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Drug price controls and new drug R&D

In a short article in the fall 2004 issue of Regulation (scroll down to p. 4), John Vernon, of the U. of Connecticut, issues a sober warning about proposals to regulate pharmaceutical prices. Vernon and his colleagues have determined that for every 10% reduction in pharmaceutical prices, the industry spends 5.83% less on new drug research. It follows that if additional government regulation in this area actually reduced drug prices, this would necessarily involve a reduction in the number of new drugs developed and brought to market. Vernon estimates the number of "life-years" lost as a result of a range of price reductions via regulation -- for example: a 10% reduction in prices leads to the loss of 40.1 million life-years. A more aggressive policy that results in a 50% reduction in prices would cost 178.8 million life-years.

His bottom line: "any benefits associated with improved access to today's medicines through price controls must be weighed carefully against the potential long-run costs."

Well worth reading.



Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute

Katherine Lazarski
Press Officer,
Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.