Sabotaging Strategic Success: How Price Controls Could Imperil U.S. Pharma Industry

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Hubwonk transcript with Dr. William Smith, Tuesday, August 1, 2023

Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Among the largest U.S. economic success stories of the past two decades has been the explosive growth of the biopharmaceutical industry. The technological renaissance of drug discovery now delivers therapies and vaccines at record pace, generating millions of jobs and earning more than $400 billion for its successful research firms, many of which are centered here in the greater Boston area. But the price of the industry’s dramatic success seems to have been to attract the ire of those policymakers looking for a scapegoat for the seemingly unstoppable growth in healthcare costs. Zeroing in on price controls for drugs as the preferred approach to making new therapies more affordable, a proposal from the Biden administration labeled a Smart Prices Act, would impose price limits on top-selling drugs in Medicare, capping costs for current therapies and potential profits for therapies yet to be discovered. While cheaper drug prices could generate voter favor for the current administration, such proposed changes also run the risk of killing the proverbial golden goose, imposing a regime that disadvantages U.S. firms over their competitors in China, incentivizing firms to shift drug research and development away from the U.S., and letting slip an industry that is strategic to our nation and vital to our greater Boston economy. Are price controls an effective strategy for improving access to new therapies? And what might history teach us about effects of similar policy choices in other parts of the world? My guest today is pharmaceutical industry expert and director of Pioneer Institute’s Life Sciences Initiative, Dr. Bill Smith. Dr. Smith’s recent article in National Review entitled “Future Winners and Losers in Biopharmaceutical Innovations” describes the potential loss of U.S. dominance of the drug discovery industry that mirrors that experience by the once-supreme European market after the EU imposed similar price controls on its pharma companies. Dr. Smith will share with us how the political incentives to mandate less costly new drugs could cost consumers access to vital therapies, the economy more than a million jobs, the U.S. pharmaceutical industry billions in revenue, and the nation the loss of a vital industry. When I return, I’ll be joined by Pioneer Institute’s senior fellow, Dr. Bill Smith.

Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi. I’m now pleased to be joined by Hubwonk listener favorite and senior fellow and director of Pioneer Life Science Initiative, Dr. Bill Smith. Welcome back to Hubwonk, Bill.

William Smith: Thanks, Joe. Thanks for having me.

Joe: Well, it’s good to have you here, Bill. You’re my go-to for questions about pharmaceutical industry. I want to speak specifically about a recent article you wrote for National Review. It’s entitled Future Winners and Losers in Pharmaceutical Innovations. You talk about our thriving biopharmaceutical industry, but you put it in the context of how this industry didn’t always center here in the U.S. or here in Boston and Cambridge, but rather it started in Europe. It was thriving in Europe, and slowly but surely we’ve come to dominate this industry. But your article suggests that our dominance is at risk largely because of some new proposed policies. So, let’s start at the beginning with your history context. You’re the expert in biopharmaceuticals. Where did this all begin and why did it change?

Bill: The biopharmaceutical industry really was born in Europe with Louis Pasteur and people like that. Great companies in London like Glaxo, great companies in Germany like Bayer, and European pharmaceutical industry was really preeminent for decades. And that, as I wrote about in the article, that’s going away. The industry is contracting in Europe significantly, probably due to the very aggressive price controls in the European markets. They aggressively price control drugs.

Joe: So, you made a reference and I should brought have that out in the introduction. You recently penned an op-ed in National Review entitled “Future Winners and Losers in Biopharmaceutical Innovation.” That’s what you’re referencing in your article. You talked about, again, in that article. In the past, Europe was the focus for much of what we now enjoy is our biopharmaceutical industry. You mentioned there’s some regulations that make the EU more difficult to do business and therefore it’s sort of withered on the vine, this industry. But you also in your article talk about it’s structurally different. You have a European Union with 27 countries. It’s different than a United States with 50 states all sort of essentially under one regime. Share with our listeners how does the fact that the EU is divided amongst nations, 27 constituent countries — why does that make it so much harder for biotech firms to prosper?

