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Following discussion on the dangerous consequences of the SMART Prices Act and drug price setting policies included in the IRA, groups We Work for Health and Vital Transformation recently published a report further highlighting the disastrous effects that this policy would have. The report models the impact of the SMART Prices Act (SPA) on the biopharmaceutical industry, finding concerning outcomes. Specifically, this policy would result in roughly 68 percent fewer therapies being developed, over one million lost jobs, and roughly a 39 percent reduction in biopharmaceutical investments. 

The SMART Prices Act expands the Inflation Reduction Act’s disastrous policy on drug price setting – which allows the Secretary of the Health and Human Services to place up to a 95 percent tax on companies defying a decided price. It does this by allowing “negotiations” one year earlier, increasing the number of drugs available for “negotiation” from 10 to 20 in 2026, and 40 in 2027 onwards, and increasing the overall amount by which drug prices can be reduced. 

Therapy & Innovation Loss 

Competition plays a crucial role in the thriving of our nation’s economy, especially our pharmaceutical industry. Getting a drug approved by the FDA is an extensive and expensive process – price setting strips pharmaceutical companies’ ability to recoup expenses, slashing incentives to develop new drugs as a result. 

The biopharmaceutical industry allocated an average of 28 percent of its revenue towards R&D in 2022. The report uses the SPA’s projected revenue reductions (37 percent of net earnings before interest expense and taxes) to model impact on new therapies, with 20 percent, 30 percent, and 40 percent as R&D investment benchmarks. It finds an average of 82 lost therapies over a ten-year period. When applied retroactively to the 121 FDA approved therapies that would be impacted by SPA price control policy, 82 therapies represents a loss of roughly 68 percent – the effects of which would be felt by the categories below. 

Vital Transformation, LLC 2023

A chart showing the types of therapies which may not have been developed if the SPA was in place. 

There are an average of 35 new FDA approvals annually, projecting a baseline of 350 over the next ten years. Assuming the impact rate of 68 percent stays constant, the report estimates a decline of up to 237 FDA approvals over the next 10 years under the SPA. That’s 237 possible groundbreaking innovations that would have been able to save lives. 

Lost Jobs & Investments 

In addition to loss in innovation and therapies, the effect on those working in industries supported by the biopharmaceutical industry would be significant. The report analyzes peak year sales impact (a $126 billion reduction annually) to estimate job loss – estimates a peak of up to over one million people working in biopharma-supported roles to lose their jobs due to price setting policies. 

Additionally, the report analyzes the impact of the SPA’s roughly 39 percent reduction of available capital on investments made in twenty states – the most impacted being California, Massachusetts, New York, and Maryland – in fifty different therapeutic indications:

  • California – Projected loss of $23,876,813,998  
  • Massachusetts – Projected loss of $19,025,292,000  
  • NY & MD – Projected loss of $8,253,374,996

This report highlights that the effects of price setting legislation won’t just be felt by pharmaceutical industry executives as proponents suggest. Rather, the disastrous consequences will be shouldered by average American workers and those who are sick and hoping for medical innovation that will save them. We Work for Health and Vital Transformation show further that lawmakers must reject the SMART Prices Act, and repeal the price control policies in the Inflation Reduction Act.