Venture firms investing in biotechnology no longer have to necessarily do so. Their money can easily go into other profitable sectors of the economy, such as technology. Early-stage pharmaceutical companies are funded in part because America’s high drug prices mean a successful drug will be worth a huge jackpot. Almost all of this investment is diverted to the US market, as the rest of the world pays less.
The Assembly’s original proposal to regulate drug prices would have allowed the government to lower the price of up to 250 expensive drugs, no matter how new or how innovative. The new approach limits this power: drugs will only be subject to price regulation after they’ve been on the market for about ten years. This means that pharmaceutical companies can still charge very high prices for new drugs, but only hold it for too long. The law will allow price adjustment after nine years for the most common drugs and after 13 years for more complex drugs known as biologics.
Peter Bach, director of the Drug Pricing Lab at Memorial Sloan Kettering and chief medical officer of Delfi Diagnostics, has been a long-time outspoken advocate of drug price reforms. He said a belated approach would protect the public and government from what he sees as the industry’s worst practices—the endless price spikes and patent shenanigans that often insulate expensive drugs from competition for decades. But he also says the country’s intellectual property system will keep its promises by giving companies a few years to profit from their new inventions.
“Everything is in line with the core facilities in our system,” he said. “And rein in the infiltrating distortions.”
The original legislation was almost guaranteed to deter the creation of some future drugs. The nonpartisan Congressional Budget Office said it would lead to 3 percent fewer drugs in the first ten years of life and 10 percent less in the next ten years, as it previously affected drugs in the pipeline. Other scientists of the system, including Mr. Garthwaite, say the effects could be even greater.
Stephen Ubl, CEO of industry trade group PhRMA, described the original law’s threat as “existential” to his industry. He looked no less concerned when he said this week about the new proposal: “If it does, it will upset the same innovative ecosystem that brought us life-saving vaccines and therapies to fight Covid-19.”
Mr. Ubl’s comments ignore the fact that the new offer treats his industry better than before.
“In fact, the industry’s message is not diminishing, although innovation incentive changes are less,” said Rachel Sachs, a law professor at the University of Washington in St. Louis, who studies drug policy. He said delayed negotiation could mean less harm to early-stage development, noting that many of Medicare’s most expensive drugs have been on the market for years, meaning that such negotiation can still make a difference.