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Profit Incentive Leads to Drug Innovation
An Essay by Russell Roberts

audio Listen to Roberts' essay.

Nov. 2, 2001 -- The critics say it's immoral for Bayer to profit from fear and disease. After all, other pharmaceutical manufacturers have said they'll give away their antibiotics in the fight against anthrax. Tommy Thompson of the Department of Health and Human Services even threatened to ignore Bayer's patent and allow other companies to produce a generic form of Cipro.

Is it immoral for Bayer to profit from the misfortunes of others? I don't know, but I do know why pharmaceutical companies get started. I know why investors invest in pharmaceutical companies. I know why pharmaceutical companies take risks on unknown compounds. I know why they spend billions on research, much of which will come to nothing. All these things take place because pharmaceutical companies exist to profit from the misfortunes of others. Really, that's what they do.

"It would be nice if new drug discoveries were like manna that fell from heaven, but they aren't. New drugs come from hours of toil and millions of dollars."

Russell Roberts

And in our system you make profit by reducing misfortune or preventing it. It works extraordinarily well. Money and profit aren't the only motivations.

There's great satisfaction in knowing that your insight and labor and struggle and failures prevent people from dying, but without the money, there'll be less effort.

That's one of the reasons Poland and China and Cuba don't lead the world in pharmaceutical innovation. America and Germany do. And the profit motive has driven the pharmaceutical revolution of the last 100 years.

“But don't drug companies make enough money already?” you ask. I don't know. I don't know the definition of enough, but I do know what happens when we lower the profits from discovering new drugs. We reduce the incentives to find the yet to be discovered drugs of the next 100 years that can eradicate cancer, heart disease, AIDS and Alzheimer's.

It may seem compassionate for the government to take away Bayer's profits -- but politicians always like policies where the benefits come today and the costs come tomorrow. But still, isn't it wrong for people sick with anthrax to have to pay for something that could save their lives?

It would be nice if new drug discoveries were like manna that fell from heaven, but they aren't. New drugs come from hours of toil and millions of dollars. And when we force or intimidate drug companies to give away their products, we're not really making the drugs free. We're making investors pay for them. And we're also making our children and grandchildren pay.

They won't get the drugs that would have been discovered had we left incentives in place. I'd rather have Congress tax all of us to pay for the needed drugs or have charities cover the cost of drugs for people who can't afford them.

Only politicians can claim that there is such a thing as free drugs. The rest of us should know better.

Russell Roberts is an economist at the Weidenbaum Center at Washington University in St. Louis. His latest book is "The Invisible Heart: An Economic Romance."