The West's Drug Self-Sabotage

"Democrats and even some Republicans want to import Europe's drug price controls. So it's worth observing how Europe's raid on drug makers to bolster its ailing national health systems is reducing pharmaceutical investment and access to treatments.

The latest alarm came last week when AbbVie and Eli Lilly said they're pulling out of a "voluntary" agreement with the U.K. government aimed at reducing drug spending. An AbbVie executive said the government's policies are harming "our ability to operate sustainably in the UK."

The British National Health Service (NHS) imposes price controls on drugs that reduce their cost on average by 60% versus America. U.K. law also requires drug makers to pay a 24.4% rebate on revenue from branded drugs. This levy on top of the NHS price controls discourages drug makers from selling treatments in the U.K.

The government and companies struck a deal in 2019 aimed at increasing access to innovative treatments, but this has turned out to be even more punitive. The agreement capped the government's annual drug spending growth at 2%. Drug makers must pay the government rebate equal to their revenue above the cap.

Government spending on drugs has nonetheless continued to rise at a faster rate owing to Covid and delayed care for diseases such as cancer. As a result, companies this year must pay the government 26.5% of their brand drug revenue (about $4 billion), up from 15% last year and 5% in 2021. In short, drug companies are dunned more because more Brits are sick.

Eli Lilly and AbbVie last week withdrew from the 2019 agreement, and Bristol Myers Squibb has warned that the U.K. levies might cause it to divert investment. An executive at Germany's Bayer last week said it is reducing its U.K. footprint and "deprioritising Europe to some degree."

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Governments across the continent are making it difficult for drug makers to earn a return on investment. Germany last fall increased mandatory drug discounts to 12% from 7% and extended a 2010 price freeze through 2026 that was supposed to expire in 2022.

Hard to believe, the U.K. and Germany are also still trying to attract pharmaceutical investment. But as Bayer's pharmaceutical head Stefan Oelrich recently explained, "European governments are trying to create incentives for research investments, but they are making our lives miserable on the commercial side." While Europe boasts a handful of pharmaceutical powerhouses, venture capital is flowing into biotech startups in the U.S. and China.

The result for Europe will be less investment and access to life-saving treatments. About 85% of new medicines launched between 2012 and 2021 were available in the U.S., compared to 61% in Germany, 59% in the U.K. and 52% in France and Italy. Bluebird bio in 2021 said it was unwinding operations in Europe and withdrawing gene therapies for rare diseases, citing the challenges of "achieving appropriate value recognition and market access."

Generic drug firms also say Europe's price controls, onerous regulation and rising energy costs are contributing to shortages of medicines and driving more production to China and India. Germany in December eased price controls on pediatric drugs in short supply because manufacturers were prioritizing countries with higher reimbursements.

According to a European Public Health Alliance survey in 2019, nearly half of patients reported that they or a family member couldn't get a drug they needed. In France, 2,446 drug shortages were reported in 2020, up from 868 in 2018 and 44 in 2008. Two in three French oncologists say shortages of anti-cancer medicines can reduce survival odds.

But European governments refuse to pay more to ensure their citizens have access to treatments. Bureaucrats in Brussels are therefore now considering legislation that would reduce intellectual property protection for drugs that don't launch in nearly all European Union markets. Such a deal: Accept price controls, or Europe will hand IP to the Chinese. Dealing with the Italian mob is easier.

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The U.S. has drawn more pharmaceutical investment amid Europe's war on drug makers, but this may not continue as progressives pound the industry. Democrats last year limited the price growth for drugs in Medicare to the rate of inflation and required the feds to dictate lower prices for dozens of drugs to finance climate spending.

Democrats also want the Health and Human Services Department to abrogate patents for higher-cost drugs such as prostate cancer treatment Xtandi that benefitted in part from government research. This would discourage cooperation between private industry and government, which helped produce life-saving Covid vaccines and therapies.

Pfizer CEO Albert Bourla warned last week that attacks on drug makers would leave the West more vulnerable to the next pandemic. "What was the big lesson from Covid? It was that thank god there was a thriving life-sciences industry that was predominantly fueled privately, but also supplemented by academia," he said.

The novel mRNA vaccines didn't turn out to protect as well against Covid infection as hoped, but they did save lives and helped the world return to normal. It makes no sense for governments to try to kill companies that came to their rescue." [1]

 

There is another side to the story. Now that drug price controls are in place in America, companies will have nowhere to go, they will have to accept lower profits around the world.

 

1. The West's Drug Self-Sabotage
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 24 Jan 2023: A.14.