Opinion | Drug Companies Say We Can Have Innovation or Lower Prices. That’s a False Choice. – POLITICO

Excessively high prescription drug prices are a substantial financial burden on Americans like Louise and her husband, but they also raise insurance premiums and taxes for you and me by increasing costs for insurance companies, Medicare and Medicaid. Society will pay the other $200,000 through those higher premiums and taxes.

Tafamidis is not the only super expensive drug that the FDA has approved recently. Danyelza, approved for neuroblastoma, a type of cancer, costs nearly $1 million per year per patient. Folotyn for a type of lymphoma runs over $800,000, and Blincyto is over $700,000 for a type of leukemia.

I’m an oncologist who has seen his patients reap huge benefits from the kind of high-priced innovation drug companies love to talk about. I’m also a health-policy specialist who has looked carefully at the long-term impact of drug company prices and profits. I’m convinced that we don’t have to choose between reasonable prices and innovation. The truth is, if Congress passes legislation to give Medicare negotiating power to make drugs more affordable, we will still have robust innovation.

This isn’t just my personal opinion. In August, the nonpartisan Congressional Budget Office looked at the past investments of drug companies and estimated that if their returns on the top 20 percent of drugs dropped 15-25 percent, drug companies would not develop two out of 200 drugs that are likely to get FDA approval over the next 10 years. That means drug price regulation like that being considered in the reconciliation bill would prevent only 1 percent of all new drugs from coming to market.

It is harder and much more uncertain to predict more than 10 years into the future, but the CBO estimated that from 2031-2040, this price regulation would lead to 23 fewer drugs being developed — meaning we would still get 95 percent of the new drugs that would hypothetically be produced without any price regulation in place.

We should also remember not every new drug is an innovative drug. Indeed, a study by Deloitte found that of 35 drugs categorized as “innovative” because they are “new molecular entities,” only seven of them — 20 percent — were really innovative in the sense of fighting disease in a new way, not just copying mechanisms used by previous drugs. Similarly, a study of the 46 new drugs approved in 2017 found that 17 of them — that is, 37 percent — provided no or minor additional benefits compared to existing drugs. (And that percentage could be even higher, since 19 of those drugs weren’t evaluated for how innovative they were). That is not a lot of innovation that might be foregone as a result of drug price regulation.

There are several other reasons to think drug price regulation will not reduce R&D for innovative drugs. Companies in other industries spend more on R&D than do drug companies, even though they have lower profit margins. The company that spends the absolute most on research — over $40 billion per year — is Amazon, famous for low prices and low profit margins. Many car companies, like Volkswagen, Daimler and Ford, often invest more in R&D than drug companies even though their profit margins are lower. Indeed, among the 20 companies worldwide that invest the most in in research, only four are drug companies — and the top drug company ranks only ninth. Clearly, many other industries do not need the same super high prices and profits to justify high investments in innovation.

Democrats are committed to passing legislation this year to curb prescription drug prices. | AP Photo/Elise Amendola

More importantly, prices in the United States for just the 20 top-selling-drugs are so high, that their profits more than pay for all of drug companies’ research in the entire world. A 2017 study showed that drug companies earned $116 billion from the high prices charged in the U.S. compared to what they would have earned at European prices, but they “spent just 66 percent of that amount, or $76 billion, on their [total] global R&D.” In other words, high U.S. prices pad drug companies’ profits by $40 billion over what they invest in all research and innovation. Surely, they can afford slightly less profits, or alternatively, spend less on marketing and lobbying, and be able to maintain their current R&D investment.

All the evidence suggests that regulation in Congress’s reconciliation bill will reduce prices only by about 10 percent and lead to well over 95 percent of anticipated drugs reaching the market. This hardly constitutes the “end of innovation” that drug companies and others ominously warn is inevitable with any price regulation. Nor does drug price regulation mean that millions of Americans will have to suffer for lack of a cure or transformative treatment for their cancer or serious illnesses.

What it does mean is that tens of millions of Americans, like Louise’s husband, might finally be able to afford to take the medications that could save their lives.