Drug price reduction could have no impact on future approvals, study finds

A new analysis from the US’s Bentley University, in partnership with the West Health Policy Center of publicly reported financial information of the pharmaceutical industry, has found that reducing drug prices, as proposed under the Elijah E Cummings Lower Drug Costs Now Act (H. R. 3), could have no impact on future drug approvals.

The research analysed the financial practices of more than 1,300 public biopharmaceutical companies and their contributions to new drug development over the past two decades. The team modelled a scenario similar to what the industry would experience if the US federal government healthcare programme, Medicare, was empowered to negotiate prices under H.R. 3.

The analysis builds upon research previously released by the Congressional Budget Office (CBO), and provides lawmakers and the CBO with a new point of reference to consider when further evaluating and scoring the true impact of H.R. 3 and other drug spending policies on the industry. According to the team, their study is especially important as research currently available on industry profitability and innovation tends to be older in nature and skewed with some pharmaceutical influence.

“Drug makers have hidden behind the unproven notion that skyrocketing drug prices are necessary to sustain innovation,” said Tim Lash, President at West Health Policy Center. “This research debunks that myth, confirming policymakers do not need to make a false choice between lowering costs now and bringing new products to market in the future.”

In the report, the team examined the historical relationship between revenue changes and research and development (R&D) spending by public biopharmaceutical companies from 2000 to 2018. The industry was divided into two categories: large companies, defined as having a market capitalisation of greater than $7 billion, and small companies, with market capitalisation under $7 billion.

For the 78 large companies, changes in revenue were associated with proportional changes in R&D. However, for the majority of companies evaluated (1,300 small biopharmaceutical companies) there was no association found between changes in revenue and R&D. The smaller companies currently sponsor approximately 60 percent of all clinical trials for new drugs and, in the past five years, have been responsible for 40 percent of all new drug approvals. 

Using a model that recognises the contributions of both large and small companies to the pipeline of new drugs, the research showed how any negative impact of reduced R&D spending could be mitigated by strategic allocation of cost reductions in large companies to different phases of clinical development. The model focused on the proportion of revenue invested in R&D and did not assume that industry would make changes to their current corporate practices or policy.

“Our model suggests that the industry’s best practices are sufficiently robust to accommodate the decrease in drug prices anticipated by H.R. 3 without decreasing the number of new drugs coming to market” said Dr Fred Ledley, senior author on the study. “Importantly, we believe this can be achieved without fundamental changes to the industry’s financial, management or marketing practices or their priorities.”

The paper, released by West Health and its Council for Informed Drug Spending Analysis (CIDSA), can be found here.