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PMA LAUNCHED INTO INTERNATL. DEBATE ON FREE-ENTERPRISE WITH ENGMAN ADDRESS TO PHOENIX ANNUAL MEETING: PUBLIC POLICY DEBATE IS UNDERLYING ISSUE

Executive Summary

PMA launched into its "pro-active" defense of the free-market system for drug development and distribution in President Lew Engman's report to the first general session of the annual meeting in Phoenix, May 7. Urging the assn. to take an aggressive and combative posture to its most vocal critics in internatl. health policy areas, Engman declared that it is time for the industry to seek confrontation. "I have spent my career in the political world of Washington, where a conventional wisdom holds that confrontations are rarely productive," Engman said. "But there are times when confrontation cannot responsibly be avoided. When a challenge is raised to principles or ideas too basic, or too important, to be compromised. This is such a time." Engman's keynote address the first day was delivered in Churchillian prose, laced with military metaphor, to convey his view of the perceived threat from organized political opposition in both the natl. and internatl. arena. "In the political arena where public and private sectors meet to thrash out issues of natl. policy, there are no final victories; there are no armies to crush, no tanks to destroy. The battles are between philosophies, ideologies and perceptions of the public interest," Engman said. "And the weapons are words." Drug Industry Will Be On Frontline Of Attack Thru 2000, AEI Scholar Novak Predicts The PMA president described the defense of the drug industry's profit motive at the lead of the effort to preserve capitalism. He ended his speech with a peroration building to a climax: "If we fail to protect ourselves and sit swaddled in mute embarrassment -- tongue-tied that we not appear unloving and uncaring while our critics indict us and call for redress under the charge of success -- if we do that, we will not only see success go aglimmering, we will be passive participants in destroying the very conditions that make possible -- and we will bear in some measure responsibility ourselves for the loss of -- the most fecund economic system the world has ever known." The strong, impassioned tone of Engman's public address contrasts sharply with his role as mediator in the behind-the-scenes effort to secure a consensus for the Waxman patent restoration/ANDA bill. The difference between the combative tone of Engman's public address and the effort to reach compromises in the annual meeting board sessions indicates the switch at PMA as the assn. moves from negotiating the final stages of the patent legislation to the public affairs challenge of fighting the internatl. marketing code movement. The view of the threat to the pharmaceutical industry from consumer activists was reiterated by the American Enterprise Institute scholar Michael Novak in a speech on the final day of the PMA meeting. Novak also ended his speech with an exhortation to the drug industry to defend itself and the free enterprise system. Novak maintained that a concerted attack on free enterprise institutions had been originally planned against banking and financial institutions. However, the need for continued capital diverted the thrust of critics to the drug industry. "I think you are going to be on the front line of the attack, as the great symbolic example of capitalism, from now through the next 16 years of the century," Novak declared. Novak pointed out the vulnerability of the drug industry with a series of questions: "If you wanted to set out to destroy capitalism, which industries would you pick to be the most symbolic and powerful? To get in people's emotions and stomachs? Which would you pick to get people involved and angry and hostile?" He answered: "Try baby food. And, then after that, try drugs." "I fear," Novak continued, "that you will not be able to turn that attack backwards until you address its philosophical roots . . . Until you address that philosophical problem and are able to show the elites of the Third World that their own prosperity and their own liberty, their freedom of conscience, even their own social virtues . . . depends upon creating institutions of the kind that democratic capitalism introduced, you will lose the war. And if you lose it, we will all lose it." Continuing a theme he initiated in his first speeches at PMA four years ago, Engman told the annual meeting that the assn. has to put its arguments on logical foundations, supported by research. The assn. realized that it "had to have for each issue," Engman said, "an argument rooted in reason and consistent with the public interest. And we had to have done the research and generated the facts to back up our argument." PMA Identifies Five Fundamental "Truths" Which Support Industry's Position In Policy Questions Engman said there are five "truths" about the drug industry which support the assn. arguments. The PMA president devoted the bulk of his speech to defining and describing those "truths." He coined a number of aphorisms to convey his argument. "The first, and most basic, truth on which our industry's case must rest," Engman declared, "is that Rx medicines are cost