Bill: Well, it’s because first of all, the approval of the drugs take place at the European level. So, there’s a European medicine agency, which is the equivalent of our Food and Drug Administration. So, you just need one approval to get into the European market. The problem though is you have to go to all 27 countries to actually get reimbursed for the drug. And the countries all have different price control methodologies that they use to calculate prices. So, what tends to happen is companies tend to go to the larger countries, the Germany first, because they want to get as much revenue as they can as quickly as they can. And the EU complains that smaller countries, the Polands of the world, don’t get drugs as quickly as the Germans do. I think there’s probably a policy solution to this, but it makes it difficult to operate in the European market.

Joe: So, what you meant to bring up in that point is that it’s not merely the drug’s approval that we have to contend with, it’s negotiating price also slows down access to drugs. And you mentioned in that article — you cited a few different countries, I’m not going to ask you to pull that data up right now — but I think with something like Germany takes 12 months and Poland takes 20 months. By contrast, the United States takes four months. Roughly about.

Bill: Once the FDA approves the drug in the U.S., it’s pretty much reimbursed right away. Medicare, the agency, which is the biggest payer in the U.S., which funds senior citizens drugs, typically after an FDA approval will put it on formulary right away and start reimbursing for it. And then companies can go to the large health plans and PBMs, which control the market, and get on the market very quickly in the U.S. Europe tends to stretch it out. If you’re in a nationalized healthcare system, for example, and a new blockbuster drug is approved, you may have to find a billion dollars in your budget, and you may not have it. So, you may wait a year to get to allow that reimbursement to take place. So, the Europeans have a lot more difficulty getting new drugs. They wait much longer. And in some cases, they don’t get them at all because they choose not to pay for them.

Joe: Okay, so it’s all about money. But Europeans perhaps may negotiate a lower price, but ultimately the cost they’re also paying is the delay in access to those drugs. Beyond, let’s say, the slow approval process, why again, do you think the drug industry — I mean, there’s how many, I think there’s 500 million Europeans, there’s only 330 million Americans — why also might those drug companies have said, ‘Look, let’s pack up and go to Boston or Cambridge and do our business there?’

Bill: Yeah, because the market’s better, it’s friendlier. You can, up until the Inflation Reduction Act, there were no price controls in the U.S. So, you could come here and you’d have to compete, if there were another branded drug that’s on formulary, you’d have to compete on price. But you could effectively get your drugs paid for, and that’s not the case in Europe. Many European countries don’t even pay for the newest and latest drugs. You don’t want to get cancer in the UK, for example, because the latest cancer drugs are not going to be available to you.

Joe: All right, so let’s define terms. We keep throwing on this term price control. Again, I’m probably explaining the wheel for our listeners, but a price control is essentially saying to a producer of a product, ‘Yeah, you can produce it, but you can only charge this much.’ This is familiar ground for you and me. Why is it that — I’m going to throw out a, let’s take both sides — what would motivate a policymaker to impose a price control? And then we’re going to go on to say, why might this be harmful to a prospective producer, not someone who’s already produced something, but someone who’s thinking about it in the future. So why would a policymaker impose a price control?

Bill: They want to save money in their budget, and they want to take that money and give it to their constituents some other way. So, you know, under the Inflation Reduction Act, for example, on September 1, they’re going to publish a list of 10 drugs that are going to be effectively price controlled next year. And those prices are going to decline dramatically. Now, the politicians have called the Inflation Reduction Act a negotiation, which it is not. There are super-gigantic fines attached to any company that doesn’t accept the government’s price. So, we’re talking multibillion-dollar fines, not $100. We’re talking multibillion-dollar fines. The fines are so large that the Congressional Budget Office said, we’re not going to collect any revenue from these fines because no company would ever defy the government and go to a stage where they’re going to be fined, because it would be a franchise-threatening move on their part. So, it is a price control. They’re going to fix the prices on the federal level and tell us what, tell the industry what they can charge for therapies for the best and most expensive therapies, the ones that bring in the most revenue that are going to fund the most R&D projects. So, it’s going to be very harmful for the R&D environment and it’s going to be particularly acute, the damage in the Boston area. Yeah, no, I mean, we are ground zero essentially for biopharma R&D. You can’t throw a rock in Cambridge without hitting a gigantic R&D facility for a biotech or a pharma company. So, when they take $80 billion or so of revenue out of the industry through this Inflation Reduction Act, there are going to be many research projects which are canceled.

