NEWS

For Immediate Release

Washington, D.C. – Today, the Senate Finance Committee is holding a hearing on prescription drug prices and possible solutions to lower costs, including price controls. Small Business & Entrepreneurship Council (SBE Council) president Karen Kerrigan issued the following statement about possible legislative efforts to impose price controls on this critical American sector:

“Some members of Congress continue to believe that they can alter basic economic principles – and the proven history – of government price controls. No matter how they’ve been attempted and applied, the same distortions have occurred: dampened economic activity, entry and investment; shortages; and less innovation. The same outcome will occur if Congress imposes price controls on drugs. Price controls will undermine the production of new and improved drugs, medicines and vaccines. They will limit access to life-saving drugs for many, and damage U.S. innovative leadership in this critical sector. The health of U.S. consumers and lives are at stake.

“Moreover, the small firms that dominate the bio-pharmaceutical industry – the very firms that drive competition and innovation – will be immeasurably damaged by price controls. Approximately 79% of these companies have fewer than 100 employees, and they count on vast sums of outside capital investment to bring their innovative drugs to market, which takes extraordinary risk and time. Price controls will kill this investment and risk-taking, as they greatly reduce core risk-taking incentives. Our economy, and the health of millions of Americans, simply cannot afford the damage that price controls would inflict on our bio-pharmaceutical ecosystem, which is dominated by small to mid-size businesses.

“America’s small business owners and entrepreneurs want Congress to focus on their key pain points, such as inflation and high gas prices, broken supply chains, labor shortages and lowering health insurance costs. Our polling finds they want policies that support their ability to offer more health insurance options – not government interventions that restrict options and raise costs. Small business owners want Congress to focus on reducing the overall cost of healthcare rather than focusing just on drug pricing. In one of our recent surveys, 90% say that continued research and innovation is vital to the country’s prosperity, and that policies should be anticipating and encouraging the need for research and development of new treatments and medicines. Price controls will undercut and discourage this needed activity.

“As employers, consumers of innovative drugs, and as entrepreneurs and risk-takers in this industry, Congress must heed the concerns and wisdom of small business owners as certain Members continue to toy with the perilous idea of price controls. The focus should be on encouraging investment and innovation by all American industries, including the bio-pharmaceutical industry, not on harming productive private-sector activity.”

CONTACT:

Karen Kerrigan: kkerrigan@sbecouncil.org

Raymond Keating: rkeating@sbecouncil.org  

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 28 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

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In a February 1 Op-Ed in Real Clear Health, SBE Council president & CEO Karen Kerrigan and United States Hispanic Chamber of Commerce (USHCC) president & CEO Ramiro Cavazos lay out the policy priorities of small business owners as they work to survive and recover during this  uncertain pandemic economy.  As they note in the piece:

In this delicate economic environment, Congress should be very cautious about the potential impact of overreaching policies on businesses. A recent survey of small business owners found that 7-in-10 small business owners agree the pandemic has already made things hard enough, and they can’t afford to have government policies that disrupt day-to-day business.

On the issue of health care, Kerrigan and Cavazos remind readers that costs and access still remain a big challenge for small business owners. In fact, according to the SBE Council/USHCC survey they point to in the piece, 8-in-10 of small business owners agree that healthcare reforms “that add new costs for small businesses are high risk and would add another burden to recovering businesses.”

Instead of addressing these concerns, Kerrigan and Cavazos express concern that:

Congress has proposed several misaligned drug pricing policies to give the government more control and power over healthcare spending and decisions, ultimately harming access and eroding quality. Specifically, proposed negotiation policies would significantly undermine biopharmaceutical investment, mimicking Europe’s disastrous government price setting and restrictive regulations. The reason the U.S. leads the world in medical breakthroughs and lifesaving drug innovations is because of our free-market approach and entrepreneurial spirit. 

They argue that Congress has to be smart about the direction of policy and to make sure bills that are being advanced support Main Street businesses, which are the heart and soul of the U.S. economy. After all, they note:

Being “CLOSED” for business is no longer an option.

Read the full Op-ed here.

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January 13, 2022

Dear Members of Congress:

As America’s small business owners continue to navigate a host of challenges and work to stabilize their firms and recover from the effects of the COVID-19 pandemic, we believe that Congress must focus on policy solutions that restore their vibrancy and growth. Our national and local economies depend on the health and job-creating prowess of small businesses, and the entrepreneurs who run these firms want policies that address their key pain points to help them succeed, especially in the area of healthcare.

