Industry warns Manchin-Schumer bill will mean fewer new drugs
By Cassidy Morrison
The pharmaceutical industry is bracing for a severe hit to investments with the pending passage of a bill that would give Medicare the authority to set price caps on some expensive prescription drugs.
Democrats intend to pass a surprise deal struck last week between Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) in which they will let the federal government negotiate the prices of some high-cost prescription medications directly with the drugmakers in order to lower prices and keep them low for enrollees in Medicare, the federal healthcare program for seniors.
Implementing direct price negotiations would save the government and consumers money, but pharmaceutical companies stand to lose revenue and return on investment, possibly cutting incentives to invest in the research and development of groundbreaking new drugs for cancer, Alzheimer’s, and other severe diseases.
“What we do know is that this bill does enormous damage to the biopharmaceutical pipeline. Unfortunately, this bill could lead to unintended consequences where companies will be forced to make investment decisions now on future innovative medicines, like Alzheimer’s and cancer,” said Sarah Sutton, director of public affairs at PhRMA, the trade organization that represents major drug companies.
Industry representatives have fought hard against efforts to grant Medicare the power to set maximum prices for medications. The Democrats’ bill, titled the Inflation Reduction Act, is expected to save Medicare roughly $287 billion over the next 10 years, per estimates from the nonpartisan Congressional Budget Office. While shoring up Medicare’s financial future, though, the bill would inadvertently keep about 15 new treatments from entering the market over the next 30 years, the CBO said.
Top-spending drugs that have been on the market for nine or more years as well as biologics, a class of drugs made from living organisms, that have been on the market for at least 13 years would be eligible for negotiation. Only a limited portion of Medicare’s prescription drug spectrum will be involved in negotiations — 10 of the most expensive and widely used drugs covered in Part D benefit in the first year, 2026, up to 15 the following year, and up to 20 in 2029 and later years. Sensitive to arguments that price controls on too many drugs would stifle innovation into future cures, Democrats coalesced around this smaller number of eligible medications, a far cry from the roughly 250 medications that would have been subject to negotiation under the failed Elijah E. Cummings Lower Drug Costs Now Act, a bill introduced in the House that Democrats failed to pass.
But the relatively few drugs that will be included in negotiations are the companies’ biggest earners. The consulting firm Vital Transformation estimated that the 12 major firms behind 20 drugs that are most likely to be included for negotiation can expect to see net revenue losses exceeding $80 billion by 2031. Developing complex new medicines is an expensive venture and requires billions to go toward research, developing the drug itself, and conducting clinical trials of its safety and efficacy, all without a guarantee that the finished product will be marketable.
“What I would worry about is: Do you have investors that can weather that type of runway with the uncertainty of actually ever getting onto market?” said Nick Shipley, executive vice president of BIO, the pharmaceutical industry trade group that funded the Vital Transformation report.
“You might have a moment like so many companies have had with Alzheimer’s, which is a disease state littered with failed investments — massive investments, only to fail in the last phase of clinical trials or to have coverage revoked after approval has happened and ultimately that product gets dropped or shelved,” Shipley added. “Now, we’re adding hundreds of billions of dollars in obstacles to the development pipeline, so you may have more companies announcing they’re just kind of walking away from some much-needed therapy spaces.”
The Democrats’ bill is likely to pass the finish line using the reconciliation mechanism that allows the party to bypass the filibuster. With the threat of government price-setting looming, pharmaceutical company executives are frantic.
“I would be shocked if the impact of this bill doesn’t result in 15 fewer medicines from Eli Lilly and Company alone,” said Eli Lilly CEO David Ricks. “I think that would imply one every other year that we canceled because of this. But right now, 40% of our portfolio are small molecules. We’ll need to reevaluate every single one of those projects for viability.”
The bill’s passage out of the Senate could come early next week. It remains in the hands of the Senate parliamentarian charged with scrubbing it for possible violations of the Byrd Rule. The upper chamber will work on the bill through the weekend, with Schumer promising “some late nights and extended debates” in the lead-up to a vote.
No one is asking if Medicare will pass those savings on to the recipient.