September 9, 2019
WASHINGTON—As Congress and the administration consider policy proposals to reduce the price of drugs, a new report from the Information Technology and Innovation Foundation (ITIF), the world’s top-ranked think tank for science and technology policy, finds a strong causal link between current drug prices and revenues on one hand and future drug research and treatments on the other. The report shows that reducing drug revenues today will lead to a decline in future research and decrease the number of new drug discoveries moving forward. For example, one study found that a price cut of 40 to 45 percent would reduce the number of new drug development projects by 50 to 60 percent.
“Public policy requires trade-offs. Reducing drug prices now would come at the expense of less research and fewer new drugs down the road, putting future patients at greater risk,” said ITIF Senior Fellow Joe Kennedy, author of the report. “Policymakers should keep the trade-off between short-term affordability and long-term innovation in mind when setting any policies that affect drug revenues.”
The report examines the reasons for current drug prices, showing that they account for the costs of the high number of failed research efforts which generate little or no revenues, the long delay between initial research and product sales, and the high cost of leading-edge research on the next generation of drugs. The report notes that the return on equity for the drug industry has been lower than the national average over the past few years.
The report also explains how Americans pay more than their fair share for global drug development because many countries—including those with high-incomes—pursue policies that keep the prices of their patented drugs artificially low. Because manufacturers cannot recover much of their fixed costs overseas, they charge higher prices in the United States.
Rather than pursue drug price controls, the report recommends that Congress lower drug prices through policy reforms such as expanding access to affordable insurance, streamlining the drug approval process, increasing funding for basic medical research, and encouraging other countries to pay their fair share of drug development costs.