The pharmaceutical and medicine manufacturing industry has the reputation for being all about large businesses, a mistaken view widely pitched in political circles. While large firms remain critical to the industry and the life-saving, life-enhancing treatments it produces — firms that grew as a result of producing new and improved drug treatments — it pays to keep in mind the entrepreneurial nature of the sector.

According to the latest data from the U.S. Census Bureau for 2018, 47.6 percent of employer firms within the pharmaceutical and medicine manufacturing industry have fewer than 10 employees, 59.4 percent fewer than 20 employees, and 78.9 percent fewer than 100 workers. 

Because this industry has flourished, we’ve seen incredible accomplishments relating to COVID-19 vaccines and treatments. As the Associated Press reported: “Developed and rolled out at blistering speed, the vaccines have proved incredibly safe and highly effective at preventing deaths and hospitalizations. Unvaccinated people have a 14 times higher risk of dying compared to fully vaccinated people, the Centers for Disease Control and Prevention estimated based on available data from September.”

As for lives saved, Nature.com reported: “It is estimated that this astonishingly rapid development and deployment has saved at least 750,000 lives in the United States and Europe alone — and probably many more globally, although researchers are as yet unwilling to commit to a number.”

As devastating as this pandemic has been for the economy, a new report from HeartlandForward found the following: “The rapid development and deployment of vaccines during the COVID-19 pandemic lessened the impact of the virus on the economy, generating an estimated economic savings in the U.S. of $438 billion in terms of 2021 real GDP gain, or 2.3 percent of 2021 real GDP.”

The authors added: “These savings, and the development of the vaccine itself, are possible because of the United States’ unique public-private partnership between government agencies, academia and the biopharmaceutical industry that supports innovations in disease therapy. Specifically, the biopharmaceutical industry was and continues to respond to the pandemic swiftly with new therapies because it has been allowed to commercialize other therapies in the past, which then provides available capital for new research and development activities.”

Along these lines, a Congressional Budget Office report on prescription drug pricing makes two important points about what the pharmaceutical industry has accomplished over the years and how that’s been achieved. 

The accomplishment is clear: “Nationwide spending on prescription drugs increased from $30 billion in 1980 to $335 billion in 2018. Over that period, real per capita spending on prescription drugs increased more than sevenfold: from $140 to $1,073. That increase in spending was driven by the development and use of many types of drugs that have yielded myriad health benefits. Because of those health benefits, some drugs, such as those that treat cardiovascular conditions, are associated with reductions in spending on services provided by hospitals and physicians. Other types of drugs, such as those that treat multiple sclerosis or cancer, may not offer such compensating savings, but they have improved the lives of those with chronic conditions and have also extended life.”

As for how this has come about: “Decisions about whether to undertake the necessary laboratory research and clinical trials for any particular compound must be made in the face of uncertainty about its ultimate clinical value. Most drug compounds yield no significant therapeutic results. Of those that enter clinical trials, only about 12 percent make it to market. So, for a firm with 100 products in development and 12 that make it to market, profitability depends on the revenues from the 12 marketed products and the cost of all 100 products in development.” 

Enormous challenges persist on the health and economic fronts. But it pays to keep in mind where we’d be without the innovation from and investment in the pharmaceutical industry. 

From a policy perspective, lawmakers must keep the following foremost in mind: Price controls on prescription drugs and weakened property rights, as often advocated by politicians and certain activists, would undermine entrepreneurship and private investment in the industry, and therefore, the creation of new and improved drugs.

Starting up and investing in pharmaceutical companies rank as endeavors rich in risk and uncertainty. The potential for returns incentivizes the investments that fund innovation. Limit those returns through price controls or weakened property rights, and we’ll experience a grim limit on the discovery and production of new and improved
life-saving and life-enhancing drugs.

Raymond Keating is chief economist for the Small Business & Entrepreneurship Council. Reach him through the website at www.sbecouncil.org.