Last night’s State of the Union address was a festival of cognitive dissonance.
President Biden proudly lauded the price controls that Democrats have begun implementing on prescription drugs as part of last August’s Inflation Reduction Act. He also touted his administration’s Cancer Moonshot, which aims to halve the cancer death rate over the next 25 years.
These policies are in direct conflict with one another. Pharmaceutical companies are already responding to the IRA’s looming price controls by scaling back their research and development efforts. As a result, there will almost certainly be fewer new treatments for cancer—and other illnesses—in the years to come than there would have been without the IRA.
The law grants Medicare the power to essentially set the prices of 10 brand-name medications starting in 2026, another 15 in 2027, another 15 in 2028, and another 20 in 2029 and each year that follows.
The feds can consider a drug for those price controls nine years after approval if it’s a “small-molecule” drug, which are generally pills synthesized chemically. “Biologics,” or drugs that are produced using living organisms, come up for government price controls 13 years after approval.
This discrepancy has caused some drugmakers to reconsider whether the development of small-molecule drugs is worth the effort, as they’ll have only nine years to recoup their investment.
Last month, for example, a top executive at Novartis told Reuters that many of his company’s most promising potential medicines—including RNA treatments that can render disease-causing genes ineffective and radioligands that can fight cancer—are considered small molecules. “That’s a piece of legislation that we would think needs to be changed to benefit innovation and patients down the road,” the Novartis executive said.
Novartis is not alone. Eli Lilly scrapped a potential blood cancer therapy. “In light of the Inflation Reduction Act, this program no longer met our threshold for continued investment,” a company spokesperson told Endpoints News in November. Alnylam Pharmaceuticals canceled a trial for a new Stargardt’s disease treatment in October.
We shouldn’t be surprised. Experts from academia and industry have warned for months that price controls would come at a cost to patients with unmet needs. A November 2021 analysis from University of Chicago economists Tomas Philipson and Troy Durie predicted that a drug pricing regime similar to the IRA’s would lead to 135 fewer new drug approvals through 2039.
The price caps in the IRA reflect an embarrassing naïveté about the economics of drug research and development. The cost of bringing a new drug to market can be as high as $2.8 billion.
That price tag is so high because drug research is risky. More than 90% of drugs that enter clinical trials fail.
Take gantenerumab, Roche’s failed Alzheimer’s treatment. Effective Alzheimer’s treatments are the proverbial Holy Grail of drug development. Roche, like many other drugmakers, has sunk millions upon millions of dollars into research in the hopes of a breakthrough for the devastating disease.
Or consider Johnson & Johnson’s HIV vaccine candidate. Its failure in Phase 3 trials, announced last month, means the evaporation of millions of dollars—with little to show for it.
Investors are willing to gamble on research that has a roughly 10% success rate because the potential payoff from developing an effective therapy can be huge. The IRA is intent on taking those paydays away. And in so doing, it’s virtually guaranteeing that patients now, and in the future, will have access to fewer innovative, effective, and perhaps even curative therapies.
Fewer effective drugs will make the Cancer Moonshot’s goal of halving the cancer death rate over the next 25 years a lot harder to achieve—if not impossible.
Price controls reduce the supply of goods and services in the short term—and in the long term. The IRA’s price controls will be no different. Unfortunately, many of their worst effects will be felt by patients long after Biden has left office—and long after his Cancer Moonshot has petered out.