The House of Representatives passed Speaker Nancy Pelosi’s unprecedented crackdown on the pharmaceutical industry. Her bill, “H.R.3,” would allow the government to dictate prices on a broad array of drugs, with the promise of bringing domestic prices closer to those in foreign countries with government-run healthcare systems.
H.R.3 is savvy politics. Nearly eight in ten Americans say prescription drugs cost too much. But government price setting is not the solution. Such policies stifle innovation and deprive patients of novel medicines.
The centerpiece of H.R.3 is a requirement that up to 250 high-end drugs submit to government-run “negotiations” over their price. But these would be negotiations in name only. Drug firms would be required to charge prices indexed to those in Japan, Germany, and several other countries where the government effectively dictates drug prices.
Put differently, these “negotiations” would simply import foreign price caps.
Technically, drug makers could decline to participate. But if they did, they’d face a new tax of 65 percent of sales of the drug in question. That tax would steadily ratchet up the longer they refused to negotiate, until they were forking over 95 percent of the drug’s sales to the government.
If H.R. 3 becomes law, drug makers will lose a trillion dollars in revenue within just ten years.
Plummeting revenue would have severe consequences for drug research.
Consider the impact on small biotech firms. About two in three new medicines originates at a small company. These firms rely on venture capital, but as more than a dozen venture capitalists explained in a recent letter to Congress, government price caps would make investing in small firms “too risky.”
At big drug firms, manufacturers plow roughly one of every five dollars in revenue back into research. Less revenue means less research. That ultimately means fewer new treatments for patients.
The Congressional Budget Office calculates that H.R. 3 will snuff out up to 15 new drugs over the next decade. But this is a gross underestimate, as it ignores the fact that it often takes more than a decade to bring a single new medicine to market.
I’ve witnessed firsthand how sudden drops in revenue can compromise drug innovation. Thirteen years ago, I ran global research at Pfizer. After pouring billions of dollars — and thousands of research hours — into what we’d hoped would be a breakthrough cholesterol drug, the product failed in clinical trials.
To stanch the bleeding on our balance sheet, we had to cut our research and development budget by 10 percent and close Michigan’s largest biopharmaceutical research facility. More than 2,000 people lost their jobs.
Speaker Pelosi’s plan would needlessly impose these kinds of losses across the drug industry.
Some supporters of the Pelosi plan’s champions have admitted it will devastate drug innovation. As one glowing New York Times editorial put it: “Americans will need to accept a trade-off.”
“Trade-off.” That’s quite the euphemism for a public health disaster. The United States is currently the drug innovation capital of the world, home to over 4,500 potential new medicines in development across U.S. labs.
Policymakers should, of course, look for ways to make drugs more affordable for patients — but not in ways that will sacrifice future innovation.
John LaMattina is a senior partner at PureTech Health and the former president of Pfizer Global Research and Development.