More government regulation of biopharma would harm patients and the economy
The United States leads the world in creating the new drugs and vaccines that cure or control diseases and improve the health of countless millions around the globe. The “warp speed” development and international distribution of effective COVID-19 vaccines, stemming from mRNA technologies developed and patented in the United States, is only the latest example. But new government meddling could ruin that success story.
American biopharmaceutical companies are also a boon to our economy. Biopharma innovation adds $1.1 trillion a year to the U.S. economy and creates over 4 million high-paying jobs.
This is no accident. It’s due to market-oriented government policies featuring strong patent rights and an absence of excessive regulation and price controls. Biopharma firms have fled other industrialized countries, such as Canada, due to such government restrictions.
Bringing forth successful new drugs is risky and costly, as explained in a 2021 Congressional Budget Office (CBO) study. Only about 12 percent of drugs entering U.S. clinical trials secure Food and Drug Administration (FDA) approval. Meanwhile, average research and development costs per new drug range from roughly $1 billion to $2 billion, according to the CBO. Drug companies must rely on profits from the small portion of successful drugs to cover their huge outlays. Strong patents are key to this strategy.
U.S. biopharma investments in innovation are enormous. The CBO states that in 2019, the industry spent $83 billion on research and development — roughly 10 times what it spent per year in the 1980s. This constitutes a rising share of net industry revenues. What’s more, the sector dedicates a higher proportion of revenues to R&D than other high-intensity R&D industries such as semiconductors and software.
This has borne fruit. Between 2010 and 2019, the number of new U.S. drugs approved for sale increased by 60 percent over the previous decade. Fifty-nine drugs were approved in 2018, a new high. No other country comes close to this.
Unfortunately, biopharma successes are threatened by recent Biden administration regulatory initiatives.
Last May, the new U.S. trade representative announced administration support for a worldwide waiver of all intellectual property (IP) rights – including patent rights – for COVID-19 vaccines. As leading IP scholars explain, devaluing pharma patents undermines incentives to undertake pivotal future R&D. Fewer new drugs and vaccines would come forth and economic losses would be felt.
Moreover, the waiver would not improve health outcomes for poorer countries. Drug companies already make COVID-19 vaccines widely available; what’s lacking is local manufacturing and distribution channels.
Antitrust is another growing problem. Novel antitrust challenges by new Federal Trade Commission (FTC) leadership may undercut biopharma patents, and the Justice Department is expected to take a tougher antitrust stance on transactions involving patents.
Last March, the FTC announced a new antitrust working group (including Justice Department, state and foreign enforcers) to consider cracking down harder on biopharma mergers and acquisitions. Acting Chair Rebecca Slaughter referenced “the high volume of pharmaceutical mergers” and “skyrocketing drug prices,” and stated the working group would consider “new or expanded theories of harm.” She supported “going beyond” traditional analysis.
This bureaucratic initiative creates uncertainty and could deter and undermine mergers that spawn new drugs and treatments. Studies show that large biopharma firms acquire small innovative companies to speed up regulatory approval of new medicines. Mergers create larger pools of information, enhancing the potential for innovation without increasing spending. A biopharma merger crackdown would put these benefits at risk.
A July 2021 presidential executive order on competition creates additional threats. With an eye to price reductions, it calls for more drug-related aggressive antitrust enforcement. The order includes several directives to regulate and cap drug pricing. Most ominously, it requires the Department of Health and Human Services (HHS) to develop “a comprehensive plan…to combat high prescription drug prices and price gouging.”
While superficially appealing, such a plan would backfire. The president’s Council of Economic Advisers found that biopharma price controls would sharply reduce R&D and new drug development and “reduce annual economic output by $375 billion to $1 trillion.” Patients would be denied new and improved treatments.
Instead, the administration should revisit its harmful biopharma initiatives and endorse more robust, not weaker, patent protection. And it should drop all biopharma price control schemes. The FTC, Justice Department and HHS should scrap any plans they may have to ratchet up regulation of transactions and mergers. They should also urge state and foreign governments to avoid similar antitrust and regulatory meddling.
The American biopharma industry leads the world and is responsible for spectacular innovation and dramatic improvements in health, here and abroad. Abandoning the light-touch, market-oriented policies that have spawned these achievements would be a recipe for economic harm and a slowdown in medical breakthroughs.
The message is clear. The Biden administration should not mess with success.
Alden F. Abbott is a senior research fellow at the Mercatus Center and at the Law and Economics Center of Antonin Scalia Law School at George Mason University.
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