Joe: Well, let me play devil’s advocate. I can already hear some of our listeners saying, yeah, look, ‘Come on, these guys, they’re putting up one new building over there in Cambridge after another. They’re swimming in money. How much money could it cost? Those little pills in that jar, their dry powder, how is it billed that they should be entitled to charge whatever they want for drugs that are so important? As you mentioned, cancer, things that we really need. Why are they entitled to charge so much for something it seems that they could make for pennies? What justifies that?’

Bill: Well, the manufacturing costs are low, but the research and development costs are very, very high for this industry. And it’s not just the research and development costs on the drug that actually makes it to market. There are many other research projects that went nowhere, where that they were very expensive. They didn’t produce an approvable drug, and yet they had to be paid for. And so, the price of drugs that make it to market is also baked into that price is all the failed research projects that the industry has undertaken. So, it’s not quite as so easy as to say, oh, well, it costs them a dollar to produce a jar of medicine. Maybe we should make them charge $1.50. That doesn’t work that way.

Joe: So, we’re talking prospectively. When a drug company is deciding to invest and it has a certain number of choices, is going to bet on 10 different drugs, one might actually succeed. So, we’re looking prospectively. We’re not saying: The drug exists, how much should we charge for it? We’re saying if there’s not that carrot at the end of the pot of gold at the end of the rainbow, they’re not going to invest in the first place, meaning it’s not ex post facto, it’s perspective. It’s saying, okay, should we gamble? Well, when we gamble, we say these are the potential rewards and this is the cost. If we change that math, simply they’ll just decide to do something else, not invest in risky drugs. Do I have that about right?

Bill: Yeah. And under the Inflation Reduction Act (IRA), for example, they put in certain disincentives for doing R&D projects. For example, under the IRA, small molecule drugs. And small molecule drugs are typically pills, you know, the kind you pick up at CVS in a yellow bottle, as opposed to large molecule drugs where they might be injected or infused into the patient. Under the IRA, they can put price controls on a small molecule drug after seven years. And on a large molecule drugs, they have to wait nine years. So, guess what? Companies are starting to cancel projects for small molecule drugs because they’re going to be price controlled. So, there are all sorts of wacky incentives and disincentives that they put in that law, which are not going to be good for pharmaceutical R&D.

Joe: Let me tie an earlier idea back to you. We talked about Europe and how the firms themselves have come to the United States. But I’ve read, I’m sure our listeners have also read, they’re getting our drugs for very much less than we are getting our drugs. We’re taking all that time, that R&D, that money to gamble for a new, exciting, useful technology. And Europe’s getting anyway, even with their price controls, aren’t we kind of getting the short end of that stick?

Bill: We certainly are. And I probably have talked about this with your listeners before. But the nature of the biopharmaceutical industry is they have high R&D costs and low manufacturing costs. Now, that’s very different than say the auto industry, like Ford Motor Company. When they build a F-150 pickup, there’s a lot of manufacturing costs that go into that. So, a pharma company sinks a lot of money into R&D and then produces the drug, manufactures the drug very cheaply. That makes them very susceptible to price freeloading by countries that want to freeload off American innovation. The CEO of Ford Motor Company would never sell an F-150 for $10,000 in Great Britain because they would lose money on every truck because they have high manufacturing costs. But a pharma executive has already sunk all the money into the R&D for the project. And so, he can produce the drug very cheaply when he manufactures it. So, if Great Britain is only offering $0.50 on the dollar compared to the U.S. price, you generally have to accept it. And you have no choice. You’re not happy about that they’re freeloading, but you have to accept it. And I believe that the Trump administration, I think rightly, made this a trade issue. And it should be a trade issue. You have very wealthy European countries that are paying $0.50 on the dollar compared to U.S. consumers for drugs. And that’s just not fair. That’s just not fair.

Joe: I want to stick with the U.S. issue. Again, if we’re cross-subsidizing Europe, okay, well, that might be another topic for another podcast episode. But I want to get to the essence of this. We talked about why do we want to control prices on drugs? Isn’t the narrative in our system that — and you and I have talked about this as well — healthcare costs are ballooning. People can barely afford their health insurance. Shouldn’t we be focusing on these drug prices as a driver of healthcare costs? Isn’t that what’s making everything so much more expensive?

