Germany claims to be one of America's closest allies. Yet it just doubled down on a policy that would weaken one of America's most economically and strategically important industries -- and help China gain a chokehold over the development of and access to the free world's medicine supply.
The Trump administration recently took an important first step toward addressing that threat. Late last month [JUNE 18], it launched a Section 301 investigation into the German government's persistent underpayment for innovative medicines -- many of which are developed right here in the United States. The process will assess whether Germany's pharmaceutical pricing policies unfairly burden America's economy and warrant a stronger U.S. response.
The investigation is more than justified. Earlier this year, Germany approved unjustified draconian government price controls on innovative medicines. The policy ignores the value to patients of these life-saving medicines, will deprive American biotech companies of tens of billions of dollars in annual revenue, and make it harder for those firms to invest in researching and developing new treatments for patients in the United States and around the world.
While the Chinese government has been increasing incentives and funding to attract biopharmaceutical R&D and seeks to become the global leader in the introduction of and access to new medicines, countries like Germany are doubling down on policies that fail to recognize the value of new medicines. If America's leaders want to ensure the next generation of lifesaving drugs are developed and available in America -- and that the U.S. is not dependent on China for access to new medicines -- they cannot allow wealthy allies like Germany to continue underpaying for and free-riding on American innovation.
The United States has long been the world's biotech powerhouse. Today, America accounts for more than two-thirds of global drug research and development spending and houses roughly 85% of the world's small biotech firms. More than half of innovative drugs are launched first in the United States.
Yet while other countries benefit immensely from this innovation, they do little to support it. On the contrary, governments around the world pay far less than market value for American-invented medicines, thanks to a variety of direct and indirect government price controls.
As the Trump administration has pointed out, this dynamic is patently unfair to Americans. When foreign countries refuse to pay their fair share, companies are forced to recoup a disproportionate share of their development costs from the American market to support innovation that benefits patients around the globe.
This freeloading is unsustainable. It takes roughly $2.7 billion and over a decade, on average, to bring a new drug to market. And nine of every 10 drug candidates fail in clinical trials.
When other countries underpay for the rare successful medicines that emerge from that gauntlet, they reduce biotech companies' ability to reinvest in future research and development. Consider how Germany's existing price controls deprive drug companies of roughly $35 billion in annual revenue -- which deprives the world of over 3 new medicines per year, on average. Those figures will undoubtedly increase under the new, even stricter price controls that officials announced this spring.
Europe has already hollowed out its own biotech sector due to these price controls. Before the 1980s, Europe was the world's leading drug innovation hub. But decades of aggressive price controls caused investment to plummet and allowed the United States to take the lead.
Now, those escalating government price controls threaten to weaken the research ecosystem on the other side of the Atlantic -- and hand an advantage to America's rising rival: China.
China's pharmaceutical sector, fueled by enormous state investment, has already surpassed Europe's biotech industry and pulled into a close second place behind America's. In fact, Chinese biotech firms now initiate more clinical trials than American companies. By 2040, drugs originating in China could account for more than one-third of FDA approvals.
If current trends continue, American patients could eventually depend on treatments developed and manufactured in China -- giving Beijing significant strategic leverage over the United States.
That's why America's leaders must intervene now -- and push back against draconian government price-control policies like Germany's before they inflict more lasting damage on America's biotech sector and U.S. patient access to future new medicines.
Fortunately, Washington has already begun to respond. The recently announced Section 301 investigation into Germany's pharmaceutical pricing practices promises to provide U.S. policymakers with valuable leverage to challenge policies that undermine American innovation.
But launching an investigation is only a first step. The administration must be prepared to act on its findings and continue pressing allies to pay their fair share for the medicines they rely on.
The United States cannot remain the world's biomedical innovation engine if its allies refuse to compensate American drugmakers fairly. If our leaders fail to stop this foreign free-riding, America and its allies alike could find themselves relying on China for the future therapies we need.
Anne Pritchett is a senior associate at the Center for Strategic and International Studies and the founder of Pritchett Policy Associates. The views and opinions expressed in this article are solely those of the author.
