It doesn’t get much worse than rebuilding better

Reprinted from internal sources

Senator Joe Manchin and Majority Leader Chuck Schumer just struck a deal on a massive spending package they’ve dubbed the Inflation Cut Act of 2022. In all important respects, the legislation is no different from the Democrats’ long-term social spending plan known as Building Back Better.

Americans should be concerned. The bill has the potential to constrain innovation in one of the most important and successful sectors of the US economy.

The plan would allow unelected federal officials to “negotiate” with drug makers about the price Medicare will pay for an ever-growing list of brand-name drugs.

In practice, these “negotiations” are federally imposed price controls. Under the plan unveiled by the Democratic leadership in early July, the government will have enormous power to set its own price for a growing array of advanced drugs, and drugmakers will have no choice but to apply.

The cost to patients would be catastrophic. That’s because the main consequence of such price controls will be the destruction of the research and development system that makes America the world leader in medical innovation.

Drug development is already a risky business. It costs, on average, nearly $3 billion over 10 to 15 years for each new drug approved. This is partly due to the direct cost of the research and development activity itself — and partly because only 12 percent of potential drugs that enter phase I clinical trials ultimately win approval. Private investors are willing to take such risks because a successful drug has the potential to recoup those costs and then some.

But if the government succeeds in assigning itself responsibility for drug prices, the chances of offsetting drug development costs will fall sharply, and investment in new research will quickly dry up. Everything from cancer breakthroughs to new treatments for Alzheimer’s, COVID vaccines, and heart medications will become scarce.

This expected outcome will put the innovative biopharmaceutical industry in a position not to make up for the investment loss. A recent review led by University of Chicago economist Thomas Phillipson notes that studies consistently show that a 1 percent decline in industry revenue leads to a 1.5 percent decline in research and development activity. He found that this legislation would reduce industry revenue by 12 percent through 2039 and research and development activity by 18.5 percent, or $663 billion. He estimates that the result will be 135 fewer drugs being developed in that period – a crippling deficit that will also be measured in lives lost.

Families around the world rely on research and innovation from the US health and science industries to bring new, life-saving medicines to loved ones facing diseases that lack treatment. The Build Back Better plan will eliminate future accomplishments and any hope that comes with them instead of offering real solutions.

Peter C. Bates

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