Reimportation of Drugs Promises to Destroy Innovation

Innovation in health care, particularly in the area of developing new drugs, is one of the crowning achievements of US health care. According to Forbes Magazine, 80 percent of all new drugs are developed in the United States and one of the primary reasons for this is because companies still have an incentive to do such in this country. The profit motive creates the desire and provides the incentive to over come the fear of risk that comes with bringing new medicines to market.

"The fully capitalized cost to develop a new drug, including studies conducted after receiving regulatory approval, averages $897 million," according to a study by the Tufts Center for the Study of Drug Development. The expenditure of almost $1 billion to bring a product to market can only be done with some hope of reward. Thr hope businesses are looking for is a period of time of being able to sale that medicine without competition. Seven years is the standard period of time for such intellectual property to be protected. During that time, medicines can vigorously pursue recouping the cost of bringing a drug to market before other players can legally come along. This may be expensive, but that is a small price to be paid for innovation.

Policy makers who do not understand the economic dynamics of drug innovation want to fight the problem through reimportation, which is the US purchasing medicines from countries that receive them at a lower cost because they have less personal incomes and the drug companies change the cost accordingly. With reimportatin the drug companies would have to compete against themselves. Although the practice is currently illegal, many states have pursued the policy and now it has become front and center of the current health care debate.

Jack Calfee of American.com observes "This week, the Senate is expected to vote on an amendment to the healthcare overhaul bill that would incorporate the chief features of Senator Byron Dorgan’s drug importation bill. The Dorgan amendment would essentially require U.S. pharmaceutical manufacturers to supply importers from foreign nations with unlimited quantities of low-priced drugs, which could then be resold in the U.S. market." It is interesting because I am sure the foreign companies that resale it to the US will do so for a profit, so our policy makers are sending these jobs to foreign countries. The question is, for how long? With these companies being forced to compete against themselves, the development of new drugs will be hindered. Simply put, there may not be new drugs to export in the future.

The economics of this are bizarre, Calfee notes 'The central feature is 'forced sales,' not in the sense that any sales are literally required, but because a manufacturer that sells to any particular nation has to sell as much as buyers want at whatever price those buyers pay in that nation. The implications are bizarre. If Lipitor is 40 percent cheaper in Germany, a German importer could order enough to supply not only Germany but also the entire U.S. market. The manufacturer (Pfizer) could try to meet domestic German demand and no more, but the Dorgan bill includes provisions to make that difficult. But why worry about Germany? Prices are certainly cheaper in, say, Greece, Portugal, or one of the Eastern European nations (the Dorgan bill includes a list of acceptable nations). A lot of drugs could flow through Portuguese seaports, assuming that anyone bothered to ship them back and forth instead of directly to the United States.

"US health care certainly has problems. Most of them are created by excessive legal rewards, government mandates, and bureaucracy. Innovation is one of the crowning achievement of our system. If this amendment passes, innovation will certainly suffer.


Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

The High Cost of Socialized Banking

I am no fan of welfare. In fact, I take every opportunity to take shots at systems designed to reward laziness, inefficiency, and the subsidizing of poverty. Although there seems to be far more opportunities to write about welfare for the poor, I have even greater disdain for the subsidizing of the rich. So when the stories of banks "on the ropes" and the pending government bailouts hit the news, I was disgusted.

The federal government has announced it was willing to shore up Fannie Mae and Freddie Mac by purchasing its stock if it proved "necessary." Libertarians and liberals were quick to call this "fascism." Strong word, but since fascism entails government "partnership with" and subsidy to business, the shoe fits. That is exactly what the Bush administration appears to be advocating. I can't stomach an administration that, on the one hand, decries welfare for the poor but is willing to dig deep into the government's coffers for big business.

How deep? According to Forbes, "It's going to be a mind-popping $25 billion over fiscal 2009 and 2010, according to the Congressional Budget Office (CBO), which released its estimate of the rescue plan Tuesday morning. Let's put that in perspective: $25 billion for two financial institutions compared with $125 billion for the entire S&L industry in 1989-1991? Ouch." By the way, the S&L crisis was another example of government fascism in support of the rich.

There is another concept in economics that irresponsible banks need to learn. Moral hazard. Moral hazard is the possibility or probability that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Who knows, the current banking crisis may be linked to the S&L crisis of the 1980s and 1990s. If we allowed S&Ls to face the full brunt of their decisions, who knows, financial institutions may have thought twice before diving so quickly into the sub prime loans they are suffering from today. Lesson NOT learned, since government is strongly entertaining bailing financial institutions again.

