COVID proves the necessity and effectiveness of U.S. big pharma.

The cost of producing a vaccine, in other words, is priceless. But expecting Big Pharma to deliver a cure means acknowledging how Big Pharma works. The economic logic that drives up drug prices and fuels constant political outrage also makes rapid drug development possible. They’re two sides of the same coin.

Multiple studies show that you can only trim pharmaceutical profits so much before innovation slows, which means fewer new medicines and diminished capacity to solve problems such as SARS-CoV-2 (the virus that causes the COVID-19 disease). The National Bureau of Economic Research has found, for instance, that cutting drug prices in the U.S. by 40 to 50 percent would lead to 30 to 60 percent fewer R&D projects. Another study found that Germany lost 23,000 pharma jobs after it implemented price controls in the 1990s, and Germany slipped from first to third place among the continent’s top drug innovators. As the nonpartisan Information Technology and Innovation Foundation concluded in a white paper last year, “For the issue of pharmaceutical drugs, an overwhelming body of academic research shows that price controls will significantly restrict the number of new drugs in the future.” Every decision involves tradeoffs.

Nobody doubts that inequality is baked into this incentive structure—that the same profit motive that makes the U.S. pharmaceutical industry the best in the world also leads to unjust outcomes, especially for the poor. Nor is it a secret that American R&D effectively subsidizes Europe. The question is whether that system can be reformed in a way that doesn’t endanger innovation.