Drug Price Controls Would Undermine U.S. Leadership in Biopharmaceuticals, New Report Concludes, Drawing Lessons From Past Policy Mistakes in Semiconductor Manufacturing

WASHINGTON—As Congress debates whether to include drug-price controls in the spending bill for President Biden’s Build Back Better plan, lawmakers should consider the consequences for U.S. leadership in biopharmaceutical innovation, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

The U.S. experience in the semiconductor industry—where it once held 37 percent of the world’s manufacturing capacity, but three decades later had just 12 percent—serves as a stark warning, according to ITIF’s analysis: Failing to maintain a domestic policy environment that nurtures innovation and production capability risks sacrificing global leadership in advanced-technology industries.

In the case of semiconductors, policymakers grew complacent about the industry’s health in recent decades, after helping it successfully fend off a strong competitive challenge from Japan and others in the 1980s. In the case of biopharmaceuticals, America is the world’s leading innovator, as evidenced by the speed with which it developed the most effective COVID-19 vaccines and therapeutics. But now policymakers are considering measures that would undermine that position—including price controls, weaker intellectual property protections, and fewer tax incentives for new drug development.

“Policymakers cannot take the health of any U.S. advanced-technology industry for granted, and even worse would be to consciously impose policies that weaken America’s leadership,” said Stephen Ezell, ITIF’s vice president for global innovation policy, who authored the new report. “If Congress undermines the policy environment for biopharmaceuticals now, then lawmakers will likely be in the same position 10 years down the road that we’re in today with semiconductors—they’ll be faced with the need for another significant multi-billion investment to repair the damage.”

The story of semiconductors in America is especially telling, ITIF’s analysis shows, as it’s an industry that was wholly created and led by the United States until Japan vaulted ahead in the 1970s. The sector recovered its competitiveness in the 1980s, in part through effective policies like the public-private research consortium SEMATECH and the R&D tax credit, but complacency, especially in the face of massive foreign production incentives, once again led to decline over the ensuing three decades. Now, to restore domestic semiconductor manufacturing capacity and innovation leadership, policymakers are calling for a $50 billion investment in the CHIPS Act, one element of the crtical U.S. Innovation and Competion Act. (USICA) legislation.

ITIF’s report warns the biopharmaceutical industry could follow a similar path. Through the 1970s, Europe was the leader in biopharmaceuticals, its companies creating more than twice as many new-to-the-world drugs as U.S.-headquartered ones. But Europe threw away its leadership position in large part by imposing stringent regulations and drug-price controls. This opened the door for the United States, which further took advantage of EU’s misteps by increasing its research funding, providing tax incentives for biomedical investment, encouraging technology transfer from universities to industry, improving the drug approval process, and providing a supportive IP environment.

These policies focused on U.S. biopharma innovation, but not on domestic production. As a result, from 2003 to 2017, the United States lost at least 22 percent of its drug manufacturing capacity. More recently, the COVID-19 pandemic has revealed increasing dependence on foreign suppliers. With China identifying the biopharma industry as one of its core targetes and U.S. policymakers considering drug-price controls, weaker IP rights, and fewer tax incentives, United States leadership in biopharma is in danger.

ITIF outlines several policy recommendations to maintain U.S. leadership in biopharmaceuticals and to recover it in semiconductors:

• For the semiconductor industry, pass the $52 billion CHIPS Act, which includes $39 billion in incentives for new fabs, $10 billion for R&D, and investment tax credits.
• For the biopharmaceuticals sector, refrain from introducing drug price controls schemes, such as HR3, Build Back Better, or international reference-based price controls.
• Increase NIH funding to at least $50 billion annually and expand R&D investments in biopharma process innovations at programs like Manufacturing USA and National Science Foundation agencies.
• Restore biopharmaceutical manufacturing-stimulating tax credits like Section 936 and establish an investment tax credit for new manufacturing plants and equipment, including for pharmaceuticals.

“The United States has already witnessed a substantial decline of its domestic biopharma manufacturing capacity. If that trend continues, policymakers may soon be faced with the need for an investment package to restore U.S. competitiveness,” said Ezell. “Rather than accept that fate, policymakers should put aside proposals such as price controls and focus instead on measures that will restore U.S. production and retain innovation leadership.”

Read the report.