Congress should pass the proposed Pharmaceutical Research Transparency Act of 2022 to mandate drug companies provide detailed and disaggregated clinical trial costs to the public.
Strong Arguments have been advanced in support of this act as providing essential information in determining when and whether research costs justify high drug prices and price increases. But there is an additional reason to pass this legislation that has been underappreciated: Knowing more about drug innovation is essential to promoting it. Enacting this legislation would represent the first step necessary to examine the data underlying the largely unquestioned industry narrative of innovation and its corresponding policy prescriptions.
Industry arguments in support of unfettered discretion over drug pricing have rested heavily on a narrative of drug innovation as a process involving astronomical costs and staggering risks for private-sector participants. For years, this narrative has been persuasive in stalling legislative reform to curb soaring drug prices. This argument often prevails even when the proposals are minimal or aimed at resolving the areas in which the US deviation from other developed economies is particularly stark, such as permitting government to negotiate the price of drugs.
The problem is that policy makers, including Congress, have often been persuaded by industry to oppose many changes designed to increase affordability for fear that it will stymie needed innovation. If concerns about slowing innovation are to carry such force in drug policy decisions, it is essential to provide an opportunity for the public and policy makers to evaluate the validity of the innovation claims.
The Pharmaceutical Industry Innovation Narrative
According to the standard industry narrative of drug innovation, the private sector is the engine of risky and costly lifesaving innovation. The industry argues that this engine must be supported by strong patent and other protection along with unbridled freedom to set prices. Concerns about how regulations might slow innovation are invoked even to opposes the exercise of existing government rightssuch as “march-in” rights over federally funded inventions to ensure patients can have reasonable access to drugs developed with public funds.
While pharmaceutical companies are quick to make claims about the high cost and risks of drug innovation, they are equally quick to push back on proposals to make the details of cost and risk public. The pharmaceutical industry has even claimed that the pricing information of individual drugs, including anticipated price hikes, is a trade secret whose cost must be kept secret to protect the innovation engine, challenging state laws intended to cabin drug costs. Some courts have found even this proprietary claim persuasivedespite the questionable claim to trade secrecy. Industry is also reluctant to acknowledge, and disclose, the role and amount of public funds in lowering the private cost and risk of drug discovery and development. The pharmaceutical industry has proclaimed the success of COVID-19 vaccines and treatment primarily as a result of its innovation, while discounting public innovation and substantial public funding. Yet, public contributions are the norm, especially for the most innovative drugs.
We Know Very Little About The Costs Of Drug Innovation Or Even The Incentives That Are Needed (And Not Needed)
Despite the weight that arguments against slowing innovation carry, we know very little about the effects of existing and proposed laws on drug innovation. That is due in part to the fact that the true costs and patterns of expenditure incurred by pharmaceutical companies in discovering and developing drugs remain opaque. In the absence of more detailed information, audience perceptions about drug innovation continues to be shaped by summary statements about high cost and risk. These statements, in turn, are largely based on aggregate cost numbers that are industry-generated and based on proprietary data and—moreover—represent the costs of the very small fraction of new drugs brought to market. The oft quoted aggregate drug costs exclude the vast majority of drugs that may be technically new to the market but that are essentially inexpensive small innovations—line extensions of successful drugs. Moreover, most drugs are actually developed by small companies, not the larger acquiring companies (and sometimes even hedge funds and other financial entities) that profit from final sales. We also know that new drugs can be developed at costs much lower than the summary numbers industry provides. The not-for-profit entity DNDi, for example, has developed drugs at a mere fraction of the cost described by for-profit entities. A recent academic study raises further questions about the accuracy of industry numbers.
We Don’t Even Know Whether The Resulting Innovations Are Worth It
In the search for optimal drug innovation policies, it is also important to acknowledge that not all “innovations” are worth the cost. While this issue is not often the focus of public discussion, it finally made the headlines in the case of the recently approved Alzheimer’s treatment sold as Aduhelm. The public health value of this drug, which has questionable efficacy and serious side effects, is disputed. nevertheless, the drug received an accelerated approval from the Food and Drug Administration and was initially marketed at a cost of more than $20,000 per year, which could have bankrupted Medicare and Medicaid. In a rare, concerted pushback from the Centers for Medicare and Medicaid, the drug was ultimately not covered for most Medicare patients based on the existing limited safety and efficacy data. Private insurers made similar decisions. But that attention to cost-effectiveness and efficacy is the exception, rather than the rule. “New” cancer drugs are routinely introduced at high prices that must be covered by Medicare, even if they are not an improvement. In contrast, countries such as the UK, Germany, Australiaand many others limit drug costs and coverage based on efficacy.
