The Miracle of the Marketplace: Harnessing its Power - Sharing its Benefits

By Billy Tauzin, President and CEO, PhRMA
2005 Competitive Enterprise Institute Annual Dinner
May 11, 2005

Thank you. I’m delighted to get the chance to help you celebrate “Mardi Gras in May.” As a good Louisianan, I’m only too happy to mark Mardi Gras any time of year. I don’t see any parades, New Orleans beads, or women bearing their all, but your welcome has been so warm that it feels like Fat Tuesday on Bourbon Street...Even if it is a plain old Washington Wednesday on 16th Street.

And I’m always honored to share a stage with James Glassman, whose mind is as formidable as the Mississippi – another national resource.

The Competitive Enterprise Institute is an old friend. I’ve attended many CEI events, and benefited from your expertise. But this is the first time I have been here in my new life as CEO of a trade association. I’m pleased to get the opportunity to say hello again – and to talk about an issue that I worked on in Congress … one that I have been touched by personally.

My own battle with cancer brought right home to me the importance and urgency of innovating and developing pharmaceutical drugs. That’s the second time that leading-edge drugs came to my rescue. The first was when I was a boy, a five-year-old growing up in Louisiana in the town of Vacherie. (It sounds exotic, but in English it means Cowpen.) I was diagnosed with an infection in the foot. My folks were told that if it didn’t get better in a week, it would have to be cut off. Fortunately, a local doctor had heard about a new penicillin that sounded like it could cure the problem. If that happened just a few years earlier, the penicillin wouldn’t have been there – and my life might have taken a very different turn.

So I’m a walking case study of the importance of pharmaceutical innovation. We’re seeing more examples all the time. To get a sense of how far we have come, compare the way many diseases are treated today to just a few years ago.

Consider chronic myeloid leukemia. In 1999 just three in 10 people who were diagnosed with it survived five years. The only treatment options were high-risk marrow transplant or the drug interferon, which has been compared to having the flu every single day of your life. Today, patients can take a pill every day, with a good chance of driving cancer into remission. The side effects? Few if any.

Or Alzheimer’s. A decade ago someone hit with Alzheimer’s didn’t have a single drug treatment to turn to. Now, there are three different classes of treatment to slow the disease’s progression and allow patients to live an active life a lot longer.

In 1990, anyone diagnosed with AIDS could expect on average to live 26 months – painful, difficult months. Since protease inhibitors were approved in 1995 – followed by other pharmaceutical advances – the AIDS death rate has fallen by 70 percent. There are treatment options to help people lead longer lives – often symptom free.

These are just a few of the drugs that America’s pharmaceutical research and manufacturing companies have developed over the past few years. And there’s more on the way. Right now, there are over 1,000 projects in the pipeline.

No doubt about it, drugs like these carry potential risk. People understand the concept of risk and reward – otherwise, how do you explain marriage? But that understanding seems to break down when it comes to drugs. If someone is told they need heart surgery, they understand there is a risk – and they’ll take it. But when it comes to drugs, they expect to live in a risk-free world.

The other thing that people find hard to grapple with about drugs is the cost. Make no mistake, the price of the kind of research I’m describing keeps climbing.

Consider what is involved in bringing a drug from molecule to market.

Only 1 in every 5000 compounds gets all the way from the lab through FDA approval.

For those that do, the average research cost comes to about a billion dollars.

It takes about 14 years of research and clinical trials to bring a drug to market. At that point, the company only has six years at most left on the patent to try to recover their costs.

Of those drugs that make it all the way to market, how many manage to recover their costs?

Only three out of ten.

As the math makes clear, it’s the handful of blockbuster drugs that foot the bill for all of our industry’s R&D – an investment that last year came to almost $39 billion. Let’s put that in context: That’s more than the operating budget of the National Institutes of Health… It’s 19 times as much as pharmaceutical companies were spending in 1980, when I first came to Congress.

This kind of research is possible for one reason, and one reason only – because of the miracle of then free market system, and its ability to pull together the needed resources.

That won’t surprise the CEI crowd – but some countries seem to think it’s possible to work around the market, and put prescription drugs under government control. They seem to imagine that pharmaceutical companies can come up with new cures and medicines without putting up blockbuster capital.