The Small Business & Entrepreneurship Council (SBE Council) is a 501c(4) advocacy, research, and education organization dedicated to protecting small business and promoting entrepreneurship.  Our network of supporters, including entrepreneurs and small business owners, state and local business organizations, corporate partners, and associations work with us to strengthen the environment for robust entrepreneurship, investment, innovation, and small business growth. The United States Hispanic Chamber of Commerce (USHCC) actively promotes the economic growth, development, and interests of more than five million Hispanic-owned businesses that, combined, contribute over $800 billion to the American economy every year. We also serve as a platform for our nationwide network of over 260 local Hispanic chambers of commerce.

A new Morning Consult poll released in December of 2021 by the SBE Council and the USHCC examines the top concerns among the small business community and highlights the need for Congress to focus on policies that aid economic recovery.

The SBE Council and the USHCC urge members of Congress to engage with the small business community to better understand the necessary reforms they support that promote affordability and choice in health coverage, sustained innovation in the healthcare and pharmaceutical sectors, and economic recovery for our nation.

Some of the poll’s key takeaways include:

● 41% of small business owners (SBOs) say economic recovery from the COVID-19 pandemic should be one of Congress’ top priorities across the board.

◦ 72% of SBOs agree the pandemic has already made things hard enough for small businesses and they cannot afford to have government policies that disrupt their day-to-day business.

◦ Nearly eight out of ten SBOs agree that healthcare reforms that add new costs to their business is high-risk and would add another burden to recovering economically.

● More than nine out of ten SBOs say Congress’ top healthcare priority should be policies that address the rising cost and dwindling coverage of health insurance.

◦ In fact, 71% of SBOs want Congress to focus more on reducing the overall cost of healthcare rather than focusing solely on the reduction of drug pricing.

◦ Specifically, one third of SBOs are most concerned with addressing the cost of health insurance premiums, this was the top answer for healthcare priorities from respondents.

● 90% of SBOs agree that continued research and innovation is vital to our country’s prosperity.

● Nearly nine out of ten SBOs also believe that U.S. leaders should be anticipating and encouraging the need for research and development of new treatments and medicines for various illnesses and conditions.

These survey findings emphasize a call across the small business community for healthcare solutions that preserve economic growth and innovation, provide small businesses more choice, and flexibility in managing their rising operational costs.

In order to achieve these outcomes, policymakers need to closely examine and investigate the effects of proposed policies, including those that may impose punitive taxes or price-setting, as they may lead to unintended consequences across our healthcare system. Again, small business owners want policies that zero in on reducing health coverage costs, foster innovation, and choice.

As you well know, America’s more than 32 million small businesses are the heart and soul of our U.S. economy, and they overwhelmingly bore the brunt of the COVID-19 pandemic, especially those in marginalized communities. Now more than ever, access to affordable and quality health coverage is a vital issue for small business owners and their employees. As a recent report from the Kaiser Family Foundation conveyed, that the cost of health coverage has dramatically increased over the last decade. Family premiums for employer-sponsored health coverage have risen 47% and small businesses continue to be impacted, exasperated, and competitively affected by these rising costs.

Thank you for your service and partnership in supporting America’s small businesses. If you have any questions, please do not hesitate to reach out to Karen Kerrigan or Ramiro A. Cavazos via phone or email. We look forward to a positive outcome on this important legislative matter for America’s small businesses.

Sincerely,

Karen Kerrigan                                                                  Ramiro A. Cavazos

President & CEO                                                               President & CEO

Small Business & Entrepreneurship Council                    United States Hispanic Chamber of Commerce

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For Immediate Release
December 20, 2021

Washington, D.C. – Today, the Small Business & Entrepreneurship Council (SBE Council) and the United States Hispanic Chamber of Commerce (USHCC) released the results of a poll examining the top policy concerns among the small business community and highlighting the need for Congress to focus on policies that aid economic recovery.

Key takeaways from the poll, conducted by Morning Consult, include:

● 41% of small business owners (SBOs) say economic recovery from the COVID-19 pandemic should be one of Congress’ top priorities across the board.

– 72% of SBOs agree the pandemic has already made things hard enough for small businesses and they cannot afford to have government policies that disrupt day-to-day business.

– Nearly 8-in-10 SBOs agree healthcare reform that adds new costs for small businesses is high-risk and would add another burden to recovering businesses.

● More than 9-in-10 SBOs say Congress’ top healthcare priority should be policies that address the rising cost and dwindling coverage of health insurance.

– In fact, 71% of SBOs want Congress to focus more on reducing the overall cost of healthcare rather than focusing just on drug pricing.

– Specifically, one third of small business owners are most concerned with addressing the cost of health insurance premiums—the top answer for healthcare priorities.

