WASHINGTON—Drug price controls in non-U.S. OECD nations reduce biopharmaceutical research and development (R&D) by more than $56 billion per year, depriving the world of 25 new drugs annually, according to a new study by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.
ITIF analyzed prescription drug prices in 32 OECD nations where data was available and calculated that if countries paid their rightful amount instead of free-riding on the United States, pharmaceutical revenues would increase by $254 billion (in 2018), of which $56.4 billion would have been invested in R&D. If just five wealthy nations—Japan, Italy, Germany, France, and the UK—lifted controls to bring prices in line with the United States, the world would benefit from 12 new drugs a year, ITIF analysis found.
“Foreign price controls reduce the number of new drugs available to future generations, including to cure diseases such as heart disease, cancer, stroke, and Alzheimer’s,” said Trelysa Long, a research assistant at ITIF, who co-authored the report. “Conversely, lifting price controls benefits the world because it would boost biopharmaceutical revenue, leading to an increase in R&D and the development of new drugs.”
The report examines the pharmaceutical price regulations of OECD countries and finds that after adjusting for GDP per capita, 30 of the 32 OECD countries had lower prescription drug prices than the United States. The controls in 32 OECD countries, not including the United States, reduced manufacturer sales revenue in 2018 by 77 percent—or $254 billion. Pharmaceutical revenue is almost 1-to-1 correlated with R&D investments, such that when revenues decrease, so do R&D investments.
If developed nations allowed drug prices to reach just 75 percent of U.S. levels, pharmaceutical R&D expenditures could have increased by an additional $23.9 billion, creating at least 11 new drugs annually.
The report suggests there are two potential paths forward. If countries with price controls continue free riding, other nations paying more might give up and “join the club,” and even fewer new drugs would be developed. Instead, the United States and others that have historically pulled their weight could start to “name and shame” the free-riding nations and pressure them to start taking global health more seriously.
ITIF argues that the U.S. State Department, U.S. Trade Representative, and other officials must make it clear to nations in the global “North” and “South” that the United States is playing an oversized role in supporting pharmaceutical innovation. It’s time for other wealthy countries to pay their fair share, too, because it accrues to the benefit of global health.
“It is ironic that many countries are willing to sacrifice economic welfare by paying higher energy prices to address climate change. Yet, when it comes to addressing another urgent global challenge—curing diseases—they are happy to free ride on the investments of others,” said Stephen Ezell, director of the Center for Life Sciences Innovation and co-author of the report. “If nations are willing to pay more for energy to demonstrate their resolve to save the planet from climate change, they should also be willing to pay a bit more for pharmaceuticals to save humanity from the scourge of diseases.”
Read the report.