Welfare is usually dangerous and harmful. When it is done to benefit big business, it is the adding of insult to injury.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Recession Resistant Cities

Recently, Forbes magazine did its survey of the ten most "recession proof" cities. I didn't like the term "proof" and softened it with "resistant," because a bad turn in the economy could change everything. I love Forbes and lists like this and was particularly delightful with its choices.

So what are the top ten?

Number 10, Dallas/Fort Worth, Texas. Get used to seeing Texas, it is one of only two states that has more than one city on the list and it enjoys four cities at that. With median home prices up 5 percent, unemployment at a paltry 4.3 percent, and a 5.6 percent increase in jobs in the crucial education and health care areas, DFW is looking pretty.

Number 9, Charlotte, NC. Median home prices are up 3.3 percent, unemployment is a modest 5.4 percent, and there has been an increase of more than 4 percent in the growth of professional, business services, leisure, and hospitality. Obviously a strong city, but some numbers (like unemployment) are going in the wrong direction (up from 4.7 percent since last year). Why wasn't DFW above this?

Number 8, Seattle, WA. The "emerald city" enjoys a median home price up 1.2%, unemployment at 4.3 percent, and employment growth in leisure and hospitality, 4.1%; manufacturing, 2.6%.

Number 7, Houston, TX. I would make it higher on the list, but I am also the poster boy for the city's chamber of commerce. Median home prices are up 1.1 percent, unemployment: 4.2% (acutally less than last year from 4.5%), and key job growth areas that include natural resources, 5.9% and construction, 4.7%.

Number 6, Salt Lake City, UT. Median home prices are up 2.5%, unemployment is a remarkably low 3.1 percent (slightly higher than last year), and key growth areas of education and health services (both up 5.5%).

Number 5, Raleigh, NC. Median home price is up 4%, Unemployment is a low 4.2% (from 3.7%), and their key growth includes rofessional and business Services, +7.4%; education and health, +6%.

Number 4, San Jose, CA. This one made me scratch my heads! Most of California is being taxed and regulated into oblivion, so this is a healthy exception. How healthy? Median home prices are still going up, way up to 11.2%, unemployment is a healthy 5.2% (from 4.7%). and it's
key growth area is in Information is up 4.5%.

Number 3, Austin, TX. Median home prices are up a vigorous 6.4%, unemployment is an extremely low 3.6% (from 3.8%), and the key growth areas are natural resources and construction, 5.1%; and leisure and hospitality, 5.3%

Number 2, San Antonio, TX. Texas' number one city according to Forbes enjoys a median home price increase of up 7.9%, unemployment at 4% (from 4.3%), and key growth areas include construction, 6.3%; and leisure and hospitality, +4.9%.

When I do articles such as this I feel like a disc jokey, and you can almost hear the drumb roll and wild deep voice with "NUMBER ONE..."

Oklahoma City. This is interesting and maybe even a little disappointing. It is linked almost entirely to energy and includes the following numbers: Unemployment: 3.5% (from 4.7% in February 2007) and key growth areas in leisure and hospitality, +6%; construction +11.5% from 2007.

Interesting choices, all largely accurate in my opinion (although I could disagree here and there). All of them are in the West and South and they are also among the fastest growing areas in population in the country. I can speak from personal experience that Houston can absorb more people.

Most of the cities rest comfortably in states with very pro-growth economic policies. They tend to be Right-to-Work, less regulatory, pro growth tax focus, etc. San Jose is about the only one on the list that doesn't have such an approach. How can other states become "recession resistant?" By implementing similar policies as most of the states on this list.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Relocating a Business to Houston

I'm asked often by friends all over the country why they keep hearing about business relocating to Houston. Some facts showcased on the Greater Houston Partnership website might provide the best summary to such a phenomenon:

Number 1

Lowest cost of living among 24 largest metropolitan areas (ACCRA Cost of Living Index).

Fastest growing companies (Forbes Magazine).

Job Growth (U.S. Bureau of Labor Statistics).

Number of building permits (Demographia).

Number 2

Most popular city with movers (U-Haul National Migration Trend Report).

Texas –– Best Business Climate in the Nation (Site Selection).

Number 3

Fortune 500 Companies (Fortune Magazine).

Best Metros for Business (Forbes Magazine).

US Metros for Business and Careers (Forbes Magazine).

