yes?  

By Blogger TigerHawk, at Sat Oct 28, 05:25:00 PM:

Sadly, Screwy, no. And I may even work up the energy to explain why in a subsequent post.  

By Blogger Georgfelis, at Sun Oct 29, 11:07:00 PM:

And yet Democrats are more than happy to deal with Big Drug Companies when they want expanded Embryonic Stem Cell research. (See the deceptive Amendment #2, financed by a wealthy couple who have a stem-cell research company in Missouri)  

By Blogger skipsailing, at Mon Oct 30, 05:05:00 PM:

I've worked in the health care industry my entire life. My current job title is Pencil Necked Finance Geek ( I got the job despite having an average neck!).

I can sum up the major problem with America's health care system in two words:

the Government.

Screwy envisions, if I read him correctly, a monopsony. Once the government sets the price they will also determine the nature of research and ultimately own the pharmaceutical industry.

Based on how the government has destroyed industries like Rail and hospitals, I really don't want them mucking about in the pharmaceutical industry.  

By Anonymous BIRD OF PARIDISE, at Mon Oct 30, 09:25:00 PM:

Strange how the demacrats support abortion yet want more gun control laws  

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