Photo by Kenny Eliason on Unsplash
Tomorrow, Senator Bernie Sanders (I-Vt.) will lead the Senate Committee on Health, Education, Labor, and Pensions (HELP) in a hearing on the price of Ozempic and Wegovy. As expected, the pre-determined “solution” presented by Sen. Sanders and his leftist colleagues will be price controls on lifesaving, life-preserving medicines.
Rather than facilitating a broad discussion around the numerous causes of higher drug prices, like large R&D costs, weakened IP rights, overregulation, and taxes, the committee will spend its time interrogating Novo Nordisk CEO Lars Fruergaard Jørgensen, who will be the sole person on the panel.
Not only is this hearing based on a misunderstanding of pharmaceutical manufacturing, but the so-called “solutions” to the “problems” would be devastating for medical innovation.
Sen. Sanders has asserted that Ozempic and Wegovy should cost less, citing a recent study by the activist-funded JAMA Network, in which researchers erroneously “determined” that the price of diabetes medicines, like insulins, SGLT2 inhibitors, and GLP-1 agonists, could be profitably manufactured for less than $5 a month.
To determine the ideal price for diabetes medicines, JAMA used a method called cost-based pricing, which only estimates the cost of manufacturing a copy of a medicine, and the prices that generic or biosimilar manufacturers could offer consumers. It does not consider the immense costs of R&D or the costs to expand manufacturing capacity to create the drug.
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), 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.
Given that the need to recover these costs are a primary factor in the price of medicines, it is misleading and irresponsible to ignore them. Certainly, any conclusion about what a drug’s “ideal price” should be that doesn’t account for these costs should be ignored.
Surely, Democrats understand that their talking points on anti-obesity medications (AOMs) are egregious and misleading. However, they are necessary to take the next step towards socialized medicine: price controls.
Democrats and the Biden-Harris administration passed price controls via the Inflation Reduction Act (IRA), dubbing them “drug negotiations.” In reality, the Health 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.
A CBO report analyzing the price controls in the IRA 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.
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.
Now, it is “very likely” that Ozempic will be on the 2027 Medicare “negotiation” list. This makes tomorrow’s hearing that much sillier, as no pharmaceutical company would (or should) reduce the likelihood of paying down their R&D costs when the threat of being price controlled is looming.
To be clear, using price controls against AOMs is particularly counterproductive, as shortages of these medicines and a lack of innovation in this space will lead to worse health outcomes.
The costs of obesity are immense. According to the National Institutes of Health, roughly 42 percent of U.S. adults have obesity. About 20 percent of adolescents (ages two to 19) are living with obesity. By 2030, nearly half of Americans will be obese. By the time they’re 35, almost 60 percent of today’s children will suffer from obesity.
Even worse, according to the Joint Economic Committee, “obesity will cause $5,155 in average excess medical costs per person suffering from the condition.” These costs correspond to $520 billion in total additional healthcare costs in 2023 alone.
Because of the immense strain obesity puts on the healthcare system, a reduction in obesity would deliver massive savings to taxpayers. According to a report by Goldman Sachs, more widespread adoption of AOMs could raise GDP by 1.3 percent:
“On their own, new anti-obesity drugs could raise US GDP levels by 0.4% or more in the coming years, according to the report. More broadly speaking, the latest healthcare breakthroughs could lift GDP by 1.3%, equivalent to about $360 billion per year in today’s dollars.”
Obesity is an enormous (and growing) problem in the United States. This space requires more innovative treatments. We cannot afford to suppress these efforts, nor the manufacturers/drugs that are leading these efforts.