The Pandemic and Bad Drug Policies

By at 2 October, 2020, 11:51 am

By Karen Kerrigan-

The race to bring to a COVID-19 vaccine to market underscores the importance of advancing and maintaining productive government policies that encourage investment and innovation. Yet, while the race is on to produce a vaccine and effective treatments  – with America’s best minds and bio-pharmaceutical companies working around-the-clock on numerous initiatives – recent federal policy announcements during the height of this pandemic will unfortunately undermine the future success of the innovators, scientists and investors in this critical sector.

For example, the Administration’s misguided “most favored nation” rule essentially pegs U.S. drug prices to foreign price-controlled ones. This head-scratching policy puts American drug leadership, innovation and patients at risk.  A Food and Drug Administration (FDA) Final Rule on the importation of prescription drugs (released September 24) is yet another ill-advised approach that not only harms investment and innovation, but puts American lives at risk.

The rule will allow for the importation of drugs from Canada. But not surprisingly, the Canadian government will have none of it. As Canadian officials noted in their comments to the FDA on the then-proposed rule:

“The proposed rule would not provide an effective solution to the problem of high drug prices in the U.S.  Canada’s drug market is too small to meet American consumer demand for prescription drugs or have an impact on high drug prices.  Implementation of the proposed rule could exacerbate drug shortages in Canada, putting the health of Canadians at risk.”

“Canada will employ all necessary measures to safeguard its drug supply and preserve access for Canadians for needed drugs.”

Not only would the FDA proposal “adversely affect the health of Canadians” as noted in the Canadian government comments, but unfortunately could provide more incentive for the bad guys to exploit the Canada-to-U.S. importation scheme and supercharge illegal cross-border activity of counterfeit and dangerous drugs. Canada’s government did not make the latter point in their comments, but it is logical to expect such an outcome.

Impact on Entrepreneurs, Small Business and Innovation

Obviously, small business owners are deeply concerned about high costs. They are also concerned about drug safety, and understand the unintended consequences of price controls on supply and innovation. Moreover, it’s small bio-pharmaceuticals that dominate this critical U.S. industry and these are the very firms that would feel the harsh impacts of drug importation and its price controls.

Canada is a country that imposes price controls on drugs, which means we would be importing (if Canadian officials actually allow it) price-controlled drugs, which would subsequently impact the dynamic investment-innovation ecosystem in the U.S.

As I noted in my comments to the Department of Health and Human Services (HHS) about the proposed rule on drug reimportation, small to mid-size companies dominate the U.S. bio-pharmaceutical industry:

“These small, innovative companies will be harmed in numerous ways, especially if capital investment turns cold due to market distortions and the unintended consequences of importing price-controlled drugs…most pharmaceutical firms are small to medium-size companies – 57% have less than 20 workers and 79% have less than 100 workers. This critical industry is all about risk-taking entrepreneurs. They are passionate about saving lives.”

The pharmaceutical business involves substantial risk taking. It costs as much as $2.6 billion to bring a drug to market, according to the Tufts Center for the Study of Drug Development, and the approval rate for drugs is 12% entering clinical trials. It takes many, many years to bring a drug to market. Policies should encourage this critical work, not punish or impede it. Small pharmaceutical firms are working on the medicines that will improve and save lives, and drug importation of price-controlled drugs would put this important work in jeopardy.

Now is Not the Time to Be Embracing “Gimmicks” and Intrusive Government

It wasn’t that long ago that Trump Administration officials and advisors were warning about misguided drug importation policies. As noted in a February 2018 Council of Economic Advisers (CEA) report, “Reforming Biopharmaceutical Pricing at Home and Abroad,” distortions caused by foreign price controls are unfair to U.S. drug consumers, therefore policies should address their “root causes” and not punish American consumers even further:

“Meaningful reforms would address the root of the problem: foreign, developed nations, that can afford to pay for novel drugs, free-ride by setting drug prices at unfairly low levels, leaving American patients to pay for the innovation that foreign patients enjoy. Since these nations benefit from the innovations regardless of the costs to Americans, they currently have no reason to raise their own prices and exploit the fact that novel drugs are already invented.”

In May 2018, HHS Secretary Alex Azar (a newly converted believer of importation) said drug importation was “just a gimmick,” apparently agreeing with the Canadians that the size of their market would make the policy ineffective. He also expressed deep concerns about drug safety.

There secret sauce to encouraging investment and innovation is quite simple: Protect intellectual (IP) property, keep taxes and regulation at reasonably low levels, and address discrepancies in foreign drug prices (read: price controls) through trade agreements that disallow such a practice, open markets and protect American IP. These pro-investment, pro-growth policies will work to help lower the cost of drugs and make them more abundant, everywhere.

Schemes and gimmicks that discourage innovation, while fueling the incentive for the bad players to make, sell and ship counterfeit or dangerous drugs have been non-starters in the past. In the name of fighting pandemics, and for the future of life-saving drugs, let’s keep it that way.

Related Content:

SBE Council Comments to FDA on the “Importation of Foreign Drugs,” March 2020.

Letter to the U.S. Senate on Drug Importation: Entrepreneurial Innovation, Quality Jobs, Consumer Safety at Risk, March 2017.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.


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