● 90% of SBOs agree that continued research and innovation is vital to the country’s prosperity.

● Nearly 9-in-10 also believe U.S. leaders should be anticipating and encouraging the need for research and development of new treatments and medicines.

SBE Council President & CEO Karen Kerrigan said: “The disruptive economic impact of the pandemic continues to disproportionately impact small businesses, and Congress must be attuned to their challenges to help them compete, recover and thrive. Our new survey with the United States Hispanic Chamber of Commerce provides a roadmap for relevant policymaking that will help small business owners, particularly with rising healthcare costs and how these threaten their ability to support their employees and businesses in this challenging environment. The year-over-year increases in health coverage costs are unsustainable and Congress must listen to America’s small business owners and advance smart economic reforms and market-oriented healthcare solutions that promote affordability, innovation and choice. During the holiday recess, we urge members of Congress to reach out and listen to small business owners to ensure they are acting on policies that support their recovery rather than creating more burdens for them to navigate.”

USHCC President & CEO Ramiro A Cavazos said: “The past year and a half have been an uphill battle for our nation’s small businesses, particularly those in marginalized communities that disproportionately felt the brunt of this public health crisis but have continued to persevere. Policymakers must do everything they can to give small businesses the support they need, starting by listening to their needs that Congress must address such as economic recovery, rising healthcare costs, building a skilled workforce, and dwindling insurance coverage—without adding or creating more burdens or costs for the small business community.”

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About the Small Business and Entrepreneurship Council

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 27 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information.

About the United States Hispanic Chamber of Commerce

The United States Hispanic Chamber of Commerce (USHCC) actively promotes the economic growth, development, and interests of more than 5 million Hispanic-owned businesses. The USHCC team embodies the patriotic spirit and core mission of fostering the growth of American’s business community. Learn more at https://www.ushcc.com/.

Contact:

Karen Kerrigan, kkerrigan@sbecouncil.org

Brianna Dimas, bdimas@ushcc.com

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In a TownHall.com Op-ed, SBE Council president & CEO Karen Kerrigan details one of the many problems with the “Build Back Better Act.”  Specifically, the price controls in the legislation would greatly undermine U.S. investment, innovation and access to new life-saving drugs. Kerrigan writes:

“The impact on business would be enormous. An analysis by the Congressional Budget Office found that if passed, the proposal would ‘immediately’ lower ‘current and expected future revenues’ for biopharmaceutical companies, with ‘broad effects’ on the drug market. The healthcare consultancy Avelere did its own analysis, and found that the industry as a whole could face a loss of more than $1 trillion in revenue over 10 years….As a percentage of revenue, drug makers spend more on research and development than other industries — an average of 23 percent across the sector. Facing price controls, though, drug companies would be forced to cut spending.”

Kerrigan notes that this critical industry is dominated by small, entrepreneurial firms and urges Democrats to do more than simply “talk” about their support of small businesses.  The policies they support and are working to advance must reflect that support.

Read the full piece here.

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TO THE MEMBERS OF THE U.S. HOUSE OF REPRESENTATIVES:

We, the undersigned organizations, represent the interests of every sector and segment of the
business community and together unequivocally oppose H.R. 3, the “Lower Drug Costs Now Act of
2019.” Promises to pass along government price controls to the employer-sponsored market do not
change our fervent opposition to these dangerous policies.

Our organizations serve as the voice of business.

• The U.S. Chamber of Commerce is the world’s largest business organization
representing companies of all sizes across every sector of the economy. Our members
range from the small businesses and local chambers of commerce that line the Main
Streets of America to leading industry associations and large corporations. They all
share one thing: They count on the U.S. Chamber to be their voice in Washington,
across the country, and around the world. For more than 100 years, we have advocated
for pro-business policies that help businesses create jobs and grow our economy.

• The National Association of Manufacturers (NAM) is the largest manufacturing
association in the United States representing 14,000 manufacturers in every industrial
sector and in all 50 states.

• The Small Business & Entrepreneurship Council (SBE Council) advocates for
entrepreneurs and small business owners with a network of more than 100,000 member
supporters, including entrepreneurs and small business owners, state and local business
organizations, corporate partners and associations committed to strengthening the
environment for entrepreneurship, investment, innovation and quality job creation.

• The Council for Affordable Health Coverage’s members include large companies and
trade associations who represent hundreds of thousands of employees that all stand to
lose access to medicines and flexibility in their benefits. Combined, our organizations
serve as effective resources and strong advocates for the business and employer
communities.

