The Historical Impact of Price Controls on the Biopharma Industry

With US congressional proposals now advocating in favor of government price setting for prescription medicines, the impacts of historical price setting in Europe provides a robust data source to test and predict the impact of price controls in the US on the biopharma ecosystem.

• This study uses statistical and economic modeling to calculate the net impact of EU price controls upon the domestic biopharma ecosystem in Europe; US and EU prices were compared for the top 10 selling drugs in the US for each year from 2003 – 2020*, and impacts upon biopharma R&D ecosystem key performance indicators (KPIs) were measured.

• Our research shows that every 10% drop in the price of medicines in price-controlled EU markets was associated with a:
-> 14% decrease in total VC funding (10% early stage and 17% late state)
-> 7% decrease in biotech patents,
-> 9% decrease in biotech start-up funding relative to the US
-> an 8% increase in the delay of access to medicines.

• Our model also proved robust at predicting the trend impacts of drug pricing on Japanese biopharma KPIs, which acts as a validation of our methodology; we posit that similar drops measured by biopharma KPIs in the US would be seen over time with similar price controls.

• Drug pricing controls implemented in the US would likely have an even greater impact on biopharma KPIs given its global leadership in investment and innovation.

Who Develops Medicines? An Analysis of NIH Grants

There is a misguided perception that NIH funding, not private market investment, is largely responsible for the creation and approval of new therapies. This study tests that hypothesis by identifying patents linked to NIH grants from a single year, identifying those associated with clinical trials and approved medicines, and quantifying the public and private investments made for those investigational and approved medicines. Key findings include: 23,230 NIH grants in the year 2000 were linked – by NIH-supported patents – to 18 FDA-approved medicines by 2020. None of these medicines reached approval without significant private investment. In fact, total private investment for the 18 approved medicines exceeded NIH funding by orders of magnitude: $44.2 billion in private investment compared to $670 million in NIH funding. As industry’s share of total investment increased, so did the likelihood of approval. These findings are consistent with the substantial literature describing the complementary roles of public and private R&D funding, and the significant long-term investments shouldered by industry with no guarantee of approval – in fact just 12% of medicines in clinical development are ultimately approved by the FDA. Public policies that would seek to replace private sector investment with publicly-funded drug development or that would reduce industry’s ability to build upon publicly-funded discoveries to bring medicines to market are therefore likely to slow drug development.

New Analysis Shows International Reference Drug Pricing Would Have a Catastrophic Impact on Alzheimer’s Disease Research

The number of Americans aged 65 and older with Alzheimer´s disease (AD) is expected to more than double from 6.2 million today to 12.7 million by 2050. Currently, there are no treatments available to stop or slow the progression of the disease. At the same time, large pharmaceutical companies have already downsized investment into AD and other neurological disorders by more than 50 percent due to the associated high risk of study failure for these diseases. International reference pricing proposals (including “International Pricing Index” or “Most Favored Nation”), currently under consideration by the U.S. Congress and proposed in the previous Congress as Title I of H.R. 3, would import foreign price controls for 125 Medicare Part B and D drugs with the highest net spending based on the volume-weighted average of drug prices in Australia, Canada, France, Germany, Japan, and the United Kingdom. Previous analysis of the impact of international reference pricing estimated a 70 percent earnings reduction in 2023 for all 125 therapies that would be potentially affected by the proposed policy. The impact of international reference pricing is projected to have carryover adverse impacts on research funding for AD. Revenue generated from successful medical products is increasingly required to underwrite investment into high-risk AD clinical development programs. Implementing international reference pricing in the U.S. would sharply reduce the ability to cross-subsidize AD research, further diminishing already dwindling investments and progress in this disease area. This is the key takeaway of a new analysis by Vital Transformation in collaboration with the Alliance for Aging Research.

H.R. 3 and Reference Pricing. Total Market Impact

Numerous proposals are being considered that would use the average of pricing in other countries to control US drug prices. Proponents argue that this can be done with little impact on innovation.
Using the Lower Drug Costs Now Act (“H.R. 3”) as an example, we find that implementation of international reference pricing in the United States would:

- Reduce earnings by 62% on average for impacted companies, with one third (32%) of affected companies having reductions larger than 95% of earnings (using conservative assumptions about the impacts on prices).

