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onsumer access to affordable and effective medicines is an important issue. As the cost of many drugs continues to rise, sometimes astronomically, some have suggested imposing price controls on the U.S. pharmaceutical industry. Doing that risks crippling our only hope of curing the many serious diseases that still plague us.

The global pharmaceutical industry is among the most profitable, driven by its ability to price to value, especially in the United States. High profits attract investors and generate money for research. The global pharmaceutical industry’s investment in research and development is second, barely, to the computer and electronics industry and well beyond that of most other industries. For comparison, the top 10 pharmaceutical companies spend five times more on research and development as a percent of sales than do the top 18 U.S. chemical companies.

The pharma industry’s efforts have been quite productive in attacking some of the most vexing problems in medicine. Cardiovascular mortality in the U.S. has declined more than 50 percent since the introduction of propranolol, the first beta blocker, in 1964. Many cancers, such as childhood leukemia, have almost been cured. AIDS is now a chronic disease, as the death rate has declined from near 100 percent to near 0 percent. Hepatitis C is now curable. Even metastatic melanoma, formerly a death sentence for 95 percent of its victims, is now curable for many. Lung cancer may be next. All these miracles have been brought through the clinic and into the market by commercial pharmaceutical companies.

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Yet there remain huge unmet needs for new and better treatments for most cancers; all neurological problems, especially Alzheimer’s disease; most autoimmune diseases; most major gastrointestinal disorders; macular degeneration; and diabetes — not to mention the global scourge of drug-resistant bacterial and viral infections. Advances in these areas will come if money continues flowing to pharmaceutical companies and their primary sources of innovation, biotechnology startups.

But if U.S. drug prices come under bureaucratic control, as they have in most of Europe and Japan, it will be a different story. Little pharmaceutical innovation occurs in price-control jurisdictions. The United States has always, by a large margin, led the world as a source of new drugs, and that lead has widened as Japan and Germany have imposed price controls over the past few decades. All major international pharmaceutical companies, without exception, have instituted R&D and commercial operations in the U.S. to take advantage of its pricing environment.

If price controls pressure the U.S. industry into a more conventional process industry model, like that of the chemical industry, pharmaceutical R&D budgets would be slashed. To achieve the chemical industry’s rate of R&D spending, as would be required to achieve profitability competitive with the chemical industry, top pharmaceutical companies would have to reduce their R&D budgets by 80 percent — almost $50 billion in total. This reduction in spending would take a few years to realize, but would be completely evident by 2023 or earlier.

An important corollary is that, if profitability and value creation opportunities for new drugs declined, the appetite of the venture community for risky, long-term biopharmaceutical investments would shrink exponentially. Price controls on drugs would have the surprising effect of accelerating the flow of investment into high technology, where timelines to market are shorter, less regulated, and less risky. The venture capital community is flush with cash and anxious to invest where high returns can be achieved — ideally within a much shorter time than is typically possible in the realm of drug R&D.

As a society, if we force pharma into a chemical industry model, where there is no biotech equivalent and no venture investing, we will be trading better and sooner effective drugs for better and sooner virtual reality devices and self-driving cars.

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Squeezing pharmaceutical R&D spending down to one-fifth of what it is today would also have an enormous impact on the problems that drug developers often choose to address. Orphan diseases would be deprioritized, as the returns under price controls would not warrant the investment. Complex diseases would also be deselected. While Alzheimer’s disease and diabetes have huge patient populations, the extremely high cost of conducting the difficult research and the need for huge and complex clinical trials would dissuade all but the largest companies from pursuing those illnesses if the potential pricing upside was to be significantly constrained. Moreover, for difficult diseases like schizophrenia, where today’s treatments are mostly inadequate, the flow of more effective new treatments would slow from a trickle to a rivulet, depriving those with these conditions from the possibility of relief.

The upshot is simple. Forcing drug prices down would surely shave a few percentage points off what we spend on health care today. By 2032, drug prices could be half of what they are today, as every drug would be a generic. But our ability to treat or cure the many serious diseases that still afflict us will have been crippled and squandered. In my view that is terrible policy.

Robert J. Easton is co-chairman of Bionest Partners, a global medical business consultancy serving pharmaceutical, medical device, and diagnostic firms and their investors.

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  • Generic Prednisone, 10mg pills, 60 count, went from $40 to over $400 overnight a few years ago. There was nothing market-based about that rise in price. It was price gouging. Why do low prices in Mexico and most other third-world countries, as well as all across Europe, not throw the pharmaceutical industry into free-fall? Why is it that only the U.S. has to pay these exorbitant prices in order for that industry to continue research? It’s BS.

  • With all due respect, Mr. Easton, your all or none approach to regulation of big pharma’s pricing is absurd and short sighted. Of course research and development require significant capital, but the present price gouging on even old generic drugs is pushing yet higher the already obscene cost of health care. The unbridled corporitization of our health care system is literally killing its sustainability. YOU consultants and your greedy clients are nothing short of fat sharks swarming a big sinking ship which is our present health care system. Shame on you.

  • We’ve heard this song before. But as long as Big Pharma’s marketing budget continues to exceed their R&D budget by a large margin, it will continue to fall upon deaf ears.

  • Cardiovascular mortality in the U.S. has declined more than 50 percent since the introduction of propranolol, the first beta blocker, in 1964.

    I don’t think the pharmaceutical industry can take the lion’s share of the credit for that. In the late 1960’s, there was a lurid series of photographs of diseased vessels in Life magazine which did much to raise awareness of fat and cholestrol and kick off the healthy eating movement, which has only become more intense to the present day.

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