Together, we steadfastly oppose allowing the government to directly negotiate
prescription drug rates and permitting other health care markets to pay these same rates. These
policies would have tremendous negative consequences. Imposing government price controls on
prescription drugs threatens to cut critical medical research dollars essential for innovation and
development of new cures. The Congressional Budget Office recently estimated that H.R. 3 could
result in nearly 60 fewer innovative medicines over the next three decades.

Yet, this conservative estimate does not take into account the critical role that small- and
medium-sized biotech companies play in the innovative R&D pipeline. Emerging biopharma
companies account for 80% of the innovative pipeline. According to the Harvard Business School,
venture capital firms invest nearly $22 billion annually in innovative biotech companies. H.R. 3 would
therefore jeopardize the venture capital investment critical to supporting small- and medium-sized
companies. Furthermore, analysis by Vital Transformations states the legislation could reduce by over 90%  the new medicines developed by these emerging biotech firms. Taken together, this illustrates the devastating impact H.R. 3 would have on the pipeline for innovative treatments and cures in the United
States.

Our organizations stand ready to support efforts and meaningful reforms that will address the
cost of healthcare for Medicare Part D without sacrificing core free market principles. This
reconciliation bill is not the appropriate legislative vehicle for that. Our organizations believe the cost
of healthcare is too high for employers and all Americans, but a government price-setting is the wrong
approach that must be abandoned.

Sincerely,

Council for Affordable Health Coverage

National Association of Manufacturers

Small Business & Entrepreneurship Council

U.S. Chamber of Commerce

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Dear Leader Schumer, Leader McConnell, Speaker Pelosi, and Leader McCarthy:

On behalf of the nation’s leading business organizations representing diverse communities, we know healthcare costs are a key issue for the constituencies we represent. That is why we are writing to share some insights as it relates to the development of your work on drug-pricing reform legislation including H.R. 3.

Several of our organizations have seen the importance of America’s biotech industry and we want to make sure that any steps taken would not lead to job loss or discourage the research that produces lifesaving treatments for patients. Perhaps most importantly, that it won’t impact the diverse and minority businesses we represent.

Right now, the U.S. pharmaceutical industry supports over 4 million jobs across the country. That includes more than 800,000 direct industry jobs along with 3.2 million indirect or induced jobs.^[1] We need to find a way to reduce healthcare costs and make sure companies recoup their investments, so they don’t scale back research spending and lay off workers. It is important for these companies and innovators to recoup their investments. If they can’t, this could leave firms with no choice but to scale back research spending and lay off workers.

Potential downstream reduction of investment could have devastating impacts throughout the supply chain, especially for those small and diverse businesses that provide goods and services to the pharmaceutical sector. Additionally, the industry’s direct employees support the businesses, shops, and restaurants in their communities. Without their revenue, diverse owned and operated small businesses would be hit especially hard.

Scientists are on the cusp of discovering treatments for a host of horrible afflictions — from cancer to Alzheimer’s to HIV. Mere days ago, researchers announced the successful completion of a phase I clinical trial that could result in an HIV vaccine.^[2] We want to make sure we benefit from these countless treatments critical to the health and wellness of our communities and businesses alike, so we want to ensure we find policies that work for consumers, businesses, and industry.

Recently, lawmakers called for more modest, bipartisan drug pricing reforms that would “preserve our invaluable innovation ecosystem.” The Members noted “America benefits from the most innovative and capable researchers in the world, and from public-private partnership that encourages world-leading biomedical research and development” while also citing, “access to and affordability of healthcare continue to be top of mind for families in our districts and across the country.” We join these policymakers in their belief that “stakeholders across the health care system each bear responsibility to improve costs for patients and their families.” We share the same strong interest in working collaboratively in a bipartisan manner to develop healthcare policies that will, as the letter states, “ensure that patients are able to afford their medicine at the pharmacy counter, and to enhance the United States’ innovation ecosystem that delivers treatments and cures when we need them most…” And we echo the letter’s direction to “determine ways to better serve patients in an efficient and affordable fashion with an eye toward improving health equity.”

Solutions to rising healthcare costs remain paramount for our organizations and the diverse owned businesses we represent. We want to also encourage lawmakers to recognize that there are a multitude of tactics they should consider to reduce the cost of healthcare on America’s job creators including lawmakers should pursue policies which improve transparency, affordability, and accessibility to comprehensive care and coverage options to meet the needs of patients.

As organizations dedicated to expanding economic opportunities and advancement for diverse and minority communities, we urge you take a balanced approach to consumers, small business, and the pharmaceutical industry to ensure we arrive at a bipartisan solution that will ensure our nation’s recovery from COVID-19 and corresponding economic crisis is equitable and inclusive of all workers and business owners.