effective. Medicines not only save lives; medicines save money. They cost less than living with the diseases they cure and they cost less than the alternatives for treating those diseases, such as hospitalization and surgery." The second fundamental point about the drug industry, Engman said, "is that the ratio of benefits to costs attributable to drug therapies increases as the rate of drug innovation increases." New therapies, Engman mantained, "gain a foothold in the market only if they provide greater benefits per unit of cost than their alternatives, or if they provide equal benefits at lower costs than their alternatives." Engman added that "all new drugs tend to increase the cost effectiveness of competitor products by driving down their prices." The PMA president summarized his third fundamental point about the drug industry in the assertion that "the source of most new drug innovation is not, as many people think, the govt. or the academic community . . . (but) private industry." Engman described the drug industry's contribution to world health in terms of a comparison of private sector achievements to academic and govt. efforts. "Our industry," he declared, "has contributed more to the cure of disease in the past 50 years, than all the govts. and universities in the world have contributed in a cycle of centuries; and we must not lose sight of this." Building on the role of the drug industry in improving world health, Engman added a fourth "truth": "drug innovation occurs most rapidly where returns to companies that invest in drug innovation are highest." He maintained that the record of drug development in Communist Bloc countries is the "extreme illustration" of that point. The fifth, and final point in Engman's "chain of arguments" addresses the effect of govt. involvement in market activities. "Govt. regulations that interfere with the market by restricting prices, limiting access, or forcing transfers of costly intellectual property, reduce the profitability of innovation," he contended. However, Engman noted, the industry has several inherent liabilities as it enters into the internatl debates: (1) the industry's profitability, (2) the intimate relationship of the industry's products to consumers; and (3) the visible position of Rx drugs as one of the few elements in the health care system for which consumers are still required to pay part of the cost. Engman expressed the liability that profits represent in the argument that "we are criticized and sometimes resented because in doing good we also do well." He maintained that the industry's profits seem "to gnaw at the very souls of our critics." The PMA president developed his speech from the results of a year-long effort by the board's Policy Cmte. to put a "Mission Statement" for the assn. in writing. That 40-page statement is based on an assessment of the public image of the drug industry and the long-term trends that will affect the industry. It attempts to define the industry's position and priorities in major policy issues. The two long-term trends cited by Engman as the controlling influences on the future of the drug industry are the increasing size of the elderly population and the "seemingly inexorable upward pressure on health care costs fueled by growth in the percentage of health care services paid for by third party providers under schemes which provide little incentive for patients to curb consumption or for providers to restrain price increases." Engman noted that the growing elderly population will continue to pressure govt. to increase coverage because the elderly are "perceived as being the least able to afford our products." Against the background of the broad overview of assets and liabilities in the industry's public affairs debates of the future, Engman summarized the short-term agenda. At the top of the list of nine items were patent restoration/ANDA legislation and the challenge to patent rights overseas. At the bottom of the list is removing the ban on export of unapproved products. While the assn. is not giving that issue a high priority, some companies are reportedly in active negotiations with the White House to get an Executive Order changing the policy. PMA's NEAR-TERM AGENDA, ACCORDING TO PRESIDENT ENGMAN's ANNUAL MEETING REPORT The following list is taken verbatim from Engman's presentation to the PMA annual meeting on May 7 general session. Enactment of patent term restoration along with reasonable legislation governing the FDA approval procedure for post-1962 generic drugs, insuring that govt. efforts at cost-cutting in the health care area respect the importance of competition and drug innovation. Preventing any internatl. code that would impose further economic regulations in Third World markets Reducing approval times for new products and new indications both in the U.S. and abroad Preventing unwarranted curbs on animal research Securing federal legislation that defines the scope of liability and remedies in product liability lawsuits Maintaining existing tax incentives while eliminating disincentives for research and development Removing the current ban -- unique to the United States -- on exports of products not approved in this country.
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