Governments are faced with conflicting policies in the field of pharmaceuticals. On the one hand, governments see pharmaceutical expenditure increasing and constituting a considerable proportion of the health expenditure which they are trying to control. They find this item of the health budget difficult to curb, other than by operating on prices or by cost-sharing. On the other, they are keen to increase jobs and exports: in this context, the manufacture and development of ethical innovative drugs is a likely area for expansion in advanced societies with high educational and scientific standards (MOSSIALOS et al., 1994a).

It may be no coincidence that countries which have not controlled prices or done so indirectly by relatively generous allowances for profit are those which have retained a share among the top selling world products. Most of the employment in the European Union's industry is in small and medium sized firms which cannot at present hope to be able to afford the vast expenditure needed to develop, except by chance, a new block-busting product by world standards. The cost of R&D to develop a successful product has been escalating and the Community's industry has a very small share in the new field of bio-engineering which is rapidly developing in the United States and is believed to have great potential for the development of successful new products. Very few of the Union's firms have the budgets for R&D to compare with many in the United States. These budgets are accumulated by high profits on earlier successful products.

Thus governments face important choices. The temptation in the short period is to tightly control the prices of successful products as part of cost containment policies. If they do this during the patent period, they cannot expect their companies to accumulate the large profits needed to develop the next generation of successful products, simply out of their sales abroad. The question of pharmaceutical pricing is not just a matter of health budgets: it is a determinant of future jobs and exports for the Union in an area where some Member States held a leading position in the past and have the potential to continue to do so in the future. Governments can develop mechanisms to control excessive prices but should also examine how pricing and cost containment policies affect the future of innovation.

But what is more important and may lead to significant savings in the future is a fundamental reassessment of medical knowledge. In view of the limits to resources, effectiveness is a crucial principle. One of the main problems is the inadequacy of knowledge of which services are effective and which services are not. Thus one of the priorities is to identify gaps in present knowledge and fill those gaps. This is a formidable task which will take years and will be very costly. But the cost can be shared between nations.

One advantage is that medical traditions vary between countries and the same condition may well be treated in considerably different ways in different countries. At present, in most countries technology assessment is uncoordinated. It is even uncoordinated on an international basis. As a result many technologies are assessed in many different places and using a variety of different sources of evidence. There is clearly a case for international action and cooperation.