President Joe Biden recently toured a Pfizer plant in Kalamazoo, Michigan, where workers are churning out millions of lifesaving COVID-19 vaccine doses.
During his remarks, he mentioned that, in mid-February, he had “toured the Vaccine Research Center at the National Institutes of Health ... where I met world-class doctors, scientists, and researchers who were critical for discovering the vaccines in record time.”
Frankly, the president is giving the government too much credit. While federal grants and purchase agreements certainly helped accelerate vaccine production, the actual research was overwhelmingly performed and funded by the private sector. Pfizer invested $2 billion of its own capital to research and develop its shots; other drug companies have invested billions more.
It’s tough to chalk the president’s misstatement up to a mere gaffe. His administration is pushing for price controls, which would sap the private sector’s enthusiasm for investing in biotech. Only ideologues who truly believe that the government — not private companies — drives drug development would put forth such disastrous proposals.
It’s true that the federal government spends billions — about $43 billion in 2018, to be precise — on research at NIH and university labs.
The overwhelming majority of these federal grants fund basic research. To be clear, that basic research is valuable. But any resulting discoveries often lack immediate, clear medical applications. The COVID-19 vaccines, for instance, are based on numerous discoveries dating all the way back to the 1960s.
Companies generally have to spend years and hundreds of millions of dollars turning those insights into tangible, experimental drugs — and then hundreds of millions more to conduct clinical trials and navigate the labyrinthine regulatory approval process.
The federal government isn’t temperamentally equipped to play this role. Politicians and taxpayers would never tolerate spending billions of dollars on R&D projects that are mostly doomed to fail. Of every 5,000 drug molecules examined in the lab, only one ever makes it through animal testing, clinical trials, and the regulatory approval process to win the FDA’s green light. Despite this staggering failure rate, firms collectively invested $129 billion in medical and health R&D in the United States in 2018. Investors understand the long odds — but calculate that the potential rewards from developing a blockbuster drug justify the risks.
That calculus would surely change if the government arbitrarily capped prices, as President Biden and other members of his party advocate. A slate of proposals -- from the across-the-board price controls contained in H.R. 3 to the perennial calls to let Medicare bureaucrats set prices -- would slash biotech companies’ revenues and limit their potential profits. Investors’ capital would flow out of the medical research sector into other industries that offer less risk and better returns.
That’s exactly what has happened in Europe over the past few decades. In the 1970s, European scientists developed more than half of all drugs worldwide. But as continental politicians ramped up price controls, scientific talent and investor capital migrated to America.
Markets work. And incentives matter. Imposing price controls on drugs would deter the massive private-sector research investments that delivered multiple lifesaving COVID-19 vaccines — as well as dozens of other novel drugs developed here in America each year.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in health care policy at the Pacific Research Institute.