Bill: Well, I hate to blow up the conventional narrative, but drug prices are not skyrocketing, as the politicians always say. Drug prices are essentially flat. And that’s for two reasons. One, drug companies are giving very significant discounts to PBMs and health plans. And the discounts are running close to 50 percent now on average. So essentially, drug prices are flattening because they’re giving big, deep, deep discounts to customers. But the second reason, which has not talked about a lot, is that drugs go off patent. And when they go off patent, they provide enormous savings when they go generic. You know, Lipitor was a famous Pfizer drug, which was $4 a pill, and you had to take a pill every day. And there was 10 million people on that drug. Pfizer made a boatload of money on that. But when it went off patent, Lipitor, a few years ago, it dropped in price from $4 a pill to $0.04 a pill. And we’re getting tens of billions and billions in savings from drugs going generic. Now, for complicated reasons, there is a problem for people affording drugs if they’re paying cash or they have insurance that’s not that strong, they have high deductibles or high copays, then they’re impacted by significant prices in the drug world. But the prices aren’t growing dramatically. And for most customers, particularly health plans, their drug budgets are relatively stable.

Joe: And I’d also say again, this is Economics 101. I think the argument slips into a notion of should we prefer uncontrolled skyrocketing prices of drugs or controlled lower prices of drugs. That’s not the real choice. If we control, if we price cap, and that development doesn’t happen, it’s a choice between uncontrolled price of drugs and that drug doesn’t exist in the first place, meaning we’re making a false dichotomy between high price and low price when it should be high price and no price, because the drug itself doesn’t exist. I don’t want to bury the lead because I want to get into the research you referenced in your article. I was very interested. I went deep and read the findings of Vital Transformation. They did a study as to the effect of what is not just in the past in the Inflation Reduction Act, but what is being proposed in the new budget in the Biden administration. It’s called the Smart Prices Act. You characterize it as an ironic name, much like the Inflation Reduction Act was, I thought, also an ironic name for inflation. So, let’s talk about that because it makes a lot of assertions. It’s prospectually talking about if these price controls come down the pike, it would have real impact on our national economy, certainly our local economy. I thought it had some fun looking in the past saying, if this existed 10 years ago, what would the world look like now? Meaning what wouldn’t have been developed? What wouldn’t we enjoy now? So as to make it real for those people looking forward in the next 10 years, 10 years hence, there will be a whole bunch of things that won’t exist because of this. So, I don’t want to get too far ahead of myself. I’ll just quote the byline for this study. It estimates, were this Smart Prices Act to be enacted, 237 fewer FDA approvals and up to 1.1 million jobs lost in the next 10 years if this is passed. So, those are big claims, wild claims. So, I want for our listeners to explain the dynamics of how that would happen. You cite this study. How does that all work?

Bill: Well, Joe, I know you’re very respectful of the laws of economics. So, let me just say that one of the ironclad laws of economics is that drug price controls, that price controls create scarcity. There’s just no doubt about that. If you’re a farmer and you’re selling eggs for $5 a carton, and the government says you can only charge $2 a carton, guess what? There are very few eggs going to show up at the farmer’s market. So, it’s an ironclad law that price controls create scarcity and price controls on drugs are going to make new drugs more scarce. So, how much is the question? All economists agree that these price controls are going to limit the number of new drugs. The Congressional Budget Office said it would be very modest, only 15 drugs over the next few decades would fail to show up because of price controls. Vital Transformation, who — they’re a very respected biopharma consulting firm, I have a friend who works there who is a neuroscientist in Pfizer, a bench scientist, a real serious scientist. So, I’m respectful of their research. And they claim that under the current Inflation Reduction Act, there’ll be 139 fewer new drugs over the next 10 years. Again, price controls create scarcity and they’re going to make new drugs more scarce, these price controls. There’s no doubt about that.

Joe: Well, again, no one can predict the future. So, people may take a jaundiced eye to predictions of a gloom and doom if such a thing passes. But what I liked about the report is they look back in the past and they estimate the required margins for drug companies. They say, okay, a particular margin, imagine if they had doubled their margin, they would double perhaps the number of drugs they investigate. And you slice the margin by 40%, I think they estimated, they would choose not to develop a certain number of drugs. Again, as you say, ironclad rule of price controls like bread lines, you get less bread. They estimated that the top three states that would have been affected in the last 10 years were California, Massachusetts, New York. We came in second, but per capita compared to California, that makes us much more per capita harmed. They estimate $50 billion less in revenue to Massachusetts alone had this SBA Smart Price Act been implemented 10 years ago. Say more about the methodology, how do they arrive at this? Where do these numbers come from?