This is not to dismiss the fact that even incredibly expensive innovation may be worthwhile, and that laws may need to be tweaked to promote such innovation. After all, this was the basis for prior legislation to promote “orphan drugs“that had low market impact with new incentives. But with too little information, and too little interrogation of alleged innovation, the incentive schemes will not yield their promised benefits.
The approach reflected in a recent Congressional Budget Office report—and touted by PhRMA—is to assume that any reduction to the amount of overall innovation is problematic, without considering what type of “innovation” is lost. This approach can lead to ineffective drug innovation policy.
Given the power, and importance, of the industry innovation narrative, we believe that getting a clearer picture of the true costs and risks of drug research and development is a critical starting point in ensuring a more balanced and accurate policy approach toward biomedical innovation. And given the relative magnitude of clinical trial costs in this equation, clinical trial costs are a good place to begin. This information is necessary to address concerns about how to properly fund innovation while also securing access to affordable prescription drugs.
Perhaps Change Is In The Air
Fortunately, although the deterrent effect of the industry innovation narrative on policy change has been persistent, it appears that some lawmakers are now ready to challenge it. As part of a three-year inquiry, the House Drug Pricing Investigation report revealed that industry spends more money on executive compensation and stock options than on research. Tea final postponement found drug prices tied to revenue targets and executive compensation, rather than innovation. What is more, the report argues that over the past decade an annual 20 percent increase in drug launch prices has placed an unjustified burden on the US health care system. What is more, nearly half of the new drugs that entered the market from 2020 to 2021 did so with a launch price greater than $150,000. In light of escalating costs, especially given the increased prevalence of very expensive biologic drugs that account for 2 percent of drugs used but 40 percent of overall coststhe time is ripe to examine what it costs to develop drugs so that innovation incentives can be right-sized.
Mandate Disclosure Of Drug Development Costs
multiple bills are pending to reform the pharmaceutical industry, and we believe the proposed drug price transparency proposal is an essential part of this mix. For the reasons described above, we support the proposed Pharmaceutical Research Transparency Act of 2022 that would amend the Public Health Services Act and the Security Exchange Act “to increase the transparency of pharmaceutical research costs.” Among other things, both this Senate bill and companion House legislation would require pharmaceutical companies to report disaggregated clinical trial costs in both a repository of cost data for applicable drug clinical trials and in Securities and Exchange Commission filings. To end where we began, knowing more about drug innovation is essential to promote it.
The proposed act reflects the lessons of past policy failures and builds upon existing infrastructure. States have tried to cabin escalating drug costs with laws that require certain disclosures for substantial increase in drug costs. Yet, these efforts have not been successful at truly limiting costs—in fact, initial prices have increased. It is time to truly interrogate the narrative innovation.
This is a modest legislative proposal that builds upon prior requirements and infrastructure to regulate the pharmaceutical industry. The industry is already required to report data from completed clinical studies to a publicly available website to enable independent scientists and doctors to ascertain the value of drugs, rather than rely on marketing that has repeatedly been shown to be inaccurate. Although the government could do more to mandate compliancesuch as imposes statutorily permitted fines, the system exists. It can simply be better used.
If This Is Really About Innovation, Innovators Should Support Cost Transparency
This legislation can help both the public and the private sector reach a common objective—promoting the development and distribution of life saving therapies in a financially sustainable way. Drug discovery and development is a process of partnership between the public and private sector. While private companies may take the lead in commercializing drugs, the public sector pays for and creates infrastructures and incentives to promote development. Successful public-private collaborations such as Operation Warp Speed to tackle COVID-19 offer recent examples. The public sector has a vested interest in providing appropriate incentives to promote investment in desirable innovation. If the industry is as committed to innovation as it claims, it should welcome this proposal to show the costs it bears in bringing drugs to market. These costs will justify the rewards they deserve.
