On July 20, 1969, the United States landed on the moon. In November, a couple of vaccines demonstrated the likelihood of their ability to restore order and safety in the face of an unprecedented global pandemic.
The coronavirus vaccines are continuing their journey to where they will start inoculating the world. Pfizer and Moderna both have applied for emergency use authorization with the FDA. More vaccines are being produced, and distribution plans are being finalized. This is an achievement of human ingenuity, an achievement of science, an achievement of industry, and an achievement of resilience. It’s the new moonshot. The key factor in the success of this achievement has its origin in a guarantee of the Constitution: the right to a patent.
At the beginning of 2020, we didn’t know about COVID-19, but in the U.S., we had a vibrant drug research and development sector. In fact, almost half of the world’s new drugs are developed in the U.S. That is largely because we have strong intellectual property protections. That means that when a company or individual makes a new breakthrough, they own that idea (for a limited time). This exclusive time provides the incentives that companies need to take risks and continue investing in research and development.
On average, it costs a staggering $2.9 billion to develop a new drug and years to get to market with no guarantee of success at any point during the process. It is an expensive gamble but one that has led to many new breakthroughs and life-changing advancements in healthcare.
With this large and active R&D sector in place, the U.S. was poised to pounce on COVID-19 and deploy our nation’s labs to “science it” into submission. There was anticipation and sometimes doubt that it was going to happen, but with three vaccines ready for distribution in less than a year, it is at least time for a momentary fist pump. Our country’s Founding Fathers put us on this path by providing protection for the world’s best innovation engine: human ingenuity. It’s paying off.
Unfortunately, at the same time that we are celebrating this grand achievement, the outgoing Trump administration has proposed a rule that would largely put our ability to react to the next pandemic in jeopardy. With President-elect Joe Biden’s early messaging regarding pharmaceutical companies and the almost religious zeal of those in his party against these companies, the drug manufacturing industry doesn’t appear to have an out.
The president is pushing through a midnight regulation that would import foreign drug prices. His proposal would take a basket of prices of some select “most favored” countries and cap the U.S. price at the lowest in the basket. His idea is to stop the other countries from “freeloading” on our spending. But just like you can’t bring a knife to a gunfight, you can’t seek a short-term policy solution to a long-run problem. Assuming the other countries won’t react because there is no immediate incentive for them to react, the only thing that happens is that drug companies make less money, and they need money to continue innovating.
So, in the long run, we have a drug industry that is less prepared to react to the next pandemic. Estimates on the effect of President Trump’s proposal differ, but they all agree on one thing: There will be less drug development because of the proposed rule.
This is disappointing on many levels but primarily because Trump’s reaction to COVID-19 was so promising in the area of vaccine development. He primarily got the government out of the way, streamlined the path to market, and put resources in place to fast-track anything that couldn’t be thrown overboard. By tearing down the government red tape, he made the market more efficient, and it worked. Trump’s deregulation made this vaccine moonshot possible.
Yet, by proposing these price controls, he is going in the opposite direction. His own economists have discussed how price controls are a socialist policy and how they hurt the economy and innovation. His own trade representative has suggested alternative solutions to the “free rider” problem (forcing other countries to pay more), and he even put the U.S. into a trade war with China because of its lack of respect for U.S. intellectual property.
Innovation in the U.S. is second to none, and that is a quality that we should celebrate rather than stifle. We’re going to continue to need it the next time something like this, or worse, happens.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