Bill: Well, they’re estimating they looked at 41 drug companies, drug and biotech companies, and they said, ‘Okay, if you’re going to reduce revenue by the amount that is likely to happen under the Inflation Reduction Act, you’re going to reduce revenue each year by billions and billions of dollars.’ What are those firms likely to do with their R&D projects? And they estimated that a good number of these projects are going to be canceled and with them would come job losses. And how many job losses? Well, it depends on how large the projects are, but they did the granular research and came to the conclusion that it was 139 drugs over 10 years that would not be developed. And again, I can’t emphasize it enough: Massachusetts, Cambridge, and Boston are not the home to drug manufacturing. They’re not the home to drug company headquarters, although there are some here. Boston is the home of drug company research. So, anything that impacts research and development is going to be particularly hard-hitting in Boston. And I think the Inflation Reduction Act is going to hit R&D very hard.

Joe: Well, this study, again, I don’t want to get too much into this one study, but it broke it down by state and by disease. So, lest people think these are exotic tropical diseases that don’t affect any of us, they estimate had the SBA been in effect the last 10 years, in Massachusetts alone, the reduction in investment for cancer was around $7 million Parkinson’s disease, $6.5 million, solid tumors, $5.5 million, muscular dystrophy, $5 million, some other drugs, disease I can’t quite pronounce. You get to just many, many millions of dollars, which if these drugs are important to you, you go on your walks, say, you know, raise funds for these horrible diseases, that’s millions and millions of dollars that would not have been invested here in Massachusetts if such a law had been in effect 10 years ago.

Bill: And you notice that many of those diseases are either cancer or neurological. And one of the reasons that those two therapeutic areas are most hard hit by the Inflation Reduction Act is what I mentioned before, the price controls come sooner for small molecule drugs, only have seven years after approval as opposed to large molecules, which are nine years after approval. So, there’ll be more small, small molecule research projects canceled. And the problem is for cancer and neurological diseases, there’s something called the brain blood barrier that has to be crossed. It’s a part of your body that protects your brain and your nervous system against viruses and other things. And it’s very hard for large molecule drugs to cross that barrier. Small molecule drugs can do it easier. And that’s why cancer research and research on neurological diseases are going to be most harmfully impacted by the IRA.

Joe: Indeed. And lest our listeners think we’re cold hearted either economists or market fundamentalists, we’re talking about not some theoretical thing, we’re talking about diseases that affect people. So, if these drugs are not developed, is there anyway, and I haven’t seen any such study, and I don’t know how it would be done, is there any way to estimate the increase in suffering and death or the, you know, the effects on human life of stifling or inhibiting or at least not cultivating an industry that does so much good for so many people.

Bill: Yeah, I encourage listeners to go on the Vital Transformation website and look at the therapeutic areas that are going to be harmed by the Inflation Reduction Act and if it were to be enacted, the Smart Pricing Act, because they get very specific on which therapeutic areas they think are most harmed, where research projects are most likely to be canceled. And I think their research is pretty sound.

Joe: Well, I want to, you know, again, tie some of this narrative up with a bow as we come towards the end of our time together. And we say we started at the outset saying Europe used to be the center for all this research and development. It’s slowly migrated to the United States and in particular, our part of the world and here in Boston and Cambridge. And we’re deciding whether we would like to put the clamps on it and do much the same policies that sort of drove these industries out of Europe. Potentially, we could with our policies drive them out of the U.S. You and I, as you’ve mentioned already in the show, love markets. And so, if there’s a demand for products and no place here where they can successfully be researched and developed, what will happen to all this technology if we decide to put the lid on its development?

