We hope you agree that price controls before a drug goes generic threaten innovation. Let’s take a look at some other commonly proposed solutions to high drug prices that we argue also would be harmful in the long wrong.
The Inflation Reduction Act was a major part of President Biden’s 2022 legislative agenda that was focused on post-pandemic economic recovery and green infrastructure. It also included a number of provisions around drug pricing and insurance reform. Some of these ideas show a lot of promise, while others are likely to stifle innovation.
[Here’s an [OPTIONAL] explainer] of all of the drug provisions in the IRA, but we’ll be focusing on Medicare price “negotiation” (which is akin to a price control). The core of this idea is strong; that after a reasonable time of market exclusivity, drugs that haven’t been subjected to price-moderating competition should be brought down in price. But — to the confusion and frustration of us at RA University and many others — the IRA treats complex biologics (which are allowed 13 years of market exclusivity before being subject to price controls) and small molecules (which are allowed only 9 years of market exclusivity) differently.
Maybe lawmakers’ think that small molecules are worth less to society and so should be disincentivized, even though they are easier to genericize and make up the majority of our current drug armamentarium. That would be a misunderstanding. Unfortunately, with that discrepancy in exclusivity, they are signaling to the industry not to make small molecules, which tend to be easy-to-take pills, as opposed to biologics which are almost always administered as injections or by a physician through an IV.
Traditionally, the period of patent exclusivity has averaged around 14 years, and so 13 years is probably close enough that it won’t affect innovation incentives too badly. But 9 years just isn’t enough time for companies to make the profits they need to justify the risk of investing time and money into developing a drug (and all the previous, failed attempts that lead them to success). This means that investors are looking at a huge class of drugs — small molecules — and deciding not to invest in them.
Fixing the IRA by simply changing 9 to 13 for small molecules would go a long way toward continuing to incentivize innovation while making sure drugs don’t avoid genericization (or at least generic-like pricing) without undue delay.