Why the Government Shouldn’t Regulate the Pharmaceutical Industry

In Mid-January, the OECD published a report entitled “New Health Technologies: Managing Access, Value and Sustainability“, which analysed the regulations in the field of pharmaceutical innovation. This report is most interesting when it comes to identifying problems related to state intervention, but fails to draw the appropriate conclusions.

One of the greatest demonstrations of the success of “free enterprise” is the progress made in the field of modern medicine. Since the end of the First World War, we have invented a vaccine against tuberculosis (1927), defibrillation (1947), a vaccine against polio (1962), antivirals (1979), a vaccine against hepatitis B (1980), the cloning of a sheep (1996), or the first bionic / artificial eye (2007). Pharmaceutical innovation is both a necessity and a moral obligation to those suffering from incurable diseases.

A contemporary example is that of the pharmaceutical firm Sanofi, whose Dupixent drug was approved by the Food and Drug Administration (FDA) last month – a market entry worth more than three billion euros, which could help treat Atopic eczema of millions of affected patients.

These advances in pharmaceutical research are often slow and difficult. We must, therefore, do our utmost to facilitate speedier, more efficient development. Unfortunately, state intervention, while designed to ensure well-intentioned patient safety in the face of new drugs, considerably reduces researchers’ ability to manoeuvre. This is fully reflected in the OECD report.

Government intervention isn’t very useful

The OECD report shows that the time required to obtain an authorisation to administer treatment varies between 300 and 500 days depending on the country (the shortest period being in Japan, the longest in Switzerland and that of the European Union), and that all member countries tend to make efforts to speed up the process

Indeed, the OECD recognises that the time before the issuance of authorisations for treatment increases the cost to patients:

“Current efforts should focus on reducing associated costs. The benefits of any regulation should always be assessed against the costs it generates, both in terms of waiting times for patients seeking access to innovative products in terms of costs for innovators and administrative costs.”

The OECD further criticises the lack of communication between states, arguing that it slows down innovation: by working more closely with the World Health Organization (WHO), legal treatment in one country could become more rapid in another country.

The only practices recognised by the report as having a positive influence on the pharmaceutical market are Risk-Sharing Agreements, as in the UK and Italy. Under these commitments, pharmaceutical companies reimburse some or all of the treatments, should the condition of the patient not improve after a certain time. Thus, laboratories are evaluated according to their results.

It seems vital that any regulation applied to the market for new treatments should be the subject of genuine cooperation between all the players in the industry, including producers and scientists. This will help to avoid the current situation, in which the state sabotages the team effort repeatedly.

The state shouldn’t determine the value of pharmaceutical research

No one benefits from a system in which the government decides upon the winners and losers of pharmaceutical research. Not least the patients, who will be considerably worse off in such a system.

The OECD report acknowledges the slowness of the process of authorising treatment, but does not recognise the adverse effect of price controls: setting prices for new treatments or products will decrease innovation in the sector, since they reduce the incentive effect to make a profit.

Professor Darius Lakdawalla, a pharmaceutical professor, explained in the New York Times in 2015 that these government-imposed prices could reduce treatment innovation by 20 percent:

“Drug price controls would stifle the introduction of valuable new drugs, because innovators will spend less pursuing new drugs if they expect to earn fewer rewards from discovering them.”

The example of North America is a very apt representation of this. Canada practises these price controls, yet benefits from States which intervene less in this field, favouring innovation instead. As a result, thousands of Canadians travel to the United States for medical treatment.

The future of pharmaceutical innovation looks promising, let’s not waste it

While the past is full of examples of mismanagement by the state, the pharmaceutical market nonetheless has a promising future. We have entered a new era in which modern medicine is about to cure many diseases, and to eradicate scourges that mostly affect the poorest individuals. The OECD report has given us good clues as to what reforms should be adopted; We must now insist that all state action be undertaken with the scientific community and with pharmaceutical producers, in order to promote innovation in the field of health.

Bill Wirtz is a Law student at Université de Lorraine in Nancy, France. He currently manages the ESFL Blog. On his own blog (www.wirtzbill.com), he writes in four languages, and his articles have been published in daily Luxembourgish newspapers, the Foundation for Economic Education, the Mises Institute, Newsweek, the Washington Examiner or CapX. 

This piece was translated from French. The original can be found here.