Inflation Reduction Act price controls projected to slow drug development, cost jobs
BOSTON – Patent protections on new drugs have unleashed an unprecedented wave of innovation that has benefited patients and should be fiercely guarded, according to a new study published by Pioneer Institute.
“Patent protection is the mother of invention,” said Dr. William Smith, who co-authored “The Importance of Intellectual Property Protections for Patients” with Dr. Robert Popovian. “No inventor will devote time, energy, and money to an invention if, as soon as it goes to market, others can steal the discovery, copy it, and sell it themselves.”
In the past, the federal government held patents on the products of university research projects it funded, which meant the universities couldn’t commercialize those products. The result was that drug breakthroughs were essentially put on a shelf and didn’t help patients.
That changed when the Bayh-Dole Act was enacted in 1980. That legislation allowed universities to retain the patents on discoveries held with federal money and provided intellectual property protections that enable innovations to be commercialized. It was the first of several bipartisan laws that unleashed innovation in the pharmaceutical industry.
But the federal government isn’t the only – or even the primary – funder of drug discoveries. The private sector funds the clinical trials that can cost more than $1 billion. The results of these trials are uncertain at best. According to the biopharmaceutical consulting firm IQVIA, the global success rate for oncology trials is 3.5 percent.
Yet despite their low success rates and high cost, the number of oncology trials was 22 percent higher in 2022 than in 2018. All told, pharmaceutical industry spending is more than $200 billion annually, while the National Institutes of Health budget was $41 billion in 2022.
In addition to the idea that the government discovers and develops drugs, another myth is that drugs under patent don’t face competition. Patents provide a period of protection before other companies can copy drugs and sell generic versions of them.
In 1987, the U.S. Food and Drug Administration (FDA) approved lovastatin to treat high cholesterol. Within a decade, at least four other cholesterol drugs were approved. Each had its own patent, but there was fierce competition among them that resulted in falling prices.
“Competition for brand medicines does not commence with the approval of an equivalent generic medicine,” Dr. Popovian said. “A patented medicine faces competition and price reductions throughout its life cycle due to fierce competition from other brand-name drugs.”
The 1983 Orphan Drug Act incentivized medications that treat diseases with a prevalence of less than 200,000 patients in the U.S. Among other things, it provided approved drugs seven years of exclusivity before the FDA could approve any potential competitor. When the law was enacted in 1983, there were only 38 drugs approved to treat rare diseases; by early this year, 1,100 had been approved.
Intellectual property protections have also reduced health disparities. Over the last three decades, the difference between black and white life expectancy was nearly cut in half, from 7 to 3.6 years. A study by University of Chicago’s Dr. Tom Philipson estimates that between 35 and 73 percent of that reduction is attributable to medical and pharmaceutical innovation.
The authors write that the most serious attack on intellectual property rights came with the Inflation Reduction Act, which was enacted last year and imposes price controls on 100 of the bestselling drugs in the Medicare program regardless of their patent status. New research indicates that the IRA will result in 230 fewer drugs coming to market over the next decade and job losses of between 730,000 and 1.1 million.