Sincerely,

Candace Waterman, President and CEO, Women Impacting Public Policy

Justin Nelson, President & Co-Founder, National LGBT Chamber of Commerce

Karen Kerrigan, President & CEO, Small Business & Entrepreneurship Council

Ramiro Cavazos, President & CEO, US Hispanic Chamber of Commerce

Susan Au Allen, National President and CEO, US Pan Asian American Chamber of Commerce

[1]https://hinj.org/new-report-biopharmaceutical-industry-supports-over-4-million-jobs-and-1-1-trillion-in-u-s-economic-output/

[2] https://www.medicalnewstoday.com/articles/clinical-trial-brings-an-effective-hiv-vaccine-a-step-closer

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by Raymond J. Keating –

Regulations – including price controls – always fall heaviest on smaller, entrepreneurial enterprises. That is very much the case in the biopharmaceutical industry. Price controls on prescription drugs would undermine entrepreneurship and private investment in the industry, and therefore, would undermine the creation of new and improved drugs, medicines and vaccines.

It’s straightforward economics. That is, government-imposed price controls mean limiting potential returns, which in turn, mean fewer startups, less investment for entrepreneurial ventures, and reduced innovation in the industry. That is especially the case in the pharmaceutical industry given the high degrees of risk and uncertainty in bringing new treatments to the marketplace.

After all, according to a report from PhRMA, it takes 10 to 15 years on average to bring a drug to market, and only 12 percent of medicines entering clinical trials get approved by the FDA. The average estimated cost to get a drug to market, including the costs of failed drugs, is $2.6 billion.

Of course, lost innovation due to price controls is bad news for patients in that they will be denied life-enhancing and life-saving drugs.

While the new Congressional Budget Office study (“CBO’s Simulation Model of New Drug Development”) gets the direction right in terms of the impact that price controls – such as via Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) – would have on new drug development, it is off in terms of degree. The fundamental point that price controls would be negatives for new drug development is, once again, confirmed. For example, the CBO concluded:

“The model considers the firm’s decision at the start of the various phases of human clinical trials. The firm considers expected cost and expected returns of entering the phase. The paper considers what happens when a policy is introduced that reduces the top quintile of expected returns by 15 percent to 25 percent. Using the model, CBO estimates that such a policy would reduce the number of drugs entering the market by 0.5 percent in the first decade under the policy. Owing to an accumulated effect through the phases, CBO estimates the number of drugs entering the market decreases by 8 percent in the third decade under the policy.”

So, even with unrealistically conservative estimates, the CBO study points to some 60 treatments and cures being lost due to government imposing price controls. That translates into lost health and lives.

Meanwhile, this study suffers from numerous shortcomings. In fact, assorted question marks are noted in the study itself, including:

● “The paper discusses various forms of uncertainty affecting those estimates. In addition to the uncertainty associated with the value of the model’s parameters, inherent uncertainty is associated with the drug development process. Uncertainty also exists in how manufacturers react to the major change in the government’s role in price determination.”

● “The results presented here are uncertain. Uncertainty exists around both the values of inputs used in the simulation model and the impact of the illustrative policy. Using the illustrative policy, the section shows how uncertainty over the model’s input values and inherent uncertainty in the simulation affect predictions of the policy’s impact on the number of new drugs.”

● “The illustrative policy’s exact implications for the health of families in the United States are unclear. CBO has estimated neither which types of drugs may be affected nor how the reduction in the number of new drugs will affect health outcomes.”

However, the major missing piece in this study is lost innovation. The study effectively underestimates the impact on entrepreneurship and investment. In fact, small biopharmaceutical companies are ignored. Yet, these are the firms that drive innovation. As reported in a study from the IQVIA Institute for Human Data Science (“Emerging Biopharma’s Contribution to Innovation,” June 2019):

“The majority of biomedical innovation is developed by emerging biopharma companies, many of which have never marketed a therapy before. Over time, those companies either successfully bring their products to market or, in many cases, their assets or whole companies are acquired by others. These emerging biopharma (EBP) companies are at the root of early-stage drug development and their performance, the environment in which they operate, and their relationship to other stakeholders in the health system play a critical role in determining the future of many novel therapies and health technologies.”

Specifically, it was reported:

● “Emerging biopharma companies now represent 73% of late-stage research, up from 52% in 2003, and the number of molecules under development by EBPs grew by 15% in each of the past two years. EBP companies also represent 84% of early-phase research.”

● “EBP companies conducted 65% of all clinical trials in 2018 and are now running more trials than larger companies across all phases. Products developed by emerging biopharma companies have a composite success rate of 17% – greater than other company segments.”

