Democrats’ Drug Price Dictating ‘Compromise’ Still Fatally Flawed

First published by Fox News

By Newt Gingrich and Joe DeSantis

The Democrats like to present themselves as the party of science, but two recent announcements show just how ignorant they are about how science moves from the lab into our medicine cabinet.

The first announcement was results from Pfizer’s clinical trial of its new anti-viral treatment for COVID-19. The treatment reduced hospital admissions in high-risk individuals by a stunning 90 percent compared to those receiving a placebo. Even more remarkably, not a single person receiving the treatment died. The second announcement was that Democrats reached an agreement on a measure that would disrupt and ultimately cripple the life sciences investment system that helps make breakthroughs like this possible.

The Democrats’ destructive proposal would allow Medicare to dictate the price it pays for certain classes of drugs. The Democrats call their price dictation plan “negotiation,” but like so much of political language, this word choice is a deliberate lie. The arrangement’s structure gives the government all the leverage, including a penalty tax of 95 percent on gross sales of the drug if the manufacturer refuses the government’s demand.

Considering it takes on average over $2 billion or more in investments, and over 10 years development time, to bring a new drug to market, who would risk this capital if after all that time and money the government imposes an arbitrary price in which there may be no adequate return on investments?   

While Nancy Pelosi and Bernie Sanders prioritized short-term dollar signs over long-term implications for patients, so-called moderate Democrats were able to narrow the number of drugs eligible for price dictation to those whose exclusivity period has worn off. Yet, even this compromise is ill-conceived.

We already have a highly successful system of lowering costs on drugs past their exclusivity period: generics and biosimilars. These brand name alternatives generated $2 trillion in savings over the past decade. The U.S. Food and Drug Administration estimates that a drug’s price falls by nearly 40 percent when the first generic enters the market – and by 80 percent with four or more.

Dictating the price of drugs past their exclusivity window would put generic and biosimilar development at risk because generic manufacturers won’t be able to anticipate a price point for the drug they will be competing against. The result will likely be less competition, which could ultimately lead to higher prices than we would have had with more generic and biosimilar options.

More broadly, the narrower proposal still suffers from the same fundamental flaw as the original HR3 drug negotiation proposal and all Big Government Socialist schemes – it fails to anticipate how people will react to the incentives created. In this case, the people we are talking about are private life science investors who fund early-stage drug development.

Drug development is a relay race. The baton starts with basic science research. This is often funded with taxpayer dollars but also can be the bydproduct of private sector research in other areas. When this research produces promising new knowledge, the private sector grabs the baton. Scientists often partner with life science investors to create small biotech companies to try and develop treatments based on initial research. Roughly 50 percent of all new treatments to reach the market came through small biotech companies funded by life science investors.

If early clinical trials look promising, the baton often gets passed again. The small biotech company will partner with a large manufacturer to go through the rest of the clinical trial process, which can be quite expensive. Even at this stage, the chances of success are small. Many promising drugs, and the investments in them, fail to make it through Stage 3 trials.

The Democrats and their Big Government Socialist price dictation scheme pretend the second leg of the relay doesn’t exist. In their simplistic narrative, the government funds science research and then big drug companies make a bunch of money off it. The only consequence the left sees, or seeks to convince others of for political purposes, is that big drug manufacturers make less money. 

They are ignoring the fact that dictating prices will scare off the life science investors who are essential for the second leg of the relay race of drug development. The Congressional Budget Office estimated that the Democrats’ original version of their price dictation scheme, HR3, would lead to 30 fewer new drugs introduced over the next decade (a 10 percent reduction).

However, this estimate likely dramatically understates the impact of drug price dictation. Several analyses, including from Charles River Associates and Doug Holz-Eakin of the American Action Forum, point out that the CBO analysis doesn’t account for just how much of new drug development goes through small biotech firms – and how essential life science investors are to giving these firms the capital they need.

As John Sanford, executive director of Incubate said recently, “If price controls are enacted, the life sciences investment equation will no longer justify investment in R&D. Investment won’t just be reduced, it will drop off a cliff.” European countries suffered a similar fate in the 1980s and 1990s as much of their capital and R&D base shifted to the U.S. Price control policies such as those being considered in Congress could cause a similar flight pattern to places such as China and India.

Investors have a range of choices for where to put their money. If life sciences look less promising, they will put their money elsewhere. And as investment dollars shift from life sciences to other areas, the number of new drugs in development will collapse.

Democrats should keep in mind that the cardinal rule in medicine is to “do no harm.” Their proposal fails this test. It would harm patients by starving the drug research and development process of the investment dollars it needs to innovate and develop new treatments and cures, including against future new viruses like COVID-19.  Any Democrat who cares about patients should vote against this measure.

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