Now that really would be a miracle drug.

What strategies do these governments use to keep down cost?

Many countries use a form of “health-care rationing,” coupled with price controls. Who, when, why, and how people get to use a drug doesn’t depend on whether they need it – it depends on whether or not the bureaucracy thinks it can afford it. These are policies that put government bureaucrats with a veto right in the examining room with patients and their doctors. Let me give you some examples.

Australians can only obtain a drug that can prevent osteoporosis after they have broken a bone. I guess no one ever told the bureaucrat in charge about an ounce of prevention being worth a pound of cure.

In the U.K., no drugs are approved for Alzheimer’s patients over the age of 70 – when people are at greatest risk of needing it. How do they ration a medication to control macular degeneration of the eyeball? If you lose one eye, you can get a prescription for the other one.

Here in America, I hope we never get down to rationing eyeballs.

Not only are they preventing their people from getting access to drugs. The EU is now preventing Europeans from getting access to basic information about drugs. It just issued a directive that websites operating in the home country’s language have to black out information about new drugs. They’re controlling demand by controlling information.

It is easy to see what happens: When a state program supplants the private market for drugs, the cost to government treasuries becomes a higher priority than the cost to people’s health.

When a government controls information and communication like this and keeps needed health information from patients and physicians, I believe that government is coming very close to violating the human rights of its citizens.

That’s not what Americans want. That’s not what we want for Americans.

Some think they can get around the problem, and enjoy the low prices of government controls without the arbitrary foreign rules. The magic wand is re-importation – but it’s starting to lose its magic. For one thing, with currency fluctuations the margin between Canadian price controls and American free market prices has thinned. When you put American companies’ discount cards for the uninsured, seniors and low-income patients on the table, it thins even more.

For another thing, people are starting to realize that when you order drugs via the Internet any price savings comes at a cost – peace of mind. You don’t know where the drug came from, how it was handled, or even what’s really in it.

That’s why PhRMA asked Rudy Guiliani to study the security implications of importation. Last month he issued a comprehensive report that found that our nation would risk undermining its safety by opening our borders to non-FDA approved prescription drugs, just as we are working so hard to close them to future terrorist attacks.

In any event, the pills may come from a foreign country, but 70 percent of all new medicines are invented right here in the U.S. No matter where you buy the drugs, the world is depending on the U.S. to develop and produce them. And research still has to be paid for – no one has come up with a magic wand to do that.

When you look at the facts, it’s clear that the best engine for innovation is the free market. It ties together the capital … that funds the research … that creates the drugs … that make it possible for children to survive leukemia, for people to live a lot longer with AIDS, and Alzheimer’s sufferers to live a decent life for far more years than they would.

It also give patients’ hope…hope that a new, better treatment or medicine is coming and what is incurable today will be curable tomorrow. That kind of hope is invaluable if your fighting a disease like cancer or AIDS.

I know how much I owe the people in the industry for their commitment to innovation. I’m somebody who wouldn’t be walking around today if it wasn’t for ground-breaking pharmaceutical research. And I’m just one in 10 million – 10 million people who are alive today because of breakthrough treatments we didn’t have just a few years ago.

My first-hand exposure to the value of drug research started one day in a hotel room in New York. I suddenly started bleeding uncontrollably – losing about half my blood. I found myself in a battle for my life with intestinal cancer.

There’s a surgical treatment, but it’s a tough one: They have to rip all your parts out, put them back in, and hope it works. It was so tough that I asked my parish priest to come in to administer the last rites. I was such a bad case I ended up having to cheer him up.

Soon after surgery I met with my doctor at MD Anderson Cancer Center at the University of Texas – an excellent institution. But for me it was the site of bad news. “Billy,” he said, “you’ve got a lymph node in there and it’s cancerous.” Then he gave me the worse news. They didn’t have a protocol for dealing with it. They couldn’t go back in there, not without undoing all of the surgery.

That was about as low as I had ever felt in my life – and I don’t mind telling you, about as scared. The first thing you think about is your family, and what you’re going to tell them. The next thing, you look for a life raft – for them as well as yourself. My doctor held one out. He explained there was this brand new drug called Avastin, and it might cure me. But it might also reverse the effect of the surgery. The drug had gone through three rounds of clinical trials involving thousands of people – like all FDA-approved drugs – but I would be the first person to take it post-surgery. It could cure me … or kill me.

