There is no doubt that the American people endorse the concept of the U.S. government controlling the prices of drugs. With the passage of the Inflation Reduction Act (IRA), this is now reality for the biopharma industry. However, Health and Human Services Secretary Xavier Becerra is trying to make it seem that companies are not being forced into anything. Witness his recent comments at the Milken Future of Health Summit.
“No one is captive in this negotiation. If any of those drug makers don’t wish to negotiate, they’re not required to. They are asked to participate….if they want access to the 65 million Americans who have Medicare.”
This is a pretty cavalier attitude to what is going to happen to the biopharma industry as a result of the IRA. In reality, once a drug is selected for negotiation, companies have the following choices: participate in negotiations; withdraw the drug from Medicare and Medicaid; or face a tax on up to 95% of a product’s sales in the U.S. Are those really options? No company is going to pull a drug that has been on the market for nine years and for which millions of patients have relied on for their health and well-being. Plus, one can only imagine the public outcry should a company do such a thing. No, companies will be forced to accept the price that the government is willing to pay.
One might ask, what’s the big deal? People have the unfortunate perception that biopharma companies are extremely successful and that their profits as so large that they can absorb such a hit to their revenues. In fact, that is not the case. One can simply look to the recent seismic shift at Pfizer. Faced with sharply declining sales of its Covid-19 vaccine and its Covid-19 antiviral, Paxlovid, Pfizer announced a major cost-cutting initiative of $3.5 billion. The ramifications of these cuts are already being felt with site closures announced for facilities in Michigan, New Jersey and North Carolina along with the loss of hundreds of jobs.
But this is just the tip of the iceberg for biopharma in the new IRA world. The Congressional Budget Office estimates that price controls will save the government $100 billion in just the first five years of enacting this legislation. This number will only go up as more and more drugs are eligible for price controls. Given that the biopharma industry invests 25% of sales directly into R&D, thanks to the IRA there will be billions less to invest into the discovery and development of new medicines. The situation now playing out for Pfizer will be mimicked across the entire industry – research sites closures, cuts to research staffs and fewer research programs being worked on. Essentially, there will be fewer new medicines being discovered and developed – medicines that will not only save lives but also keep people out of hospitals and thereby lowering the overall costs of healthcare.
Americans want lower drug prices and the government has acceded to these wishes. However, few understand the full ramifications of the impact of the IRA. But, for Secretary Becerra to ignore this impact and for him to imply that companies have a choice in participating in these negotiations is doing the biopharma industry a gross injustice. Medicare will save money but there will be fewer new medicines.
(John L. LaMattina is the former president of Pfizer Global R&D and the author of “Pharma and Profits – Balancing Innovation, Medicine, and Drug Prices.”
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