From Oceania@world.std.com Wed Jan 19 01:00:30 1994 Received: from world.std.com by freenet.victoria.bc.ca for /freenet/system/bin/m2mbox /freenet/home//17/ub774/mbox (4.1/1.39) id AA07454; Wed, 19 Jan 94 01:00:30 PST Received: by world.std.com (5.65c/Spike-2.0) id AA29117; Tue, 18 Jan 1994 23:24:45 -0500 From: Oceania@world.std.com Return-Path: Received: by world.std.com (5.65c/Spike-2.0) id AA29097; Tue, 18 Jan 1994 23:24:41 -0500 Date: Tue, 18 Jan 1994 23:24:41 -0500 Message-Id: <199401190424.AA29097@world.std.com> To: new.country@world.std.com Subject: Oceania Article ************************************************************* OCEANIA ARTICLE - 1/18/94 ************************************************************* The following will be run in the next issue of Chain Breaker: Failure to Defend Capitalism Leads to Demise by Ron Miller The amount of money lost to investors that own pharmaceutical stocks, since President Clinton's election, can now be measured in the billions. You may not care because you don't own pharmaceutical stocks. You lost nothing. However, crucial research that would lead to lives being prolonged or made more comfortable, will not be done. In the Princeton, New Jersey area there are many start up pharmaceutical or bioresearch companies. Over the year, I noticed that many had virtually no sales, but spent and lost millions annually. How is this possible? There are many smart people who enter the research field. They go to school studying chemistry, biology, and medicine. Some are geniuses. Many want to cure disease. In order to do this, money must be raised. In the real world, the way to get people to invest their money is to promise a high return based on the risk being taken. Often, start up research companies are first founded with a renown researcher stating that the purpose of the company is to cure or treat a particular disease. Let's assume that a venture capital company (the backers with money) puts up the initial dollars. The new company being formed has a Nobel prize winner as its founder and president. The Nobel prize winner has the idea that he can invent a drug to treat or maybe cure a disease. With this initial money, office space is rented, employees (including PhD researchers) are hired, and sophisticated equipment is bought. Millions are spent. Nothing is coming in from sales. There is nothing, other than the company's own research, to sell. However, the company backers feel that more research will lead to success. Stock in the company is sold. First, rich investors may be invited to buy sizable pieces of the company. Millions more must be raised to continue the research. Later, all sorts of clinical testing, as well as federally required paperwork must be completed. Until the Federal Food and Drug Administration (FDA) approves a drug for public use, there will be virtually no sales. Revenue to fund this operation must be raised by selling off more and more of the company. Pharmaceutical research is a long shot. Many of these start up companies run out of money without ever marketing one product. Every cent invested is lost. In order to get investors to part with their money, a high reward must be possible. People that back such risky ventures often back many such companies. They may feel it is only justified financially if one "home run" makes up for twenty losers. After all, each loser results in a one hundred percent loss. The investor also realizes that it is possible to have no winners. When President Clinton and his wife decided to tell pharmaceutical companies how to set their prices, they were appealing to a simple emotional though process. The thinking is, how can a pharmaceutical company make a three cent pill and charge one dollar? Of course, real life works differently. Cost controls will dry up money for new start up pharmaceutical companies. The risk to an investor will no longer be compensated by the possibility of huge returns. The Clintons will tell the companies what is fair. Hillary knows better than the marketplace. The giant successful pharmaceutical companies will be forced by the Clintons' pressure, or even by future laws, to keep their prices down. They will see their profits decline. With less profits already anticipated, the big pharmaceutical companies have already announced layoffs. Keep in mind, this is one of America's most successful industries. Lots of money is made, people employed, and lives are prolonged. The pharmaceutical industry invests billions of dollars every year in research. Their retained earnings (money not paid to investors in dividends) and profits finance the research. Unlike start ups, the existing drugs can finance the operation while still rewarding shareholders with dividends. The shareholders hope for increased dividends. They hold the stock because the company has the possibility of new drugs for future marketing. Of course, shareholders analyze the profitability of the existing drugs. Now, the pharmaceutical companies will cut they amount they will spend on research. Profits will decline, leaving less for research investment. Also, since pricing will now be controlled by politicians, not the free market, many research projects will not be approved by company executives. Cures that would have been made, now will not. This is particularly true of diseases with a relatively low number of people to cure. It may be determined by a pharmaceutical company that the amount spent on research would require years of charging ten dollars per day for the drug. Our Chief Health Czar, Hillary, may decide that fifty cents is the proper amount. Just the very fear of this occurrence will stop the research from being funded. It may be your life or a loved one's that is not prolonged one day because of the pharmaceutical industry's decline. The price that will be paid by this decline will exceed anything that a drug company can charge you. The Socialist Clintons are destroying this great industry because they don't understand capitalism. The huge risks taken by investors must have the possibility of making these investors rich. The marketplace should determine how rich, not the politicians. As soon as it is determined by politicians that these investors are rich enough, the investors will withdraw their money. Good bye research. Good bye prolonged life expectancy. Maybe, Hillary will think of nationalizing the pharmaceutical industry. You haven't heard about Americans importing Russian or Chinese drugs because they don't exist. Their industries were nationalized. If this situation ever gets to the stage where nationalizing the industry is actually a serious idea, then think of the new way the pharmaceutical industry would be run. Hillary would pick a feminist to head up the organization. The appropriate racial and gender mix would be at the top levels of the industry. In other words, racial politics, not skill would determine jobs. Curing disease would not be as important. Maybe, people would be happy that no one got to make any money. That annoyingly happy neighbor who just bought a new car with his Merck winnings will now be an unhappy neighbor. Of course, there will be fewer cars sold since there will be fewer winners. The most appalling part of the pharmaceutical industry's decline is the poor defense by the industry. The leaders of this industry have failed to use capitalism as its defense. The scenario that I used in this article shows why capitalism is the greatest political and economic system. It rewards success. It trashes failure. A system such as America's existing welfare state, that doesn't want to allow failure, will ultimately not allow success. Everyone is brought to the lowest level. That is what our current socialists (our President included) refer to as fairness. The pharmaceutical executives could have explained the way reality works to the American people. Their companies have far more wealth than Ross Perot. They were in the position to defend capitalism and save their industry from the now inevitable decline. Sadly, these "business leaders" never understood this. Ron Miller is a freelance writer and small business consultant. This article was reprinted with permission. Mr. Miller can be contacted at (609) 683-1447. 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