Europe offers a cautionary tale of surrendering the lead on biomedical innovation, the study’s author, Stephen Ezell, told NR.
European and other developed countries that have imposed drug-price controls are free-riding on the research and development (R&D) investment of the U.S. and a handful of other countries, a new study has found.
Stephen Ezell, vice president for global innovation policy at the Information Technology and Innovation Foundation, told National Review that while many countries around the world are willing to invest heavily in combatting climate change because they see it as an existential global threat, the same zeal falls away when it comes to public health and developing new, life-saving drugs.
Countries that have instituted drug-price controls do not pay market value. For example, the European countries pay around 30 percent less, said Ezell, adding that “historically it’s been the American consumer that bears the real cost of [these] innovative drugs.”
Americans pay more for drugs even after adjusting for GDP per capita when one looks at the 32 countries in the Organisation for Economic Co-operation and Development (OECD). Thirty of the 32 OECD countries have lower drug prices, and many tend to implement extreme drug-price controls.
“Essentially, we contend that these other countries aren’t paying their fair share,” said Ezell. “Had they done so…the world would have more innovative new drugs for the benefit of humankind.”
If just five rich OECD nations — Japan, Germany, France, the U.K., and Italy — paid their fair share, humanity would benefit from 12 new drugs every year, explains the report. If these countries reduced price controls such that prices rose to 75 percent of U.S. levels, pharmaceutical companies could have increased R&D expenditures by an additional $23.9 billion, resulting in at least 11 new drugs annually.
According to Ezell, Europe, in particular, is a cautionary tale. In the 1970s, European-headquartered pharmaceutical companies introduced more than twice as many new drugs as U.S. companies. “Europe was really the focal point of biomedical innovation,” explained Ezell.
However, these countries have surrendered leadership in the intervening decades: “The shares of the U.S. versus Europe in levels of R&D or levels of new drug discovery have completely inverted over the last 30, 40 years, and that’s the direct result of policy choices,” as Ezell put it.
The United States and its companies have implemented close to half of the world’s new drugs over the past two decades. Additionally, the U.S. life-sciences industry is now the world’s most R&D-intensive industry, investing more of its revenues back into R&D than any other — over 22 percent.
“If we deprive these companies of revenues, they won’t have money to invest in future generations of biomedical innovation,” said Ezell.
The HHS will soon institute a drug-price negotiation scheme provided for by the Inflation Reduction Act. Pharmaceutical companies have already revolted against the messaging and challenged the law, explaining the scheme is a drug-price-control program in everything but name. Additionally, more extreme proposals have been mooted in Congress.
According to Ezell, instituting the IRA program or any of the more extreme proposals would have real deleterious effects. Since most drugs fail, companies need to have access to large markets and significant revenues if they’re going to recoup investment costs and make enough money to invest in future generations of innovation.
The CBO has predicted that the scheme provided for under the IRA would lead to a manufacturer-revenue loss of 15 percent. Such a cut in CBO’s predicted 45 new drugs per year would suggest around 6.8 fewer drugs per year, totaling around 121 lost over the 18-year horizon, as one report estimated.
Medicines that would be most affected would be cancer drugs and drugs that affect rare conditions, like genetic diseases. In response to the IRA, some companies like pharmaceutical giant Bristol Myers Squibb have already signaled cuts to their oncology programs.
Ezell said drug-price controls may mean lower prices today, but also less innovation tomorrow.
Additionally, supporters of these programs often do not paint a full picture, Ezell said.
New drugs are cost-effective treatments that reduce health expenditures.
“People rarely focus on the reality that far from being the biggest cost driver in America’s healthcare system, innovative drugs are, in fact, the solution to these challenges because if we can do things like capture cancer earlier through innovative testing and treat it, that’s far more efficient than dealing with chronic diseases,” Ezell said.
According to Ezell, the life sciences industry is a high-value-added, high-tech industry. A drug-price-control program in the U.S. “has the potential to be very damaging to America’s life-sciences industry,” said Ezell, and broader economic repercussions could follow.
The study also contained a number of policy recommendations. Aside from doing away with drug-price controls within the U.S., the report suggests the U.S. “name and shame” the free-riding nations. U.S. officials could raise the issue at international negotiations to come to an agreement, and in the absence of that, the United States should file a World Trade Organization case based on the complaint that price controls on the pharmaceutical sector violate intellectual property rights because they enable international arbitrage through parallel trading.
“In other words, patented pharmaceuticals legally bought in one country are exported to another without the consent of the local owners in the importing market,” explains the study.
The report also explains that a greater proportion of drug revenues ought to go to companies actually innovating and manufacturing drugs. U.S. wholesalers and insurers/pharmacy benefit managers/retailers are at least as — and likely much more — profitable than the companies actually innovating and manufacturing drugs, according to the study.
“Policymakers need to take a much closer look at the role of pharmacy benefits managers (PBMs) in America’s drug payment system,” the study argues.
The study concludes by pointing again to the way public health is treated as compared to climate change.
“If nations are willing to pay more for energy to demonstrate their resolve to save the planet from climate change, they should also be willing to pay a bit more for pharmaceuticals to save humanity from the scourge of diseases,” the study concludes.