Today is a somber day for patients. The Biden administration is about to announce the first 10 drugs that will be subject to price controls under the disingenuously named Inflation Reduction Act (IRA). This misguided policy will restrict patient access to existing medicines and stifle the development of new ones.
While this year-old law's supporters frame it as a blow against Big Pharma's profits, the IRA's real victims will be everyday people. Decades of experience prove that government-imposed price controls eventually reduce incentives for innovation and inhibit patients' access to drugs. To witness the ill effects of government price-setting schemes, look no further than the multitude of drugs available to Americans that foreign bureaucrats delay or deny to patients in other countries.
The dismal equation is simple: Medicare price controls will reduce revenues for pharmaceutical companies. This, in turn, will limit their investment in new treatments. With less incentive to devote the billions of dollars required to develop new medicines, pharmaceutical companies will divert money and manpower away from high-risk research areas like Alzheimer's, cancer, and heart disease. The resulting decline in new treatments will devastate patients hoping for medical progress and loved ones seeking care and comfort for their kids, parents, grandparents, and others they cherish.
We must not forget that bringing a new drug to market requires immense investment, time, and risk. Each new medicine averages almost $3 billion in research outlays and 10 to 15 years of development in cutting-edge laboratories. This steep cost stems from both these direct expenses and the reality that only one in 10 drug candidates that enter clinical trials win FDA approval. The other nine fail. Investors wager capital on microscopic strands of unproven molecules because the profit potential of a successful drug justifies these huge rolls of the dice.
Unfortunately, price controls disrupt this risk-reward calculus. This heavy-handed government intervention undermines the chances of recouping development costs and earning any profit beyond that. This makes investing in new medicines far less attractive. With lower potential returns, revolutionary treatments for diseases like Alzheimer's and cancer will remain mirages, always just beyond the hazy horizon.
This is especially true for small-molecule drugs, since the IRA's controls can kick in just nine years after FDA approval instead of 13 for biologics. Of all the IRA's misguided policies, this may be the most glaring and worrisome. Half of a drug's lifetime revenue generally comes after its ninth year on the market. By imposing these controls, the government has made new small-molecule drugs potentially half as valuable -- a surefire way to discourage investment in new research in small-molecule treatments, which normally come in the form of easy-to-use pills rather than injections or infusions that require patients to travel to a clinic.
And the damage won't stop at the 10 drugs in the White House's immediate crosshairs. Next year, the government will select 15 additional medicines for price controls. Then another 15 the year after that. Then 20 the year after that.
By the end of the decade, virtually every top-selling medicine that isn't a recent release will be subject to price controls.
These European-style price controls ignore the vastly superior results of America's free-market system. Simply put, no other nation comes close to this country's level of biopharmaceutical innovation. The U.S. developed over half of all new medicines launched worldwide between 2011 and 2020, despite being home to just 4 percent of Earth's population.
Why undermine this successful system? America leads the world in drug development because companies enjoy financial incentives to take risks. Rather than empower Washington bureaucrats, better solutions could limit costs without jeopardizing innovation.
Eliminating barriers that generic and biosimilar versions of brand-name drugs face before they enter the market would increase competition and reduce prices. Reforming FDA regulations to accelerate approval for certain drugs also would speed less expensive medicines to patients.
Unfortunately, the Inflation Reduction Act takes the opposite approach and puts Uncle Sam firmly in command. Americans will pay for this short-sighted mistake through diseases uncured and lives unimproved. By annihilating pharmaceutical innovation, the IRA's intrusions dash all hope for our aging parents struggling with Alzheimer's, our children fighting cancer, and our friends facing debilitating diseases. Every American will suffer from slower medical progress and fewer treatment options. Washington's price controls will cast a long and dark shadow over the future of medicine and place promising therapies just around an ever-receding corner.
Peter Pitts is a former associate commissioner of the Food and Drug Administration and President of the Center for Medicine in the Public Interest.