Why do Western policy-makers propose ideas that would collapse their scientific and commercial advantage in the life sciences?
Why do Western policy-makers propose ideas that would collapse their scientific and commercial advantage in the life sciences?
E urope was once home to the most important and innovative biopharmaceutical companies, such as Bayer, Merck, and GlaxoSmithKline. However, the biopharmaceutical industry in Europe is declining precipitously, most likely due to the extensive price-control regimes of the 27 member countries in the European Union (EU). Price controls and innovation are not a good match.
According to IQVIA, the European share of the global pharmaceutical pipeline has declined from 31 percent over 15 years to just 23 percent today, while China’s share has risen from 6 percent in five years to 15 percent in 2022. The U.S. share of the global pipeline has remained around 40 percent in recent years, making the U.S. the worldwide center of biopharmaceutical innovation, and giving the U.S. an enormous competitive advantage in science.
The price controls in the Inflation Reduction Act (IRA) will initiate a downward trajectory in biopharmaceutical innovation in the U.S., but more sweeping price controls being proposed by President Biden and on Capitol Hill would spell the end of U.S. dominance in the life sciences. The biggest beneficiary of such a policy change would undoubtedly be China, where life-sciences research has seen explosive growth.
For Europe, there is no good news, and the future looks bleak for European life sciences. EU policy-makers are doubling down on the policies that weakened European innovation with a recent proposal to limit the period of “market exclusivity” for new drugs from ten years to eight. New drugs would have less time on the market before competing generics could be sold, so innovators would be punished.
EU policy-makers cited “equity” concerns as the reason for this anti-innovation proposal, as some smaller European nations typically get access to new drugs later than large markets such as Germany. The EU proposal would allow companies to keep ten years of market exclusivity if they could successfully launch their product in all 27 EU countries within two years.
This is an entirely unrealistic proposal because launching a new product in 27 nations with separate price-control bureaucracies is a long and tedious process, compared with launching a pharmaceutical in the U.S., a single country governed by a single price regime. For example, between 2012 and 2021, the average delay in the EU (from first approval by the EMEA, the EU’s FDA ) for new drugs in France and Italy was 20 months, but in Germany it was eleven months. For comparison, the average delay in the U.S. was only four months.
Quite simply, nations with price controls get less access to new drugs because the price-control bureaucracies will not allow a new drug onto their market until a pricing agreement is reached. Even if a pricing agreement is reached and a new drug is successfully launched, it will likely have been delayed not by months but by years. Europe therefore is likely to continue its long slide away from innovation, and China will surpass Europe in new drug launches within a year or two.
A new report from Vital Transformation, a biopharmaceutical consulting firm, predicts the U.S. may join Europe in choking off innovation due to price controls on Medicare drugs, the largest buyer of prescription drugs in the U.S. It is not too strong to characterize the Vital Transformation report as predicting a kind of nuclear winter in U.S. pharmaceutical R&D if President Biden’s 2024 budget proposal were to be enacted. That proposal would impose price controls on top-selling drugs in Medicare within five years of FDA approval. This new price-control proposal is ironically titled the Smart Prices Act (SPA).
The report predicts that if the SPA were enacted, “the revenue reductions caused by the SPA imply a 68 percent reduction in future FDA approvals within our cohort.” The report also models job losses and predicts that direct job losses within the biopharma industry would total between 146,000 and 223,000, with direct and indirect job losses totaling between 730,000 and 1,100,000. Job losses would be most devastating in California, Massachusetts, and New York.
The proposal to inflict heavy price controls on the U.S. market would devastate an industry where the U.S. leads the world and would represent probably the biggest gift to the Chinese economy in all of history. The Vital Transformation report predicts that the net earnings of the 44 biopharmaceutical companies they studied would decline by 37 percent. The Chinese life-sciences industry would quickly match, and then surpass, that of the U.S.
When considering the proposed policies in Europe and the U.S., one can only ask: Why do Western policy-makers propose ideas that would collapse their scientific and commercial advantage in the life sciences?