By Joseph Allen
March 29, 2018 at 5:00 am ET
A new study showing that every medicine approved between 2010 and 2016 benefited from government-supported research prompted cries for drug companies “to stop free-riding on publicly funded research.”
The suggested remedy from Doctors Without Borders and other advocacy groups? For lawmakers to impose price controls on any medicines arising from government-industry partnerships. That idea won’t lower drug costs, but it will harm patients by keeping promising treatments in the lab.
So why are new drugs often so expensive? A big reason is the math. For every 10,000 compounds, about 250 go to preclinical testing. Five will proceed to clinical trials — and just one will enter the marketplace. Of those, only 20 percent will turn a profit.
These must not only pay their own costs, but pick up the tab for all the ones that failed while also funding new research to fight disease. That’s why it costs more than $2 billion — and takes more than a decade — to develop a new drug. Only in the United States and a few nations are companies willing to face these odds.
Drug developers only have a limited time to recoup their investment before their patents expire and therapies are copied. If you’re looking to make easy money, drug development isn’t for you.
One reason why the United States is far and away the leader in the life sciences is the passage of the Bayh-Dole Act of 1980. This law allows universities and federal laboratories to partner with U.S. industry, enabling publicly funded inventions to create new products, companies and jobs. Nowhere have these partnerships been more effective than in drug development.
The government funds basic research, so resulting medical inventions are more like ideas than products. That’s why industry partnerships are crucial — the risk and expense of commercialization falls on the private sector. Before Bayh-Dole, not a single new drug was developed when the government took federally funded inventions away from their creators and made them freely available. Between 2010 and 2016, more than 210 new medicines became available to patients because of public-private sector collaborations. Many are game changers in fighting — and even curing — disease.
A paper in Nature Biotechnology estimates that, for every $1 the government invests in underlying research through the National Institutes of Health, private industry spends more than $100 developing a medicine and bringing it to market. The United States is unique as half of our new drugs originate in small companies, many of which license federally funded inventions, betting the farm that they can be developed into products. For most, that’s a bad bet — but companies, not taxpayers, bear the risk.
So what happens to our system when the government imposes price controls? We don’t have to guess, as it has been tried. Under pressure from Congress in the early 1990s, NIH was forced to impose a “reasonable pricing” provision on companies wanting to develop their inventions. The result wasn’t a golden age of cheap drugs. Instead, partnerships collapsed.
In revoking the provision, then-NIH director Harold Varmus said: “… the pricing clause has driven industry away from potentially beneficial scientific collaborations with (NIH) scientists without providing an offsetting benefit to the public. … One has to have a product to price before one can worry about how to price it, and this clause is a restraint on the new product development that the public identified as an important return on their research investment.” After Varmus’ action, industry partnerships with NIH surged, and new medicines reached patients in distress.
Everyone shares the desire to make health care affordable and to fight disease both here and abroad. But undermining public-private sector R&D partnerships with price controls is not the solution. That won’t lower drug costs; it will only discourage innovation. No one benefits from that.
Joseph Allen served on the staff of the U.S. Senate Judiciary Committee for former Sen. Birch Bayh and now runs his own consulting firm.
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