New analysis finds deeper impact of drug pricing bill on biopharmaceutical researchers

Brian Newell
Brian Newell August 1, 2022

New analysis finds deeper impact of drug pricing bill on biopharmaceutical researchers.

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A new analysis by the health care analytics and research firm Avalere reveals the partisan drug pricing bill will have a much deeper impact on the biopharmaceutical research industry than previously reported.

  • Avalere’s estimate puts the reduction of revenues of biopharmaceutical research companies from so-called negotiation, or the government price-setting provision of the drug pricing bill, at closer to $455 billion over the next 10 years.

  • And the bill imposes other price controls on prescription medicines, including a penalty for changes in drug prices that are greater than the rate of inflation. Based on data from the Congressional Budget Office (CBO), this provision would lead to an additional $190 billion hit to the industry.

  • Add it up and an industry responsible for developing lifesaving cures and treatments is facing a roughly $645 billion blow over the next decade because of this extreme, partisan bill.

This $645 billion impact stands in stark contrast to an analysis many have relied on by the CBO. Unfortunately, CBO’s modeling approach is disconnected from the reality of how R&D investment decisions are made. It’s more academic approach does not reflect the real-world choices biopharmaceutical investors and CEOs have to make. 

Here’s what CBO gets wrong: 

  • CBO wrongly assumes that the magnitude of expected returns for a drug do not affect the decision to invest in its development. In CBO’s view, a drug expected to earn a 0.1% return is equally likely to incentivize investment as a drug expected to earn a 15% return. In reality, investors are not willing to put very large amounts of capital at risk over many years for drug candidates that, when subject to government price setting, will have their returns driven below expectations. Simply put, investors will move their capital to other fields.  

  • CBO wrongly assumes that despite the upward trend in new drug approvals since 2005, the number of approvals will remain constant in coming decades — even though the science of drug development has advanced due to progress in genomics and other fields.  This makes their estimate of foregone drugs too low. 

  • CBO ignores one of the most important sources of new medical advances, new FDA-approved indications for existing medicines — the only thing that matters in their model is first approvals.  And CBO acknowledges its estimate is uncertain, and has already increased the expected number of foregone new drugs by 50%

The flawed CBO score also misses the patient impact of government price setting. At a recent media briefing, breast-cancer survivor Maura Bevins said:

"I’m opposed to allowing the government to set the prices of medications. We cannot sacrifice new drug discoveries or innovative treatments to save lives. Innovation saved my life.” 

Patients like Maura deserve a better approach than the current partisan bill. As PhRMA President and CEO Steve Ubl noted:

“This bill would impose radical change on American health care. It’s being jammed through with slim margins, special rules and zero bipartisan support. … It’s time Congress and the president to do what’s best for patients: abandon this partisan, anti-innovation bill; start over with a new, bipartisan approach that lowers costs and protects future innovation; work with us and all health care stakeholders on a balanced bill that delivers more affordable health care for everyone.”

To learn more about the flaws in the current drug pricing bill, click here.

To learn more about a better way to lower drug costs for patients, click here.

Topics: Research and Development, Patients, Policy Solutions, Government Price Setting