In his first budget, President Biden set aggressive health goals. “Let’s end cancer as we know it,” he said to rousing applause in a speech to Congress. “It’s within our power. It’s within our power to do it.”
Cancer is not all Biden wants to end. His budget also increases funding by two-thirds to meet the goal of “ending the HIV epidemic” in the U.S. by 2030. Then there’s Alzheimer’s, which the budget listed, along with cancer and diabetes, as targets of a large new research and development unit within the National Institutes of Health. Alzheimer’s costs the U.S. $277 billion a year. And, of course, the president wants to end the Covid-19 pandemic, which is still killing hundreds of Americans every day.
These ambitions are welcome. They build on the remarkable accomplishments of the past year, when U.S. companies developed therapies and vaccines for Covid-19 in record time. So let’s do the same for other diseases.
We can. But not if the president and his supporters succeed with their plans to import European-style drug price controls to the United States. If legislation called the Elijah E. Cummings Lower Drug Costs Now Act, also known as H.R. 3, passes, it will sharply reduce the research and development funds available to discover treatments for cancer and other diseases.
The House of Representatives approved H.R. 3 in December 2019, but the bill died in the Senate, which was then controlled by Republicans and is now split 50-50. The legislation, which was reintroduced on April 22, 2021, by three House chairs is now being tacked on to an infrastructure package.
Its most threatening feature is what’s called international reference pricing. That means linking the prices of hundreds of U.S. drugs to those of six other countries, where single-payer systems rule and prices are set by the government.
If H.R. 3 is enacted, U.S. prices would fall sharply, and so would biopharmaceutical R&D.
A study released in March by the research firm Vital Transformation found that implementing H.R. 3 would lower revenues for the pharmaceutical industry by $565 billion over five years. Earnings would fall an average of 62% for affected companies, and one-third would suffer declines of more than 95%. A separate study last year by the firm Avalere estimated that passing H.R. 3 would lead to drops in drug company revenues by $1.3 trillion to $1.7 trillion over 10 years.
The Congressional Budget Office (CBO) forecasts lower yet still devastating reductions — about $500 billion — but admits “the estimates are uncertain.” A Charles River Associates study says the CBO figures are too low, criticizing “outdated evidence and simplified modeling.” But even at the low end of estimates, revenue declines from H.R. 3 will lead to massive cuts in R&D that will dwarf the extra $6.5 billion Biden is budgeting for his NIH research unit.
The Vital Transformation study predicts that H.R. 3’s drug price controls will lead to “radical industry consolidation,” with the number of new drugs developed under innovative venture partnerships falling from 68 during 2009-2019 to just seven. In addition to cancer, the law would disproportionately affect neurological diseases like Alzheimer’s.
Thanks to heavy R&D spending by private companies, the U.S. is currently enjoying a golden age of drug development. According to a CBO study released in April, “In 2019, the pharmaceutical industry spent $83 billion on R&D. Adjusted for inflation, that amount is about ten times what the industry spent per year in the 1980s.”
R&D intensity, meaning the percentage R&D represents of added corporate value each year, is four times higher in the U.S. than in other wealthy countries, nearly all of which put government controls on drug prices. As Michael Rosenblatt and Henri Termeer detailed in a paper for the National Academies of Sciences in 2018, “Two-thirds of new drugs in the past decade and more than 80 percent of the drugs in the world’s biopharmaceutical pipeline today emerge from the United States.”
Federal funding helps support this achievement, but it is far from the main reason for it. A study of 18 medicines approved in 2020 found that NIH funding for these drugs totaled $670 million while private funding totaled $44.2 billion.
As a result of increased R&D, far more U.S. pharmaceuticals are being developed now than ever before. In just the last 17 months, 79 new drugs have been approved, 29 of them for cancer.
If President Biden wants his Cancer Moonshot to succeed, he’ll need even more new cancer drugs. But where will they come from?
According to the CBO, “The amount of money that drug companies devote to R&D is determined by the amount of revenue they expect to earn from a new drug.” If H.R. 3 becomes law, however, the drop in annual revenues will exceed current R&D spending.
H.R. 3 has things backward. Instead of adopting fixed foreign prices, the United States should insist, through trade policies and pressure, that other countries allow their prices to rise, reflecting the true value of medicines.
One thing is certain: If a drug pricing control like reference pricing goes into effect, President Biden — and the rest of us — can give up hope of ending cancer, HIV/AIDS, Alzheimer’s, and other diseases any time soon.
James K. Glassman, a former undersecretary of state for public diplomacy, advises health care companies and nonprofits.
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