Price Controls Would Throttle Biomedical Innovation

Congress should reject legislation that would deprive startups of vital investment capital

By John Stanford. He is executive director of Incubate, a Washington-based coalition of life-science venture capitalists. Excerpts:

"The speed with which biomedical researchers have raced to develop vaccines and find treatments for the novel coronavirus has been breathtaking. Across the world, nearly 400 unique therapies are under investigation. Fourteen vaccines are in clinical trials. If we’re lucky, one or more will prove safe and effective, paving the way for widespread inoculation against Covid-19."

"It’s easy to forget that the marketplace has to fund those rare successes but also the far more numerous failures. That’s a big reason it costs an estimated $2.6 billion, on average, to bring a new prescription medicine to market. Only 12% of the compounds that start clinical trials make it to patients. Many more never even make it to trials. Most of that research is financed by private investment."

"The House Democratic bill would cap the prices of the most widely used drugs at no more than 20% above the average prices paid in Australia, Canada, France, Germany and Japan. Prescription-drug prices in those countries are largely set by governments, not markets, and aren’t designed to encourage research.

Thanks to the drug-pricing policies in these countries, the U.S. market now supports and effectively pays for most drug research for the rest of the world. The countries listed in the House bill rely on the value Americans ascribe to treatments. That isn’t fair or equitable. But if the U.S. responds by adopting their pricing, the whole industry will be starved of investment capital.

Last year the Congressional Budget Office examined an identical proposal—the language in this measure comes directly from the Elijah E. Cummings Lower Drug Costs Now Act of 2019—and estimated that it would result in eight to 15 fewer new medicines coming to market over the next 10 years.

But this assessment does not account for how investors will change their behavior. The White House Council of Economic Advisers conducted its own analysis and found that the House bill could prevent the development of 100 new medicines over 10 years. A study from the California Life Sciences Association and Biocom concluded that it could reduce the number of new treatments coming to market by as much as 88%. In other words, if the U.S. imposes foreign price controls, nearly 9 in 10 future therapies might never come to be."