● “EBPs increasingly contribute to innovation, and these companies were the original patentees for 29 of the current top 100 drugs, which account for 40% of sales in the United States in 2018. For drugs launched in 2018, EBPs originated and launched 42% of the new drugs, a higher percentage than in past years and up from 26% in 2017.”

The study also highlights the importance of venture capital investment and collaborative deals between EBPs and larger companies in the development of new treatments and cures.

None of this is surprising given that the data on the number of firms operating in this sector reveal an industry overwhelmingly populated by smaller, entrepreneurial firms. According to the latest U.S. Census Bureau data (2018), consider the breakdown of the pharmaceutical and medicine manufacturing sector by firm size:

● 34.2 percent of employer firms in the pharmaceutical and medicine manufacturing sector have fewer than 5 employees.

● 47.6 percent have fewer than 10 employees.

● 59.4 percent of employers firms in the pharmaceutical and medicine manufacturing industry have fewer than 20 employees.

● 78.9 percent have fewer than 100 employees.

● 91.3 percent of employer firms in the pharmaceutical and medicine manufacturing industry have fewer than 500 employees.

That’s overwhelmingly small business.

A report at BioCentury.com tied in the impact of price controls to small businesses – that is, early-stage biopharmaceutical companies – and venture capital in a way that the CBO report ignored. That is, BioCentury explicitly recognized that lost revenues for highly profitable drugs will undermine venture capital investment. The BioCentury report offered insights from three experts.

First, Amitabh Chandra, director of health policy research at the Harvard Kennedy School of Government, a professor of business administration at Harvard Business School, and a member of CBO’s Panel of Health Advisors, said, “VC’s invest about $22 billion every year and the outcome is 30 or 40 drugs many years later. That $22 billion is going to be very sensitive to the upper tail of profits being lopped off,” adding that “a transformational drug for Alzheimer’s — not Aduhelm — or diabetes, is almost definitely in this tail.”

Second, Dan Durham, EVP of health at BIO, was quoted, “The report only takes the large company perspective. CBO states that it takes preclinical decision-making as a given. Specifically, it looks at decision-making for a company with drugs in the clinic making decisions about whether to stop development after Phase I, II or III based on estimates of profitability. It leaves out preclinical development, which is where most BIO companies are.” He added that the CBO model “completely misses out on the incentives of VCs and others to invest in prerevenue, preclinical companies.”

And third, Peter Kolchinsky, managing partner at RA Capital, pointed out the impact that price controls would reduce incentives for venture capitalists to invest in biopharmaceutical companies. He said, “They are going to go after the biggest winners after it’s clear what they are. What they’re basically doing is saying, we’re going to wait for you to invest in the seeds of all these drugs and then, after you’ve risked all that money, and it’s clear which of those are the biggest winners, we’re going to clip those… CBO’s report grossly underestimates the impact of gutting expectations of return on willingness to invest… My investors will run for the hills and my companies will get defunded and patients will have the drugs we already invented at whatever price CMS dictates, but there won’t be new drugs.”

If we want the U.S. to remain as the global leader in the development of new prescription drugs, medicines and vaccines, then the policies that provide a foundation for that to occur must be maintained, that is, strong property rights and the absence of price controls. When government abandons or violates these essentials, the blows to entrepreneurship, investment and innovation in enterprises that develop treatments and cures promise to be severe.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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Dear Member of Congress:

A few rogue “employer groups” who do not represent the interest of their member companies or the business community are pushing for price controls on prescription drugs, punitive taxes on pharmaceutical companies, and more government meddling in our health care system.

Millions of small to mid-size companies across the United States DO NOT support this backward and harmful approach.

Like all Americans, small business owners want lower prescription drugs costs, but imposing price controls or ‘importing’ them by allowing drug importation – or adding to the cost of research and development through government penalties – will only serve to undermine investment, innovation, and access to life saving drugs.

The harmful outcomes of price controls and punitive taxes, and the lack of support for these policies among the business community are noted within a recent SBE Council-Morning Consult survey. Small to mid-size business owners are least supportive of allowing the federal government to determine the price of prescription drugs or which prescription drugs are covered in Medicare, among all of the potential policies for lawmakers to address healthcare costs.

The business community does not want Congress focusing on price controls and punitive taxes, they want solutions that give businesses more flexibility to manage costs and chose affordable coverage. Small to mid-size businesses are united in their view that the private sector is best equipped to manage health care for their employees – not the government! In fact, 72% agree that employers and employees, not government, should decide the type of health plans offered to workers.