I made the decision with my doctor … with my family – and not with any government official. I took the risk of going with a new drug on the market – and every day since I have thanked God I did. But make no mistake: If the cancer had gotten started before the FDA got done with Avastin – I wouldn’t be here today.

I thanked a few others, too. I got a chance to do something most people who benefit from medication don’t get to do – thank the people who produced it. Soon after I moved into this job, I paid a visit to the Roche plant in Nutley, New Jersey, and expressed my enormous gratitude to the people who saved my life. I looked them in the eye, and I shook their hands. And I can tell you – their commitment to saving lives is beyond question.

Now, as you can see I have always been a big fan of the drug industry – and a firm believer in the market. I believe it is the American commitment to the market system that has made it possible for our country to lead the world in the development of ground-breaking medicines. Irving Kristol was famous for giving two cheers to capitalism. Well, I’ll go him one better. But my three cheers for the free market come along with an asterisk – there’s a difference between offering cheers and being a cheerleader. Because if we ’re going to seek the benefits of a free market, we must meet the social obligations that come with it.

Pharmaceutical companies aren’t in the business of making luxury items like designer ties or silk handbags – or even ice cream or bubble gum: things people can manage to live without, if they have to. We produce a product that some people literally cannot live without. We can make the difference between life and death. We have an obligation to make sure no one is left out.

How must we fulfill it?

First, I think we must recognize that while the market is crucial to America’s global leadership in developing and producing pharmaceutical drugs, government must always have a role – if only for the uninsured and the underinsured. Just like Medicare and Medicaid in health care, government has a responsibility to help make sure that all Americans have access to the medicines they need. And government will pursue that responsibility – I’ll stake my 24 years in Congress on that. Better it do so with the industry’s cooperation – or the miracle of the market will be put at risk.

Second, the drug companies also have a responsibility. When it comes to affordability and accessibility, we have to be at the table.

The member companies of PhRMA are well aware of that. Last year, our member companies spent nearly $4.2 billion filling about 22 million free and subsidized prescriptions for people in financial need.

Let me tell you something: the industry’s heart is in the right place. And it has put tremendous resources there, too. But it hasn’t communicated that well enough. It hasn’t educated the public well enough. And it hasn’t coordinated its efforts well enough. Now, we’re starting to do all those things.

PhRMA has launched a program called Partnership for Prescription Assistance, a single point of access to more than 275 public and private patient assistance programs. It includes more than 150 programs offered by pharmaceutical companies. We’re bringing together doctors, other health care providers, patient advocacy organizations and community groups to help qualifying patients who lack prescription coverage get the medicines they need through public or private programs. Many get them free -- or nearly free.

I’m making this a priority. What I’d love to see the companies do is promote it in every commercial they run. If it were up to me, I’d run the phone number and website address for Partnership for Prescription Assistance on every commercial a drug company runs, and let people know that if they need that drug and can’t afford it, “call this number and we will work on it.”

In any event, we’ve made a big start. We know that we cannot just talk about how we produce the drugs that matter to those you love – and not help make sure those drugs are actually available to them. It’s as simple as that.

I leave you with three thoughts – three areas where those of us who believe in the power of the marketplace can work to make our case … and win converts to our cause:

One, we have to evaluate this issue from the patient’s point of view. They need access and affordability – but they also need innovation. They don’t just need the most affordable medication – they need the most effective medication. As you know here at CEI, we can’t expect to eliminate the pull of incentive and expect the push for innovation to remain. Markets just don’t work that way.

Two, let no one fool themselves into thinking that governments can control price without controlling a lot of other things – including choice, availability, and innovation. It does no long-term good to force an artificially low price, if all that does is dry up the pipeline for new and better medicines.

Three, when looking at drugs, let’s not become so fearful of risk that it clouds our minds to reward – the reward of a drug that can save lives and ease pain.

Friends, America has taken the lead in creating life-saving drugs for good reason. We are committed to life, we are supportive of innovation, and we have confidence in individuals and in the market system. Those are big assets – big advantages that will help us develop and produce the medications that will continue to make life longer, better and happier for generations to come.

Thank you.