Reprinted from internal sources
Senator Joe Manchin and Majority Leader Chuck Schumer have just reached agreement on a massive spending package they call the Inflation Reduction Act of 2022. In all important respects, the legislation is no different from the long-standing social spending plan of the Democrats known as Build come back better
Americans should be alarmed. The bill has the potential to handcuff innovation in one of the most critical and successful sectors of the American economy.
The plan would allow unelected federal officials to “negotiate” with drug manufacturers about the price Medicare will pay for an ever-growing list of brand-name prescription drugs.
In practice, these “negotiations” are price controls imposed by the Confederation. Under the plan unveiled by the Democratic leadership in early July, the government would have enormous power to set its own price for a growing range of advanced drugs, and drug makers would have no choice but to submit.
The cost to patients would be disastrous. This is because the main consequence of these price controls will be the destruction of the research and development system that makes America the world leader in medical innovation.
Drug development is already a risky business. It costs, on average, nearly $ 3 billion over 10-15 years for each new drug approved. This is partly due to the direct expense of research and development itself, and partly because only 12% of potential drugs entering Phase I clinical trials ultimately gain approval. Private investors are willing to take those risks because a successful drug has the potential to recoup those costs and then some.
But if the government were to successfully take responsibility for drug prices, the chances of recovering the costs of developing a drug would plummet and investment in new research would quickly run out. Everything from cancer discoveries to new treatments for Alzheimer’s disease, COVID vaccines and heart medications would become rarer.
This foreseeable consequence will not leave the innovative biopharmaceutical industry in a position to compensate for the loss of investment. A recent review conducted by University of Chicago economist Tomas Philipson finds that studies consistently show that a 1% reduction in industry revenue leads to a 1.5% reduction in research and development. He believes this legislation would reduce the industry’s revenue by 12 percent through 2039 and research and development by 18.5 percent, or $ 663 billion. He estimates the result will be 135 fewer drugs developed during that time, a crippling deficiency that will also be measured in lives lost.
Families around the world rely on the research and innovation of America’s health and science industries to bring new life-saving drugs to their loved ones facing untreated diseases. The Build Back Better plan will erase future discoveries and any hope that comes with it instead of providing real solutions.