America the Innovator

November 2, 2018 10:41 am

The World Economic Forum (WEF) recently released its annual Global Competitiveness Index, which ranks 140 nations. The United States sat at the top of the list. Calling it “one of the world’s great innovation powerhouses,” the WEF ranked the United States first for business dynamism, labor markets, and financial systems and second for market size and innovation.


The WEF study did not call out specific breakthroughs, but we have long known that the United States far surpasses other nations in its ability to produce hundreds of life-changing medical innovations every year. 


In fact, the United States generates more new medicines annually than the rest of the world combined. Specifically, it produces 57 percent of all new drugs each year. Switzerland is second with 13 percent; Japan and the United Kingdom each produce eight percent of all new drugs that hit the market in a given year. Additionally, firms headquartered in the United States are conducting more than 60 percent of the clinical programs in the world, meaning we are on track to maintain our competitive edge since these companies are, right now, generating the treatments and cures of tomorrow. 


American innovation is one reason that, over the last 35 years, deaths from infectious disease in the United States have fallen by nearly 19 percent.


American innovation does not come easily or cheaply, however, and a decline in revenues would significantly impact the number of new medicines that come to market each year. 


Brookings Institution paper published earlier this year noted that, based on data from 2007 to 2017, it took $2.5 billion in additional drug revenue to spur one – one – new drug approval. That paper, first published by Schaeffer Center for Health Policy and Economics at the University of Southern California, also noted the United States’ placement among other nations, concluding, “America clearly contributes more to pharmaceutical revenue, and hence incentives for new drug development, than its income and population size would suggest.” 


Importantly, the study also says that, “if American prices dropped to overseas levels,” U.S. pharmaceutical revenue would decline by $134 billion. Using that data, and some back of the envelope math, we estimate that there would be at least four dozen fewer drug breakthroughs in the United States each year with a revenue decline of that size. 


That math isn’t exact, of course, but even one cure lost is too many for Americans looking for treatments for cancer, depression, and rare diseases. 


The WEF global competitiveness summary for the United States ends with a cautionary line: “Competitiveness takes a long time to take root but it can be knocked down relatively quickly.” 


Words to remember as the nation continues to debate the price of medical breakthroughs relative to other nations.