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Congress, Please Stop Helping Us! August 20, 2014 11:00 AM | Tagged as Solvaldi

WSJ -- August 20, 2014, page A12, “The Medical Innovation Threat” (editorial)

Alan Shapiro, the now retired great political economist at the Marshall School of Business at USC once asked The Biz Bucks Guy’s MBA class, “How many pharmaceutical drugs were invented by the former Soviet Union during it entire existence from 1917 to 1989?”  The class thought briefly and then Dr. Shapiro answered his own question, “None!”  Yes, that’s right. Nada, zippo, nyet. Free markets develop advances, not bureaucratic command economies.  The world is a better place because of such developments.

Now the geniuses in Washington are trying to mess with the functioning US pharma market. They have already messed with the medical device market by adding a 2.3% excise tax in ObamaCare. This, mind you, is a tax on revenues, not profits. That might equate to a 15% or so tax on profits. No wonder it will have a chilling effect on device development. And now the federal disease is spreading to big pharma.

In today’s lead editorial, the WSJ opinion editors express concern that a 30-year agreement between the federal bureaucrats and the specialty drug industry may be broken by Washington. The carrier of this disease is the Senate Finance Committee, with both Dems and GOP support. They are complicit with big insurance companies, not the drug makers. One insurance company CEO said, “I think government needs to step in here and make sure the market is rational.” Huh? Government knows what is rational in a market? Since when?

These people seem to think that Washington can set prices on specialty drugs better than the market. The latest “perpetrator” of such overpricing crime is Gilead Sciences, who have developed the miracle drug to cure Hepatitis C which infects 1 out of 100 people in the US and some 150 million world-wide. This new drug, Solvaldi, costs $84,000 per patient. The socialists in Congress now think they can divine the one true, correct price for Solvaldi. Guess what? It will be something less than $84,000.

Never mind the fact that treating Hep C without Solvaldi costs many times more than the price of it. Never mind the amazing near-perfect cure rate for Solvaldi should help to eventually eradicate this virus. Never mind the incredible business risk incurred by the pharma companies from developing specialty drugs. Never mind that possible new entrants into this market will drop the price of Solvaldi dramatically over time. Never mind the fact that if government sets prices based on direct R&D costs only, as proposed by Congress and the insurance industry, the specialty-drug market will dry up and every American will have fewer advances in medicines in the not-too-distant future.

So The Biz Bucks Guy has one message to Congress (borrowing from Jason Riley’s new book title), “Congress, please stop helping us!”

[Although opinion is included, The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.]

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