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.