Read: CBO Underestimates How Price Controls Would Devastate Innovation and Entrepreneurship in the Bio-Pharmaceutical Industry

When it comes to what SMBs want in terms of policies to promote affordability, flexibility, and transparency, they want Congress to focus on their actual pain points and challenges. For example, the survey reported:

● 87% of small business owners favor requiring health insurance companies to be more transparent about what is covered and what patients will pay out of pocket.

● 87% also favor requiring hospitals to be more transparent about their costs so that patients can plan ahead and aren’t bankrupted by surprise bills.

● Similarly, more than three quarters favor tax credits and financial incentives, for both businesses and individuals, as opposed to the top-down, anti-free market price controls being negotiated in Congress now.

There’s a reason why the United States leads the world in medical breakthroughs and life-saving drug innovations – like the speed at which COVID-19 vaccines were developed. Our policy environment is generally favorable to investment and risk-taking, unlike much of the world which has embraced price controls and restrictive regulation.

Given the high costs, enormous risks and vast uncertainty of working to create life-saving and life-enhancing prescription drugs and vaccines, price controls are exactly the wrong approach and will discourage entrepreneurship, investment and innovation.

U.S. Pharmaceutical Sector Dominated by SMBs

It must be remembered that the pharmaceutical manufacturing sector is overwhelmingly dominated by small to mid-size businesses. According to the latest U.S. Census Bureau data:

● 78.7% of these firms have fewer than 100 employees

● 58% have fewer than 50 employees

● 46.1% have fewer than 10 employees.

These firms are the most sensitive to regulation and intrusive government policies.

Government price controls – one of the most intrusive government policies by far – would lead to consolidation, fewer firms, and fewer innovations.

Small to mid-size employers understand that price controls and intrusive government mandates will mean less investment, less innovation, and higher costs.

Please continue to fight for America’s innovative spirit and practical, free-market solutions in health care! And please feel free to contact me kkerrigan@sbecouncil.org if you have any questions, or if SBE Council can support your efforts.

Sincerely,

Karen Kerrigan, President & CEO

Related Content:

“Government Does Not Know Best When it Comes to Health Care,” Washington Times Op-ed, July 27, 2021, by SBE Council president & CEO Karen Kerrigan.

Letter to Congress on Health Care Policy: What Do Small Business Owners Want?, July 1, 2021.

Comments to the Food and Drug Administration: “Importation of Prescription Drugs,” March 9, 2020, submitted by SBE Council president & CEO Karen Kerrigan.

Price Controls vs. Pandemic Vaccines, Small Business Insider blog post, November 16, 2020, by Raymond Keating.

How Vaccines Are Saving Small Business, International Business Times, April 4, 2021, by SBE Council president & CEO Karen Kerrigan.

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Executive Order on “Competition” Would Damage Innovation, Endanger Health Consumers

by RAYMOND J. KEATING –

I’ve said it before, and I’ll say it again: I’m always bewildered by the political attacks on pharmaceutical companies. After all, these businesses produce medicines, drugs and vaccines that improve and save lives. Why attack and undermine such worthy endeavors?

Nonetheless, during my three-plus decades of working in the public policy arena, attacking pharmaceutical companies has been one of those rare constants in politics.

And in July, President Joe Biden chimed in, once again, with his “Executive Order on Promoting Competition in the American Economy.” This ranked as a sweeping call for increased regulation on big businesses, while of course ignoring that businesses in the marketplace can only gain market share by serving consumers well, and that no matter the intentions, the burdens of increased regulation, one way or another, fall heavily upon smaller enterprises.

Specifically, regarding the pharmaceutical industry, the Biden EO says the following:

● “Americans are paying too much for prescription drugs and healthcare services — far more than the prices paid in other countries… And too often, patent and other laws have been misused to inhibit or delay — for years and even decades — competition from generic drugs and biosimilars, denying Americans access to lower-cost drugs.”

● “This order affirms that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony — especially as these issues arise in labor markets, agricultural markets, Internet platform industries, healthcare markets (including insurance, hospital, and prescription drug markets)…”

● “It is also the policy of my Administration to support aggressive legislative reforms that would lower prescription drug prices, including by allowing Medicare to negotiate drug prices, by imposing inflation caps, and through other related reforms.”

● “The Secretary of Health and Human Services shall … submit a report to the Assistant to the President for Domestic Policy and Director of the Domestic Policy Council and to the Chair of the White House Competition Council, with a plan to continue the effort to combat excessive pricing of prescription drugs and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the Federal Government for such drugs, and to address the recurrent problem of price gouging; (v) to lower the prices of and improve access to prescription drugs and biologics, continue to promote generic drug and biosimilar competition…”

● And the accompanying “Fact Sheet” for the Biden regulation EO declared support to “Lower prescription drug prices by supporting state and tribal programs that will import safe and cheaper drugs from Canada.”

