Drug Pricing Reforms Could Hurt Innovation

Here Are Three Ways to Prevent That
August 26th 2022

This article originally appeared in the Washington Post


Giving billions of dollars in government prize money to drug companies might sound like an idea from the pharmaceutical industry. In fact, it was a sweeping 2013 proposal from Sen. Bernie Sanders (I-Vt.) using “innovation prizes” to put the cures of tomorrow and affordability of drugs today on equal footing.

This is the sort of thinking we need in the wake of the Inflation Reduction Act’s enactment. That is because, while it’s true the law will expand patient access to drugs by allowing Medicare to negotiate drug prices, it will also likely reduce incentives to invest in developing new drugs.

That’s an argument we often hear from drug companies, and it rings hollow coming from them, given their history of producing many drugs with hefty price tags and only incremental health benefits.

But this misses the big picture: Pharmaceutical innovations play a key role in improving the health and longevity of Americans, as illustrated by the much faster-than-expected rollout of coronavirus vaccines and therapeutics. And despite provocative claims to the contrary, policies that reduce pharmaceutical revenues will mechanically lower the return from developing new drugs.

That’s why we should offset drug price negotiations with new ways of funding and incentivizing biomedical innovation. Here are three reforms that could do that:

Launch a public ‘biomedical innovation fund’

Society regularly encounters, in the biomedical space, thorny problems that are not easily addressed with traditional federal funding mechanisms. In some cases, the government has launched initiatives, such as Operation Warp Speed for coronavirus vaccines, to fill these gaps. But all too often, existing institutions lack the mandate or financing tools to address important problems.

That’s why we propose a public fund with an ambitious budget, ideally housed at the Advanced Research Projects Agency for Health, within the National Institutes of Health, which would have a broad mandate to address market failures in biomedical innovation. That should include legislative authorization for a range of tools to address otherwise intractable problems, such as large-scale innovation prizes to boost the development of medicines that provide little profit but high social value or patent buyouts to allow generic manufacturers to produce and sell low-cost versions of key medicines.

A large investment on the order of $20 billion would be a reasonable starting point for such a fund. An analogue for this fund, albeit at a much smaller scale, is the Biomedical Advanced Research and Development Authority’s DRIVe program, which applies a similarly flexible set of financing tools toward preventing future pandemics.

Fix the fact that we arbitrarily give some drugs more market exclusivity than others

Because patents are filed before the start of clinical trials, rather than when a drug actually hits the market, drugs that require long clinical trials effectively receive shorter patent terms. This reduces incentives to develop drugs that require long clinical trials, including many preventive medicines.

A simple way to correct this is for the Food and Drug Administration to guarantee a minimum baseline of 12 years of market exclusivity for branded drugs. Importantly, this would not change or lengthen protection for drugs that would be developed anyway; most already receive 12 to 16 years of market protection, and the United States already provides this for particular categories, such as biologic drugs. For drugs with short periods of market exclusivity, this policy could make the difference between the drug being developed or not.

Invest in building a better NIH

Almost half of all approved drugs are built on research that was funded by the federal government, but something in this system has gone astray. Between 1980 and 2008, the average age of NIH principal investigators rose from 39 to 51. Moreover, scientific discoveries today appear to be less fundamental than previous advances, even as we continue to spend more resources. While there is consensus that NIH funding mechanisms are increasingly misaligned with the current structure of scientific research, there is much less consensus on what to do about it.

To make progress, let’s apply the scientific method to how we fund science. Pair increases in NIH funding with a commitment to experimentation. Congress could establish an NIH center to pilot novel funding mechanisms and operational improvements while collecting data to evaluate and scale successful interventions, similar to the Centers for Medicare and Medicaid Services Innovation Center.

Accelerating biomedical innovation shouldn’t be viewed as a giveaway to the pharmaceutical industry but rather as a driving motivation for the public sector. Even a 1 percent reduction in cancer mortality would be worth nearly $500 billion — about five times more than the Inflation Reduction Act’s drug provisions will save.

Addressing the high cost of drugs today is an essential policy goal. But we cannot let that come at the expense of a lifesaving drug that is never developed tomorrow. Everyone from the pharmaceutical industry to Bernie Sanders should be able to agree with that.