Despite Free Market Rhetoric, Drug Companies Are Addicted to Tax Breaks

Massachusetts will give 28 drug companies $25 million in tax breaks in 2010. The move reveals -- again -- that behind all the rhetoric about the U.S. free market being more innovative in terms of new drugs the reality is that American drug companies enjoy corporate socialism just as much as their European counterparts.

The money comes in return for creating 918 jobs in the state. Put another way, each company that receives a tax break must create on average only 32 jobs. Among the beneficiaries:

Biogen Idec (BIIB), Cambridge - $1.5 million
Genzyme (GENZ), Cambridge/Framingham - $6 million
Merrimack Pharmaceuticals, Cambridge - $1.5 million
Sepracor, Marlboro - $750,000

It is questionable whether tax breaks actually do create drug jobs. Recent anecdotal evidence suggests that macroeconomic forces have a far greater influence than targeted tax incentives on job creation in the pharma sector.

For instance, Sepracor got a $3.9 million tax deal from Massachussetts late last year after promising to add 250 employees. Within months it had laid off 940 workers. Connecticut taxpayers paid $160 million for the privilege of having Pfizer (PFE) base its R&D operations in the state -- but after the Wyeth acquisition Pfizer axed 19,500 jobs and abandoned a planned New London site. And Bayer (BAY.DE) successfully held up Berkley, Calif., for $10 million in return for doing nothing more than staying in the city.

It happens on the national level too. Drug companies spend millions lobbying Congress to expand Medicare's prescription drug benefits, which is essentially free money for pharma.

Compare those actions with the words of Big Pharma's lobby group, PhRMA. PhRMA boss Billy Tauzin gave this speech in 2005:

This kind of research is possible for one reason, and one reason only â€" because of the miracle of the free market system, and its ability to pull together the needed resources.
... When you look at the facts, it's clear that the best engine for innovation is the free market. It ties together the capital -- that funds the research -- that creates the drugs -- that make it possible for children to survive leukemia, for people to live a lot longer with AIDS, and Alzheimer's sufferers to live a decent life for far more years than they would.

Those words may no doubt be true -- in theory. But in practice drug companies are happy to shelve the Ayn Rand rhetoric whenever there's a chance of getting a government handout.

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