Two of the most innovative pharmaceutical corporations in the world have their headquarters on opposite banks of the Rhine as it flows through Basel, Switzerland. Ranked No. 2 and 4 in total worldwide sales, Roche makes Herceptin and other important cancer treatments while Novartis recently brought to market the immune therapy Kymriah and the gene therapy Zolgensma. Sanofi (7) is in Paris, Glaxo Smith Kline (6) and AstraZeneca (14) are in London, and Takeda (20) is based in Osaka.
The pharmaceutical industry’s impressive geographic diversity is nowhere to be seen in talking points distributed by PhRMA, the pharmaceutical industry’s trade association, that Congressional staffers shared with me. The talking points form the basis of desperate efforts by lobbyists and industry allies to discredit House Speaker Nancy Pelosi’s drug price negotiation bill, so this omission is a telling one.
They begin: “The radical drug pricing plan offered by House Speaker Nancy Pelosi would transform the market-based system that has made the US the global leader in developing innovative, life-saving treatments and cures.” In other words, U.S. patients, taxpayers, and employers must pay higher prices for medications than citizens of other countries because that is why the U.S. has successful pharmaceutical companies.
That Roche and Novartis are dominant players and based in Switzerland exposes the false logic of this point, as drug prices are 75% lower in Switzerland than in the U.S., according to the House Ways and Means Committee. Drug prices in France, the United Kingdom, and Japan are lower, too. The pharmaceutical industry is global, and our overpaying for medications in the U.S. explains no more of New Jersey-based Merck’s successes than it does of Takeda’s, half a world away.
PhRMA also distributed some slides noting (based on internal research) that only 71% of new cancer medicines available in the U.S. can be found in Germany. So what? Some countries reject the use of certain drugs because they do not represent meaningful improvements over older ones. But that is rare in this country. Some drug corporations walk away from a small market if that nation’s government does not see fit to pay the price demanded. But the U.S. is every company’s biggest market, and so much, much harder to abandon.
What’s more, Pelosi’s bill sets a ceiling price for negotiation that is 20% higher than the prices companies have already accepted. It also limits negotiation to drugs already on the U.S. market. These are two more reasons it is hard to believe that pharmaceutical corporations will not accept the prices the bill portends.
Then there is PhRMA’s supplemental handout, declaring that 5-year cancer survival is better in the U.S. than in the countries that Pelosi’s bill references as price comparators. As the trade association doubtless knows, cancer survival is a lousy measure of comparative disease outcomes, as it is affected by lead time secondary to screening. But no matter, the reference PhRMA provided does not back up its claim. It shows that survival for many cancers is actually the same or better in many of the reference countries.
But let’s go with PhRMA’s claim for a moment. The lobbying group says that lower prices for drugs in other countries cause cancer survival to be worse. Is the organization suggesting that the higher prices we pay imbue magical potency on their member company’s products sold here? And is it warning that peeking at the prices paid in another country will equate to the U.S. importing all the features of those countries’ health systems?
Given that the countries in the Speaker’s bill have longer life expectancies than the U.S., better health system performance by nearly every measure, offer all their residents health insurance, and pay less per capita for health care, that might not be a bad outcome. But, it does make me wonder what other attributes of these countries might slip across our borders. Will looking at French prices improve our wines and our men’s soccer team? That would certainly be nice.
In Washington, talking points are generally not intended to persuade anyone. Instead, they mostly serve to backfill rationales into minds that are already made up. But for prescription drugs we need serious reform of both pricing and insurance coverage. It’s not just one or the other. There will be tradeoffs too, but if you want to know what they are, don’t read PhRMA’s talking points.
Peter B. Bach, M.D., is the director of the Drug Pricing Lab at Memorial Sloan Kettering Cancer Center in New York City.
Dr. Bach argues that PhRMA was missing important facts in talking points regarding House Speaker Pelosi’s plan to reduce prescription drug prices. It seems fair to consider whether Dr. Bach’s critique overlooks certain economic realities that should reasonably be considered before the country embarks on a major change in public policy.
Dr. Bach begins with the observation that the market for prescription drugs is a global one, and that many of the successful companies in the industry are located in countries that have substantially lower prices than those in the US. Switzerland, he says, has drug prices that are 75% lower than in the US, implying that low prices are not a bar to the success of Swiss drug makers or those in other countries with similarly low prices. He fails to make the connection that without the US market, those companies would not be what they are today.
The US market provides a disproportionate share of the revenue and the profit that allows innovative drug companies in Switzerland, France, the UK, and most certainly the US, to earn returns on their investments in new drug discovery. If Swiss, or French, or British companies were restricted to developing medicines for their own countries, none of them could succeed as they do today. Their markets are too small, and their prices too low.
