U.S. at risk of losing its edge in medical innovation
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By Grace-Marie Turner
The United States has been the undisputed leader in medical research for decades. But today, our leadership is at risk. Other countries are working aggressively to lure high-paying biomedical jobs and lucrative research facilities away from the U.S.
A new report by Battelle, an international science and technology company, found competing nations are offering a friendlier regulatory environment so research-based companies can get their products to market faster. They also are offering incentives, such as lower taxes, to boost private investment in bio-pharmaceutical research.
Meanwhile, our outdated regulations and burdensome taxes are actually facilitating the drain. Once these jobs are lost, they will be extraordinarily difficult to get back.
High corporate tax rates in the U.S., in particular, deter investment. Our top corporate income tax rate is 38 percent compared to an average of 15 percent in other countries.
Unfortunately, instead of reversing these destructive policies, the U.S. has doubled down with new legislation -- the Affordable Care Act (ACA) -- that will law will add additional layers of bureaucracy and expense that will delay getting new medicines and medical products to patients.
Developing a new drug now costs more than $1.3 billion and takes an average of 12 years. Yet only a small percentage of new molecular entities ever reach the market. Instead of mitigating the risks that go along with these huge investments, the U.S. government has been erecting ever higher hurdles for private investment.
Consider ZOLL Medical Corporation, a medical device company that now finds itself in the bull's eye of the ACA. It imposes a 2.3 percent tax on the gross revenue that medical device manufacturers collect -- revenue, not profits! This will increase ZOLL's tax rate to more than 50 percent, completely wiping out its R&D budget.
As ZOLL President Jonathan Rennert explained in a recent forum, "every one of the jobs in our company is now in the United States. But [when the medical device tax takes effect in 2013] we will have every incentive to move jobs offshore ... the tax will lead to less innovation, fewer jobs, and fewer lives saved."
In addition, many countries have instituted strong and permanent incentives for research and development, but the United States has kept its R&D tax credit "temporary" for decades. America now ranks 17th out of 21 countries in the Organization for Economic Cooperation and Development in the effective rate of its R&D tax credit.
Our edge is not gone yet, but U.S. legislators must quickly act to stop the drain. The United States produced more than half of the world's new medicines over the last decade. Today, 12 of the top 20 medical device companies still are headquartered here. Last year, U.S. companies had more than 3,000 new pharmaceutical products in development.
This superior medical innovation not only creates life-saving drugs, but boosts our economy. Battelle found the biomedical industry contributed $917 billion to the U.S. economy in 2009 and supported more than four million jobs.
Whether they're promoting healthy lifestyles or developing diagnostic tests, American companies, large and small, still are working to drive innovation in the medical field. Washington needs to enact reforms that will allow their groundbreaking advances in the health sector to continue.
As one example, companies are working with the FDA to improve clinical trials so they can be smaller and better targeted, getting drugs to patients faster. Pfizer, for example, was able to bring its newest drug for lung cancer, Xalkori, to market in just four years using new research models that target drug trials to patients genetically tested to be most likely to respond. In one study reported at an American Society of Clinical Oncology meeting, 60 percent of patients were alive after two years, compared to only nine percent in historical trials.
America's engine of medical enterprise has always been strong. But it will eventually stall out in the face of competition from other countries if Washington doesn't reverse its destructive regulatory and tax policies.
Real solutions in the health sector have come not from government, but from entrepreneurs working to find new treatments and improve care. These are the people and companies who will bring transformational change for the 21st century -- provided Washington gets out of their way.
Grace-Marie Turner is president of the Galen Institute, a public policy research organization focusing on market-based health reform.
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