Bill: Yeah, that’s the — in the piece I wrote, my major concern is that China will take over the biopharmaceutical leadership worldwide leadership. They have a very vibrant industry. They’re spending a lot of money on it. Now, government can waste a lot of money, as you know, because they can’t pick winners and losers very well. But the Chinese government has announced that biotechnology is one of the top two areas where they’d like to expand their economy. They’re producing more and more new drugs, and they tend to, in their domestic market, which is huge, they tend to protect their domestic products. So, if a Chinese company produces a drug, it tends to be reimbursed on the Chinese formulary. They don’t have price controls, if you can believe a totalitarian country is less aggressive about price controls than the U.S. government is, that would be the case! They do bulk purchasing. They had price controls in place, and in 2015, they canceled them, they decided they were going to have each of the provinces just take bids on the lowest price for drugs. And they found that the larger provinces tended to get lower prices. So, they made a national bidding process. So now, if you want to get on the Chinese formulary, you have to submit a bid and it has to be a cost-effective bid. And then you might win and get on the formulary. But they tend to cover domestic products more than products from the U.S. or Europe.

Joe: So, the potential loss, again, this is potential. Some damage has been done with the Inflation Reduction Act, but some more is being considered. What are let’s say the more, let’s say strategic challenges of relinquishing, let’s say our leadership role to what I would call a geopolitical economic rival in China. We are both competing for top dog in the global economy. What would that mean? As you say, if they’re very protective, we just went through a terrible pandemic. Of course, the vaccines, the race for the vaccines, this is a huge success story here. What would happen if the very technology to develop these kinds of therapies and drugs were ceded to our economic rival in China?

Bill: Yeah, I mean, do you want the United States to be a leader in science or not? And drug companies get beat up all the time, but it’s true that the ecosystem for biopharmaceutical research in the United States is unmatched in the world. And it’s not just industry I’m talking about. I’m talking about hospitals and medical schools and foundations and venture capital. There’s a whole ecosystem that’s built up that’s made us a leader in life sciences around the world. And that’s very important when pandemics come up or when you’re trying to cure a disease. Do we want to cede that scientific leadership to China, a rival? I don’t personally, but that’s the direction we’re headed with the Inflation Reduction Act. There’s no doubt. We’re making it very difficult to get a return on your best drugs.

Joe: Yeah, it seems ironic. And you get new alluded to this about the fact that China, sort of a totalitarian state, would understand the economics of this a little better than we would, which is to say, they don’t put price controls largely because they want to cultivate an industry. It also, maybe this goes without saying, but I’ll just say for our listeners, it does seem to me odd that we would impose price controls for something that, but for the drug companies, wouldn’t exist. It isn’t like these are rent collecting monopolists. They are creating something out of nothing. Cancer treatment doesn’t exist. Now it exists. And we’re telling them how much they can charge for it. The answer isn’t they’ll charge less. The answer is they just won’t make it. I mean, you know, if it’s clear to China, why not Washington?

Bill: Look at the difference between the Chinese government and how they price prescription drugs and now the US government under the Inflation Reduction Act. If you’re in China and you submit a bid and your bid is not accepted, say you’re the price is too high, you just walk away. You know, it’s just like a buyer and a seller don’t agree on a price and you can’t reach a deal and you walk away. In the United States, if they see a mess, the Medicare agency does not like the price you submit, they can impose fines which will destroy your company. Now, tell me who’s being more totalitarian in their outlook on drug pricing. Is it the Chinese government or the United States government? This is very troubling that they would impose these fines and the law goes even further than that. It requires drug companies to say after the price has been accepted that they believe it’s a fair price. It regulates their speech. It says even if they disagree that it’s not a fair price, they’re not allowed to say it’s not a fair price. I mean, this is a clear violation of the First Amendment if you ask me, but that’s the way the government is so heavy-handed these days.

Joe: Indeed, as if somehow they are making a claim to someone else’s property on our behalf and wanting to look like heroes, it really is. It’s a strange —

Bill: And then you have to say this was great negotiation. Thank you for the fair price. That’s what you’re required to say. It’s Orwellian at this stage.

Joe: It does seem Orwellian. So, look, I hate if our listeners are starting to cut themselves or something. This has been a little bit of doom and gloom here. Let’s try to put a positive face on this and say, look, some of this hasn’t happened. This Smart Price Act hasn’t been passed. Let’s let Bill Smith have a word in — what would help if we see there’s tension between new development and research and technology and dominance in a particular industry and people want to get drugs for a fair price and they want to get better. We’re sympathetic to both. What’s the way forward? How can we square this circle?