A truly important question that Dr. Bach does not consider is the effect reductions in US drug prices of the magnitude proposed by the Pelosi plan would have on companies and patients in the US and around the world. He observes that companies have already accepted the prices set in government controlled regimes abroad and notes that Pelosi’s plan would offer them an additional 20% above those prices. He says, “it is hard to believe that pharmaceutical corporations will not accept the prices the bill portends.”
It certainly may be that companies would continue to sell products that are already on the market at drastically reduced prices; the large fixed costs of bringing these drugs to market have already been paid. That does not mean there would be no adverse consequences. Is the promise of prices that are 20% above government controlled foreign prices sufficient to call forth future innovation? There is good reason to believe that it is not.
The truly important question is to what extent the investors that currently fund drug discovery and development would turn their attention elsewhere faced with a world with drastically reduced rewards for innovation in medicines. The global economy offers a range of attractive investment alternatives in a whole host of technologies. If rewards were drastically reduced, when, if ever, would we see cures for Alzheimer’s, diabetes, cancer and many other ills that impose tremendous costs on us today? Of course, nobody knows when or if such things will be found, but economics clearly says that if the reward for finding them is drastically reduced, the answer is later, if ever, not sooner. Can we afford to wait? We will never know what we do not have, but we should consider that unknown cost.
While Dr. Bach acknowledges tradeoffs will be necessary, he expresses no concern for their importance or impact, evidently believing that the industry is impervious to financial harm. However, there is good evidence that economic profits in the biopharmaceutical industry are simply not as high as commonly believed. How can that be? Well, the most successful companies and the most successful products, do make a lot of money, but to judge the enterprise as a whole by the successes of the headliners is akin to judging the financial wisdom of playing the lottery by the winnings of a few lucky players. Accounting for the large level and high cost of capital invested in drug discovery, returns to investment in the biopharma sector are not abnormally high, pharmaceutical company stock prices have performed worse than the overall market since the turn of the century, and there is well founded concern about the future financial health of these companies.
Finally, Dr. Bach notes that the US spends more per capita in health care than any other country while having poorer health outcomes on many measures. What he does not say is that high US spending on health care is not limited to prescription drugs. If we were to magically zero out all prescription drug spending in the US, our remaining health care spending per capita would still exceed total health care spending per capita (including drug spending) in any other developed country by a large margin.
So, what is to be done? First, in an effort to do something about the cost of health care in this country, let’s not limit the search for solutions to prescription drugs that account for perhaps 15% of total health care spending. Let’s also look where the real money is spent. Dr. Bach rightfully notes a need for reform in pricing and insurance coverage. Insurance should help people avoid unaffordable costs when they experience certain unforeseeable events, such as a newly diagnosed disease. We should seek policies to improve the competitiveness of insurance and of health care markets generally. If we do that correctly, we are more likely to find ways to reward meaningful innovation, improve the quality and efficiency of care, and provide people increased opportunity to protect themselves from financial distress.
Richard Manning, PhD
Bates White, LLC
Dear Dr. Bach,
With all due respect, you fail to mention that in many of these non-US countries (especially Japan), they don’t have the insurance companies (Aetna, Cigna, United Healthcare, etc.) and PBS’s (e.g., Express Scripts) that suck out the profits of the PhRMA member companies. Are you suggesting these “middlemen” firms do not contribute to the high US drug prices? IMHO they do not add any value to the US health care system other than maximizigf their own profits. BTW, are you aware of any of these middlemen companies, when they successfully negotiate a major discount for an expensive drug price, pass these savings from the disconts directly to the patients taking those drugs? I am not area of any. So where is the benefit to the patients claimed (falsely and conveniently) by these companies?
Countries with nationalized reimbursement are like PBMs/insurers negotiating lower prices for patients in the country. My question is then, if UnitedHealth (insurance company) has more customers (115M) than France has people (67M), why aren’t they able to negotiate better prices in the US and scoop some of the savings off the top? Are there regulatory barriers that impinge on negotiation? Why would a company this large need a PBM to haggle for them?
said that the usual pharma tantrum ” high prices are necessary to foster innovation” is just plain BS, your counter argument that many of the biggest biopharmaceutical are from abroad, is fallacious as well. Because, although such companies are from overseas, most if not all of them, have their research centers based in the US.
And that actually rises a different consideration, the US (although for different reasons) is the China of the biomedical research business. In fact, all these international biopharmaceutical companies outsource their research to the US, leaving scores of scientists worldwide out in the cold.
And no, it is not because the best talents are just in the US.