Takeaways from a biotech CEO on the House’s passage of H.R. 3

While the big party-line vote in the House of Representatives last week about articles of impeachment and the state of our union captured America’s attention, another near-party-line vote in the chamber on Speaker Nancy Pelosi’s legislation to impose European-style price controls on the most innovative drugs offered important lessons about the state of U.S. drug policy.

H.R. 3, also known as the Elijah E. Cummings Lower Drug Costs Now Act, passed on a vote of 230-192. The bill seeks to expand on President Donald Trump’s more limited foreign reference pricing proposal by authorizing the government to “negotiate” dramatically lower prices for 250 different drugs in Medicare and then apply those negotiated prices to the commercial market as well.

The word “negotiation” is semantic trickery. H.R. 3 authorizes the federal government to impose a staggering 95% excise tax on drug makers who don’t play ball and sell at prices that please the federal government. Small and emerging biotech companies like mine have warned of a “nuclear winter” if this disastrous legislation is codified.

Here are my five key takeaways from the House vote:

Republicans hold firm against socialism

Despite President Trump’s frequent use of the bully pulpit to criticize the drug industry, the good news is that only two Republicans joined the Democrats in supporting passage of H.R. 3. House Democrats either did not read or were unmoved by multiple studies suggesting tremendous peril for small and emerging biotechs if the legislation becomes law and our investors run for the hills. More than 130 life sciences investors have publicly confirmed they would have no other choice.

Here’s what giving up the on the free market would mean: The President’s Council of Economic Advisers forecasts that H.R. 3 would mean 100 fewer cures over the next decade. A study by Vital Transformation says 56 less. A new Congressional Budget Office score released right before the vote predicted 38 to 45 fewer new drugs over two decades. Whatever the precise number, there is no doubt that patients will have fewer cures in the future if this legislation ever becomes law.

Democrats and H.R. 3 taking a harder line against biomedical innovation

Shockingly, some Democrats went on the record saying a trade-off — lower prices now for fewer cures in the future — is acceptable. Rep. Darren Soto (D-Fla.) said, “I frankly think it’s worth it.” He should tell that to the people whose lives won’t be saved by the medicines that won’t be made.

House Democrats have unanimously moved to a hard-left position against the biotechnology industry, and we have some real work ahead of us to bring moderates back into the fold. In a single week, Pelosi’s party unanimously supported socialized price controls on drugs and persuaded the White House to strip important intellectual property protections for biologic medicines out of the U.S.-Canada-Mexico Trade Agreement.

California reps care little about leading the world

The California life sciences industry leads the world in drug development. The sector supports nearly a million jobs statewide. If enacted, H.R. 3 would lead to a 58% reduction of earnings before interest and taxes, according to a recent study. For emerging biotherapeutics companies in California, this would result in a projected 88% reduction in the number of drugs brought to market, shutting down medicines in development for endocrine, metabolic, genetic, and rare diseases, as well as pediatric cancers.

Even the Bay Area’s own representatives in Congress, Democrats Anna Eshoo and Jackie Speier, vocally supported H.R. 3. As a California Democrat, and someone who has great respect for our congressional reps, I find this appalling. It’s hard to think of a congressional analogy that captures the magnitude of this relative to the Bay Area’s biotech industry. It would have been like the Michigan delegation voting to cripple the domestic auto industry during the post-war boom of the 1950s.

Reputational challenge at odds with lifesaving work

A Gallup poll released this fall found that drug manufacturers had become our nation’s lowest-rated industry. Companies comprised of scientists working on products to save and improve lives had slipped in the public’s esteem below industries like Big Oil, Big Tobacco, and gun makers, whose products shorten and end lives.

This is a tough pill to swallow for those of us who’ve dedicated our lives to the expensive and risky work of curing disease. I am the CEO of a biotech startup committed to harnessing patients’ own immune cells to beat deadly forms of cancer. I also run a patient advocacy organization for Americans living with Crohn’s disease and other diseases of the bowel and bladder.

I am no apologist for drug companies behaving badly and have consistently spoken out against egregious price increases and frivolous patent extensions. The reputational challenge our industry faces is real, and all biotech and pharmaceutical companies should embrace the social compact with patients. That means setting prices responsibly and supporting generic uptake when intellectual property rights expire. To do otherwise is to feed a dangerous narrative that could lead to punitive public policy and dangerous unintended consequences for patients.

Compromise for patients still possible

Fortunately, the Senate has shown little appetite for the approach the House has taken. In the short term, one of the only redeeming things about H.R. 3 was its provisions to reform Medicare Part D and establish an out-of-pocket maximum for Part D enrollees. This is the kind of drug pricing relief that will actually be felt by patients at the pharmacy counter. The Senate Finance Committee and the White House have endorsed similar approaches with strong bipartisan support.

H.R. 3 seeks to lower a drug’s wholesale costs and asks us to hope and pray that insurers will lower deductibles in response. They won’t. Three of the Fortune 10 companies are health insurers and pharmacy benefit managers raking in record profits.

No senior should have to choose between medicine and groceries. Furthermore, patients stuck in high-deductible plans should be allowed to pay their deductibles in installments over 12 months — not all of it at the beginning of the year.

This approach isn’t socialism, but it would keep the pipeline of lifesaving breakthroughs flowing out of labs in California and other parts of the country and ensure that more patients can access them when they do.

Paul J. Hastings is CEO of Nkarta Therapeutics in South San Francisco and vice chair of BIO. The views here are his own and do not necessarily represent those of the companies and organizations with which he is affiliated.