- In turn, markedly reduce biopharmaceutical companies’ investments in smaller company R&D through M&A, partnerships and other arrangements.

- Reduce by 90%+ the number of medicines developed by small and emerging biotechs — 61 fewer medicines over 10 years.
- Disproportionately impact new treatments in rare diseases, oncology, and neurology.

- Create large investment ecosystem losses to smaller companies in 19 states.

- Eliminate nearly 200,000 biopharmaceutical industry jobs, and nearly 1 million jobs across the economy.

International Reference Pricing in Congressional Bill H.R.3 and Its Potential Impact on the U.S. Biotech Ecosystem

The U.S. Congress has proposed reference pricing for Medicare Part D under Congressional Bill H.R.3 with the objective of benchmarking U.S. drug pricing against an average price basket of 11 countries for the 125 drugs with the greatest net spending in the United States. U.S. drug prices were found to be 3.7 times higher on average.

This study identifies 69 medicines that would be affected by international reference pricing under H.R.3, representing 70% of Medicare Part D spending. We calculate that implementing H.R.3 would lower overall industry revenue by $71.6 billion a year, a reduction of 58% in earnings before interest and taxes (EBIT) revenue.

The Economic Pandemic: Aggressive Testing Is Vital to Controlling the Spread of COVID19 and Saving Europe’s Economy

For the last month, a debate has raged over which approach to managing the spread of COVID-19 is correct. One aspect of this debate is about the efficacy of widespread testing. South Korea and Germany have pursued aggressive testing. The Netherlands, Sweden, and the UK – at least initially – limited testing and instead sought to create herd immunity by letting the virus run its course. Which approach is better? Given the implications of getting the choice wrong, opinions towards both approaches have been strong and vociferous. Adding to the confusion, experts disagree about which of many variables are more important for explaining higher rates of morbidity from COVID19. These include the percent of a population over 65 years of age, the case fatality rate, the population density of a region, the availability of hospital beds and ventilators per 1000 population, rates of tourism, usage of public transport, and number of university students in a given area to name a few.

Insulin prices and pharmacy benefit manager rebates: pin the tail on the patient

19 March 2020



What's the impact of Pharmaceutical Benefit Managers on US Insulin prices? In researching HR3, Vital Transformation found $2 bil in 'lost' revenue reported in Medicare Part D, but missing in audited actual sales on company balance sheets. Time to bring back the Rebate Rule?

Tying Medicare Part B Drug Prices to International Reference Pricing Will Devastate R&D

26th November 2019



According to Secretary Azar of Health and Human Services, implementing international reference pricing (IPI) in Medicare Part B will have minimal impacts. He has stated, “These savings, while substantial for American patients and taxpayers, cannot possibly pull out more than 1 percent of R&D.” As companies traditionally spend 20% of free cash flow on R&D, we have measured the IPI impact according to industry standard metrics.

International Reference Pricing Under H.R.3 Would Devastate the Emerging Biotechnology Sector, Leading to 56 Fewer New Medicines Coming to Market Over 10 Years

Vital Transformation projected the impact that utilizing international reference pricing for retail medicines (as proposed as part of the Lower Drug Costs Now Act of 2019, H.R.3) would have on the innovative biotechnology sector in the U.S. While the industry revenue reductions resulting from H.R.3 would harm industry innovation across the board, the analysis found that it would have an especially large impact on small, emerging biotech firms that rely on venture capital and revenue streams from the rest of the industry to finance their R&D investments. The result will be fewer medicines coming to market and available to patients.

International pricing index ‘accomplishes nothing it sets out to do’

By Sue Peschin and Duane Schulthess, 21 October 2019

Even with all of the political chatter in Washington, D.C., talk about controlling prescription drug prices is still rising above the din. Of all the proposals being batted around, one that bases prices on an international average of prices in mostly European countries has bipartisan support. This strategy, known as the international pricing index, is particularly worrisome.

First proposed by U.S. Health and Human Services Secretary Alex Azar in the fall of 2018 for Medicare Part B drugs, House Speaker Nancy Pelosi’s drug pricing plan expands it to allow the federal government to negotiate the cost of 250 prescription medicines that aren’t facing market competition. It also extends the negotiated price to insurers and the commercial market at large.