Europe Free Riding on American Drug Innovation, Congressmen Warn Trump

Letter calls for strong trade response as Macron, Merkel visit America

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April 24, 2018

Numerous developed nations may be "free riding" on American medical innovation, according to a letter sent Tuesday by congressmen to President Donald Trump, and released exclusively to the Washington Free Beacon.

The letter, authored by Rep. Sean Duffy (R., Wisc.) and cosigned by 26 Republican colleagues, comes as French president Emmanuel Macron made his first visit to the United States. Macron is expected to discuss trade with Trump, as is German Chancellor Angela Merkel, who will pay a visit to the United States beginning Friday.

Both Germany and France are cited as developed countries with more-socialized health care systems that are consequently taking advantage of U.S. health care innovation while indirectly causing Americans to shoulder the cost burden.

"Developed countries like Germany, France, Japan, and Australia consistently undermine American companies through longstanding, impermissible practices that place an unfair burden on U.S. patients, cost our economy jobs, and rob us of new treatments and cures," Duffy writes.

New drugs are discovered more frequently in the United States than in any other country, although estimates vary as to how widely America outpaces other nations. This rate of drug discovery is a product of the more than $50 billion that pharmaceutical companies spend on research and development annually.

Once a drug is invented, it unsurprisingly spreads to other medical systems, especially those in the developed world—in other words, developed nations are able to reap the benefits of American drug R&D without spending similar amounts in research dollars.

The indirect burden of funding all of this R&D ends up falling disproportionately on American consumers. Americans spend approximately three times as much as their European counterparts on medicine, according to a recent Brookings Institution analysis. That number remains high after adjusting for income, with Americans still paying 90 percent more on drugs as a share of income.

This, Duffy and his colleagues argue, is at least in part because of foreign nations' policies in determining drug prices. According to their letter, U.S. firms often accept a low reimbursement rate for their new drugs, rather than face a compulsory license. This problem is exacerbated by differences in patent laws between nations, allowing generic companies to further drive down the price of new medications.

To respond to the free rider problem, the letter's authors recommend that Trump continue to pursue a trade policy more favorable to American companies. They point especially to ongoing negotiations over NAFTA, calling Canada one of the "worst actors," and its drug price review board "one of the worst government price control bodies among developed economies."

"Canada continues to propose and implement pricing and reimbursement policies that do not value innovation, leaving the U.S. to shoulder a disproportionate burden of global R&D," the letter reads.

To respond to Canada's trade practices, the congressmen call on Trump to make drug pricing a key component of NAFTA renegotiation, in spite of Canada's refusal to consider the issue. Additionally, they recommend that the U.S. Trade Representative's office analyze foreign pricing practices to determine if they undermine U.S. intellectual property rights—if the answer is yes, a lack of correction could lead to future trade sanctions.

"Using these tools to level the playing field for U.S. innovators will bring new R&D here at home, more new medicines and a more competitive marketplace for U.S. patients," the letter concludes.