Today, the Biden Administration announced the first 10 drugs that the federal government will subject to price controls under last year’s Inflation Reduction Act (IRA). These disastrous price controls will create shortages, increase costs on other drugs, and discourage companies from entering the market. In healthcare, shortages and a lack of innovation cost lives.
It is imperative that lawmakers address these issues with the IRA through a full repeal of these provisions and substantive oversight hearings investigating the many consequences of this legislation.
The IRA gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. In reality, the Secretary is given the power to simply determine the price he or she deems acceptable and impose a steep tax of up to 95 percent on companies who charge more.
The selected drugs are here or as follows:
1) Eliquis – prevention and treatment of blood clots
2) Jardiance – treats diabetes and heart failure
3) Xarelto – prevention and treatment of blood clots; reduces risk for patients with coronary or peripheral artery disease
4) Januvia – treats diabetes
5) Farxiga – treats diabetes, heart failure, chronic kidney disease
6) Entresto – treats heart failure
7) Enbrel – treats rheumatoid arthritis, psoriasis, psoriasis arthritis
8) Imbruvica – treats blood cancers
9) Stelara – treats psoriasis, psoriasis arthritis, Crohn’s disease, ulcerative colitis
10) Fiasp; Fiasp FlexTouch; Fiasp; PenFill; NovoLog; NovoLog; FlexPen; NovoLog PenFill – all treat diabetes (insulin)
The Biden Administration will intentionally set the price of these select drugs lower than the equilibrium market rate. Given the basics of economic supply and demand principles, there are inevitable consequences: a shortage of said drugs and/or price increases on other drugs and/or a reduction in R&D spending by manufacturers. None are acceptable.
Take one of the selected drugs, Imbruvica, for example. This drug treats patients with blood cancers. In clinical trials, the drug halved the percentage of participants who died while taking chemotherapy after 28 months of follow-up. If there is a shortage of this treatment, the results are deadly.
In addition to a potential reduction in supply, it is likely that companies subject to these price controls will raise their prices on other treatments or cut back on their ongoing research. In this case, Pharmacyclics LLC, the creator of Imbruvica, has sponsored more than 50 clinical trials for cancer treatments, “including 18 ongoing or completed Phase 3 studies over 11 years.”
While the idea of simply “lowering prescription drug costs” through blunt force can be attractive, behind each of the drugs subject to price controls are companies that do vital work in medical innovation. When extorted by the U.S. government, they will have to make up lost costs elsewhere.
As noted, this law discourages new medical innovation – a consequence that will have the furthest-reaching effects. This is because it increases the financial risk companies take on when they start to develop new drugs. Under this law, they may never recoup the amount of money they put into R&D. Notably, in an industry like drug development, the risk is already very high.
During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development. Even so, most drug development programs fail.
As detailed by Stephen Ezell of the Information Technology & Innovation Foundation (ITIF), for 5,000 to 10,000 compounds screened during basic drug discovery phases, 250 molecular compounds (2.5 to 5 percent) make it to preclinical testing. Of the 250 molecular compounds, 5 make it to clinical testing. Thus, as little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of the few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA. Even if a drug is approved, it is likely that the profits from said drug will not recoup its R&D costs. One study in the Health Economics journal found that 80 percent of new drugs made less than their capitalized R&D costs.
Needless to say, starting a new drug program is, statistically, an almost guaranteed financial loss for drug manufacturers. Now, even if their drug is highly effective and popular, companies risk their prices being capped by the federal government.
Because of this dynamic, a CBO report analyzing the proposed price controls in the reconciliation bill found that “about 15 fewer drugs would be introduced over the next 30 years.” While 15 fewer drugs could easily translate into the needless death and/or decline in the quality of life of thousands, this number is still a gross underestimation.
In fact, one study, conducted by Tomas J. Philipson and Giuseppe Di Cera out of the University of Chicago, details how the IRA’s price control provisions will lower R&D activity so drastically that it will result in 135 fewer new drugs, generating a loss of 331.5 million life years in the United States.
The loss in R&D spending on cancer treatments alone will total $18.1 billion annually, wiping out nearly a third of the current annual spending on this research. This is particularly ironic given President Biden’s alleged goal to eradicate cancer through his “Cancer Moonshot” program.
Even before implementation, several drug manufacturers have already warned of development programs they had to end or will likely have to end, including Eli Lilly, Alnylam, Bristol Myers Squibb, AstraZeneca, Novartis, Sage Therapeutics, Amgen, etc.
Without giving any thought to the consequences or tradeoffs of “just making companies charge less for drugs,” the Biden Administration will be responsible for an abhorrent loss of life because of its policies.