Trump’s Misguided Attempt to Lower Drug Prices

President Trump’s executive order linking what the U.S. government pays for prescription drugs to the lowest price paid by other countries—his most favored nation policy—is based on a valid insight: we do pay more for prescription drugs than other countries.

We pay more because it is also true that the U.S. pays the lion’s share of the world’s biopharma life sciences research and development costs.

We’ve been willing to bear that burden because we derive the benefit, of course, of the new medicines, but also their early introduction and the economic development, jobs, and innovation that come with a vibrant biopharma industry.

If drugs were priced only as they are in countries paying the lowest prices, inventors wouldn’t recoup the time, talent and treasure invested in new medicine R&D and life sciences R&D would evaporate.

Fair Share

The solution to “high” drug prices isn’t for us to match the artificially derived prices paid by another country.

The most effective means to lower U.S. drug prices is to insist that the other well-off countries—our peer group, such as the United Kingdom, Germany, Japan, Canada, etc., etc.—pay more of the R&D tab so we can pay less.

Spreading R&D costs across a much broader base of countries is a win-win for patients.

Spreading R&D costs across a much broader base of countries is a win-win for patients: lower prices without stifling the incentive to conduct R&D and innovate.

U.S. drug prices reflect the cost of researching and developing a new drug concept from petri dish through clinical trials to FDA review and approval.

New medicine R&D is about figuring out the recipe for an effective treatment or cure. It takes years—on average, more than a decade—and an enormous amount of money—$2.7 billion.

Industry Bears R&D Costs, Not Government

You may have heard that “the government” funds much of the research behind breakthrough therapies.

Not true. The government does provide grants that fund significant amounts of basic, conceptual research at universities.

But the $2.7 billion figure is what it takes for a biopharma company to piece together and build upon its own basic research and some academic insights about the mechanisms of a disease, to create a workable, safe and effective, medicine.

“Safe and effective” is key. It’s the standard by which the FDA judges new drugs.

The cost of a drug reflects the dollars plowed into researching and developing it.

This means a new drug must actually do what it claims—for example, cure skin cancer—and it must do so with minimum risk to the patient.

Most new drugs fail these tests. Some that seemed so effective in a petri dish or in mice show little effect in humans. Others prove to be highly effective in some patients but worsen disease in others.

The cost of a drug reflects the dollars plowed into researching and developing it, but also investment in all the drug candidates that didn’t pan out.

If companies can’t recoup all this R&D they won’t do the R&D. They won’t be able to—their investors will look elsewhere to invest their money.

R&D Drives Costs

Figuring out the recipe for a safe and effective drug is what biopharma R&D is all about and constitutes most of a new medicine’s cost.

Pressing ingredients together into a pill or injection that the recipe calls for is a very small fraction of the cost.

This aspect of drug development is what the Trump administration executive order misunderstands or ignores.

Other countries pay less for our drugs because decades ago, rebuilding their economies after World War II, with many competing demands for government funds, they used the power of their government run healthcare systems to say, essentially, “we can’t afford much, but we will reimburse you for the cost of manufacturing your drug, plus a small profit on that manufacturing cost.”

The United Kingdoms and Germanys and Japans of the world can afford to pay their share.

The state of healthcare was much less complex then, and we were very well-off and prosperous compared to the rest of the world, so there wasn’t much push back to these ultimatums.

To the great credit of the pharmaceutical industry and our government, we weren’t willing to deny access to life saving treatments and cures.

But times have changed. World War II is 80 years in the rearview mirror. The United Kingdoms and Germanys and Japans of the world are highly developed and prosperous. They can afford to pay their share of new drug R&D.

The solution to high drug prices here should be a firm negotiating stance.

We won’t sell our drugs to the well-off countries until they pay more towards R&D. Once they do, U.S. patients can rightly expect biopharma companies to lower prices here.

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Paul Pescatello is the executive director of CBIA’s Bioscience Growth Council and chair of We Work for Health Connecticut. Follow him on X @CTBio.