The Biden EO misses key points that reveal a vibrant, competitive, entrepreneurial pharmaceutical industry, as well as missing or ignoring basic points of economics regarding governmental impositions such as price controls.

Market and Industry Realities

Let’s consider some key points. Notably that the industry is competitive, entrepreneurial and driven by small businesses.

As is the case across other industries, leading pharmaceutical firms compete against current, emerging and future competitors. And the data on the number of firms operating in this sector reveal an industry overwhelmingly populated by smaller, entrepreneurial firms.

According to the latest U.S. Census Bureau data (2018), consider the breakdown of the pharmaceutical and medicine manufacturing sector by firm size:

● A significant share of employer firms in the pharmaceutical and medicine manufacturing sector – that is, 34.2 percent, or more than a third – have fewer than 5 employees.

● Nearly half – i.e., 47.6 percent – have fewer than 10 employees.

● 59.4 percent of employers firms in the pharmaceutical and medicine manufacturing industry have fewer than 20 employees.

● Almost eighty percent – i.e., 78.9 percent – have fewer than 100 employees.

● And finally, 91.3 percent of employer firms in the pharmaceutical and medicine manufacturing industry have fewer than 500 employees.

Imposing price controls (including via Medicare price dictates, reimportation of drugs, “inflation caps,” and other avenues), and undermining property rights by weakening and/or raising doubts about the patent system, work to undermine entrepreneurship and investment in the biopharmaceutical industry.

Keep in mind that a key reason why the U.S. ranks as the global leader in pharmaceuticals is due to the lack of price controls, and the strength of our intellectual property rights and protections.

Bringing a drug to market is a process fraught with risk and uncertainty. According to a report from PhRMA, it takes 10 to 15 years on average to bring a drug to market, and only 12 percent of medicines entering clinical trials get approved by the FDA.

The cost to get to market? Some $2.6 billion on average, including the costs of drugs that failed.

Even given those formidable challenges, the U.S. leads the way in investment, research and innovation. As noted again by PhRMA:

● “The United States is recognized as the global leader of biopharmaceutical innovation… The industry’s advanced manufacturing presence is key to maintaining U.S. leadership in innovation. As the complexity of drug development evolves, manufacturing process innovations have become just as important as product innovations themselves.”

● “The tremendous investments America’s biopharmaceutical companies make to research and develop new medicines are what drive the far-reaching economic impacts of the industry. The biopharmaceutical industry is the global leader in R&D, and its research intensity is unparalleled in the U.S. economy. Relative to other manufacturing industries, the biopharmaceutical industry invests 12 times more in R&D per employee and employs the largest share of all manufacturing R&D workers in the United States.”

● “America’s robust R&D enterprise is the envy of the world. Not only does the United States lead in both overall clinical trial activity and early stage clinical research, but it also claims the intellectual property (IP) of nearly 60% of all new medicines. Likewise, it is not surprising that almost three-quarters of worldwide venture capital investments in biopharmaceutical startups are made in the United States, where the biopharmaceutical R&D enterprise thrives.”

A Policy Playbook that Would Harm Innovation and Consumer Health

What policies would rank among the surest ways to undermine this industry that is critical to the economic and health well-being of Americans and people around the globe?

Impose price controls; weaken intellectual property protections; and raise taxes.

That’s exactly the Biden agenda. While we’ve already noted the intentions on price controls and undermining property rights, it also must be noted that the Biden administration and Members of Congress are pushing hard for tax increases, including a higher corporate income tax (increasing the rate from 20 percent to 28 percent) and increasing the top capital gains tax rate from 23.8 percent to 43.4 percent, and a global minimum tax.

The economics are straightforward. What happens when the potential returns on entrepreneurship and investment are reduced by limiting prices and therefore potential earnings; by failing to protect the essential value of intellectual property enterprises, such as pharmaceutical companies, via weakening of intellectual property protections; and reducing resources and further disincentivizing investment thanks to tax increases?

The results of such an agenda feature less entrepreneurship, less investment, and less innovation, which in turn means fewer life-enhancing and life-saving medicines, drugs and vaccines.

The answer to drug pricing issues is not to have government step in and undermine the entire industry. Instead, emphasis should be placed on reducing government costs – including taxes and unnecessary regulations – so that investment and entrepreneurship will be further incentivized, thereby spurring greater competition and innovation, and expanding choices in the marketplace.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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