The list goes on and I encourage readers to check it out. Houston is great for business which is exactly why we are attracting companies, entrepreneurs, and individuals looking for opportunity both nation wide and around the world.

The above video, produced by Houston Business Show Advisor Andy Valadez of Marketing Dynamics, is of Mayor Bill White's comments at a recent Houston Networking News event on why there is so much economic growth in Houston. To keep informed of the best in best news and information, subscribe to the Houston Business Review newsletter.

Changes at Business Week

There is a cliché that “style is not as important as substance, but people won’t notice your substance if you lack style.” Business Week magazine has undergone a very serious style change this month – the first in four years. I know why magazines are doing such these days, they are trying to figure out how to compete against the Internet, they like the buzz (even if it is bad, I presume) that any change brings, and there are often substantive reasons for a change in format.

The magazine contends that the changes are intended to make the publication easier to navigate and better to read. Furthermore, the change is also in content with a shift from executive lifestyle to more hard business news. I assume that those changes are fostered by the invasion of the Wall Street Journal Weekend Edition and the heavy emphasis placed by magazines such as Forbes and Fortune in this arena. Furthermore, I always liked Business Week for being focused on the real world of business and am glad to see it return to its roots. It is among the reasons it is one of my favorite business publications.

When I first saw the magazine’s new design I noticed the McGraw-Hill label prominently displayed. When I think of McGraw-Hill, I think of textbooks. This publication is decades old and has always been owned by the book publisher, but I had no idea. Historically, it has been about the content, not the content provider. Those days are gone and now every company is doing everything it can to promote its brand and that would include McGraw-Hill.

That label, the slightly larger size, and the wider margins gave the publication a dramatically different look. It provided a look that I have to describe as some what “academic.” Unfortunately, most of us gave up publications with an academic look when we were in college. Some even ceremoniously burned the books used that final semester to put the whole experience behind them, though I won’t mention any names.

It is too early to say I don’t like the changes. I need to spend a little more time with them. The truth is, however, I will get most of my Business Week content online like I have for the last several years. I hope they don’t take an academic approach there. Those university web sites seem very complicated.

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2007 Forbes 400

The World's financial elite have become more elite over the last few years. It wasn't very long ago when you could get in the Forbes 400 with less than a billion dollars. Not anymore, the poorest guy on the list is worth $1.3 billion.

Here are a few other interesting facts:

* "The collective net worth of the nation's mightiest plutocrats rose $290 billion to $1.54 trillion."

* "Nearly half of the 45 new members made their fortunes in hedge funds and private equity. "

* "The biggest gainer this year was Kirk Kerkorian, who padded his fortune by $9 billion as shares of his MGM Mirage (nyse: MGM - news - people ) casino outfit rose 135% over the past year. "

* "The youngest member of the Forbes 400 this year is 33-year-old John Arnold, a former Enron trader who now runs hedge fund Centaurus Energy and has amassed a $1.5 billion fortune."

* Number 1 remains Bill Gates (who was temporarily displaced by Carlos Slim for a few months)

* "The oldest member of the list is potato king John Simplot, who is 98 years old and worth $3.6 billion."

* "Seven members of last year's list have died."

* Fifty people couldn't keep up and either lost a significant amount of wealth, couldn't keep up with the higher threshold, or were surpassed by others.

I always enjoy Forbes annual list because if gives cause for ponder and cause to always hope about next year. Enjoy Forbes's interesting slide show.

Note: Order Kevin Price's audio program The Accumulators, which explains the impact that the Internet is having on marketing and consumer behavior. It is available online here for only $10 plus p and h. Receive the Houston Business Review e-zine free each week by clicking here.

See How They Run: How Important is Money in a Presidential Campaign?

Clearly money is important, but could it be over rated? Forbes.com seems to think so in a recent article at its website. The article, entitled "Money Doesn't Win Presidential Elections," is built on several assumptions:

1) A truly wide open field. With so many candidates starting this early, there is plenty of opportunity for other players to come onto the scene and change the landscape.

2) The role of the Internet changes everything. The web has become a great tool for raising money and its role should expand in the future. Many who become major fundraisers on the web will not attract people or money in the "real world," however, having an affect on the actual election.

3) Early primaries are forcing candidates to raise money at record levels, especially California's move to February 5th. This state will require big money in order to reach this large population.

