America Can’t Afford to Slow Medical Innovation

New research quantifies the extraordinary return on America’s investment in biomedical breakthroughs and reveals the devastating cost of the policies now threatening to end it.

In a report published by the U.S. Chamber of Commerce, economists out of the University of Chicago examined four disease areas (HIV, heart disease, breast cancer, and obesity) over 30-year analytical horizons. Just these four areas generated a whopping $167.5 trillion in total societal value. This limited window into the great economic benefits of medical innovation reveal just how devastating policies like pharmaceutical price controls and restrictions on intellectual property rights can be.

The study calculated social impact by incorporating a four-part evaluation system that assesses direct patient health benefits, impacts on healthcare system costs, productivity changes, and macroeconomic effects such as tax revenue.

Among the four disease areas studied, the report demonstrated impressive social impacts:

• $167.5 trillion in total societal value, equal to $5.6 trillion annually or $16,447 per person per year, “calculated using a Value of a Statistical Year of Life, a common tool used by government agencies.”
• $10.75 trillion in productivity gains over the 30-year horizon, “supporting a stronger workforce and long‑term economic growth.”
• $2.01 trillion in federal tax revenue over the 30-year analytical horizon.
• Every dollar invested in R&D returned 27 dollars in societal value. “Innovation is an investment, not a cost.”

Regarding the specific disease areas:

• HIV patients live an additional 40 years on average;
• Heart disease treatments have added critical working years;
• Breast cancer survival has improved by seven years on average.

Even with all of this progress, there is far more work to do. The report captured four diseases. But it’s worth pausing on what it didn’t capture. The diseases we haven’t solved yet dwarf the ones we have.

Alzheimer’s is the only condition in the global top ten causes of death with no cure and no meaningful treatment. Cancer still kills 9.3 million people annually and metastatic disease remains largely incurable. Of the more than 7,000 identified rare diseases, over 95% have no approved treatment, collectively affecting hundreds of millions of people globally.

The $167 trillion is not the ceiling of what medical innovation can deliver, it is the floor. These numbers, however, are a proof of concept for what is possible when we let our companies innovate.

Lawmakers should be inspired by these numbers and, in turn, be discouraged to do anything that stunts them. President Biden passed pharmaceutical price controls through Medicare in the Inflation Reduction Act, leftist lawmakers consistently try to undermine IP rights, and now, the Administration has implemented a Most-Favored-Nation drug pricing model (and would like it to be codified).

The drug development industry already faces a high level of risk in recouping R&D costs. During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development.

In addition, most drug development programs fail. As detailed by the Information Technology & Innovation Foundation (ITIF), for 5,000 to 10,000 compounds screened during basic drug discovery phases, 250 molecular compounds (2.5 to 5 percent) make it to preclinical testing. Of the 250 molecular compounds, 5 make it to clinical testing. Thus, as little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of the few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA. Even if a drug is approved, it is likely that the profits from said drug will not recoup its R&D costs. 

In addition to losing out on the life-years and economic benefits of innovation, these policies could also make us less competitive globally.

At a time when China is rapidly narrowing the innovation gap, causing our research and development to stagnate or fall would seal our fate as second-best in biotechnology. 

ITIF describes the ways in which China is catching up to the U.S. in biotech: 

• Clinical trial activity in China more than doubled from 2,979 trials in 2017 to 6,497 trials in 2021. Alternatively, the United States saw only a 10 percent increase during this time, from 4,557 to 5,008 trials. 
• Chinese oncology trials grew 146 percent from 1,040 in 2017 to 2,564 in 2021, the highest for any country. In the United States, oncology clinical trials grew from 1,664 in 2017 to 1,690 in 2021, a 1.56 percent increase. 
• China increased its global share of value-added pharmaceuticals output from roughly 5.6 percent in 2002 to 24.2 percent in 2019. 
• China’s share of global biotechnology venture capital raised grew from a mere 3.5 percent in 2010 to 18.9 percent in 2020. At the same time, the U.S. share declined from about 68.6 percent to 62.1 percent. 

Lawmakers should focus on reforms that unleash the free market and protect intellectual property rights, encouraging competition and innovation. These policies lower drug costs over time while expanding patient choice and preserving incentives for lifesaving medical breakthroughs. To solve foreign freeloading, diplomatic pressure instead should be brought to bear on foreign governments to insist that they begin to pay their freight. 

As the report demonstrates, medical innovation is one of the highest-return investments a society can make. Every breakthrough that doesn’t happen because incentives were stripped away is a cost that is difficult to internalize, but is ultimately paid in full by patients and their families.