4) Faltering front-runners. Candidates that are bringing in the cash and showing strong numbers today could be an after thought before 2007 comes to a close. As candidates start campaigning earlier, more money will come in quicker, having an impact on the previous records. Never have so many people been running for office so early, in the history of the Republic. This cannot help but impact the flow of dollars. The timing of the arrival of those dollars, in particular.

When I think of the power of money, I think of Phil Gramm's failed Presidential campaign of 1996 which brought in a great deal of money and early buzz, but found itself a mere after thought in the end. Money is important, just ask both the candidates with it and those who wish they had it. But money alone doesn't mean instant success in the turbulent world of politics.

When It Comes to Blogs, Is It "Here Today, Gone Tomorrow"?

I'm always interested in trying to improve the quality of my blogging, so I often spend time researching blogs recognized by others as among the best on the Web. Recently I put "best political blogs" in my Google search engine and found a link to Forbes Magazine on the subject. I was attracted to Forbes because I largely agree with them ideologically.

I immediately jumped in to check out their choices and found the following reoccurring messages: "nothing new here," "no longer posting," and other posts indicating their demise either voluntarily or due to other causes. At first I found this alarming. Although all of them had high Google rankings, how could they go from the top list of publications to no longer in business? I looked a little closer and found that many of them that do have posts are months old. Finally, I looked at the link and found that this was a list from 2003.

This, of course, made me feel a little better because it provided explanation, but it made me wonder about the future of this blog. Sure, eventually, all things will pass, but three or four years doesn't seem that long to go from the pinnacle in their industry to a mere after thought.

All of these blogs were written by individuals and their survival depended on those people remaining interested or able to keep writing. It helped me to see the wisdom of a Huffington Post (see founder Arianna Huffington's photo, above), which is made up of the opinions of many rather than one. Any one of these writers can walk away, but the blog would continue. I might have to join or put together such a blog.

The Best Cities for Jobs

With unemployment hoovering around 4.5 percent, unemployment is relatively inconsequential in general. However, some cities are better than others. Recently Forbes Magazine listed the top 100 cities for jobs and I noticed they have a few things in common.

* They are in low tax states, such as Texas, Florida, Arizona, and Virginia.

* They are in the South and West. This is why these states are booming in population growth as well. All of the top ten cities are in the South and West (Hawaii being the far West). Some would call DC a northern city and although it has characteristics of such, the demographic includes Southern cities in Virginia. Furthermore DC is a boom city for jobs because of government, which can only happen in the nation's capital. Everywhere else, government is a job destroyer. The next ten cities are also all in the West and South except for number 11 which is made up of cities in Maryland. They, too, are near DC and make money off of big government. The South and West remain the primary job drivers through out the list. Florida is particularly strong, including Orlando, Florida (Home of Disney World, above).

* They are all mostly in states that are predominantly governed by Republicans in the State Houses. These Republicans largely have created jobs through their tax, regulatory, and licensure laws that are friendly to business. Some of these Republicans got beat in the last election cycle, I suspect that people that came from poor performing states inadvertently booted them out. I discuss phenomenon in a previous blog entry.

* These cities are growing rapidly. This could change if the policies in the states they are in change (as the governments have) and become anti-jobs.

I hope people take more than a casual look at the growth of jobs in this country and recognize what the cities (and states) that foster growth have in common. Furthermore, I hope governments practice the policies of low taxes, sensible regulations, and reasonable licensure laws. All of these are factors that contribute to positive job growth.

Excuse Me TV, But I Do Have the Internet

A few years ago Aflac Insurance came up with the clever idea of providing trivia questions that were used as a lure to keep people watching what ever show one was watching. It was a pretty smart innovation of advertising. The way it worked was simple, at the end of a segment of a show -- typically a news program -- they would ask a trivia question that you would have to wait through the break in order to the see the answer. What was once clever is now irritating. Furthermore, it reminds the audience how TV is declining in importance and is being surpassed by the Internet.

Recently I was watching Kudlow & Company on MSNBC and they tried a similar concept. Just before a station break they announced that Secretary of State Condoleezza Rice was no longer the most powerful woman in the world any more according to Forbes magazine. They expected me to sit through the break to wait for the answer as to who replaced her. Do you think I waited? With my faithful notebook computer right next to me I had the answer before the first commercial was over. The world's most powerful woman was now Angela Merkel, Chancellor of Germany, according to the list. By the time the break was over I was no longer watching Kudlow and had found my way to other on-demand news and information from the Internet and could care less about the rest of the program.

Instead of keeping viewers, this form of advertising only made TV seem less relevant and accentuated the importance of the Internet.