Bill: Well, let me say some positive things about the Inflation Reduction Act, at least one positive thing. As I said before, drug prices are not skyrocketing, but there are some people that are subjected to high out-of-pocket costs. They don’t have good insurance or they’re uninsured and they have to pay cash prices and those cash prices are list prices. They don’t get the same discounts that their health plan gets. So, they pay a lot, thousands out of pocket. And the Inflation Reduction Act for Medicare recipients who can now pay up to $7,000 out of pocket, it caps the costs for out-of-pocket costs for Medicare recipients at $2,000. That’s a good thing. I’m completely in support of that and that’s going to help a million people or more that have high out-of-pocket costs, and it’s going to reduce them. So, I don’t want to be completely a downer on everything IRA, although I am extremely upset and disappointed about the effect this is going to have on biopharma R&D as we discussed.

Joe: Indeed, that’s tough. Again, we want to sort of help those on the edges with those very expensive drugs, but still help cultivate this industry. So, where should our listeners, if they want to learn more about where this is in the pipeline, where can they hear more about, well, I’ll put in the show notes the link to your Vital Initiatives research. Where can we read more from you, Bill, about your wisdom on this particular issue?

Bill: Well, I’m constantly writing stuff which is always post on our Pioneer website, I would encourage your readers to go to the Vital Transformation website and look at their analysis of both the IRA and the yet-to-be-passed Smart Drug Prices Act. They’ve done analysis on both of those and it’s quite troubling and it has data in there on Massachusetts job losses under both those bills. So, between Vital Transformation and, I think you’d find lots of information.

Joe: And of course, and with that information, maybe make your opinions heard when our listeners — either our delegation who may listen to this show, maybe they do, maybe they don’t — and maybe some of our listeners who speak with their congressional delegation, give them their two cents. So, thank you again for being with me, Bill. This has been a great conversation, and I think I hope it’s piqued the interest of many of our listeners is saying, you know, look, Smart Prices sound good, but what’s the effect on, you know, not the drug I have and not the disease I have, but the one I want, the disease I’m going to have and the drug I will want. So, you’ve been very —

Bill: Let me just make one last editorial comment, Joe. And that is, you know, Larry Summers, the president of Harvard, somewhat controversial figure, but no one would deny that he’s not smart. Larry Summers used to say, if the life sciences were art, we are now in the High Renaissance. We’re in the greatest period of discovery in life sciences and innovation that’s ever happened in human history. And we’re on the verge of curing some of the worst diseases that ever afflicted humankind. So, multiple sclerosis, hemophilia, sickle cell disease, all of these terrible diseases, we’re right on the precipice of curing them. And just when we’re at this unbelievable place, the federal government goes and rams price controls down the throats of this wonderful industry. I just — it’s just so tone deaf to me, given what’s happening and given the innovation and the brilliant science that’s going on. It’s just terribly disappointing.

Joe: Well, let me just — one more footnote to your footnote — is saying in that same paper that we keep citing, they talk about the relative profitability, the number, the percent of revenue that goes to R&D for this particular industry is much, much higher than any other. So, the idea that they’re in a sense just collecting checks and cashing them is naive. This is an industry that doesn’t just arrive at this Renaissance by accident, didn’t stumble into it. It spends fortunes trying to come up with new innovation. And essentially, I think, if I’m going to put a title on this whole thing, their success is being penalized, right? If they had come up with nothing but useless, you know, sugar pills, we wouldn’t be having this conversation. It’s only because they produce things that literally cure cancer that we are having this debate at all.

Bill: Yep. And the politicians want to step in and say, ‘Hey, we’re giving you this for free, these wonderful inventions.’ That’s what they do. And that’s what’s going on here. They want to be able to say, ‘Hey, we’re going to take these wonderful inventions and we’re going to give them to you for free.’ And that’s what politicians do.

Joe: Yeah, it’s a shame. Well, okay. I don’t know. Did we end on a good note or a bad?

Bill: I don’t know. I don’t know.

Joe: But I appreciate your time. Thank you very much for joining me on Hubwonk today, Bill.

Bill: My pleasure, Joe. Thank you again.

Joe: This has been another episode of Hubwonk. If you enjoyed today’s podcast, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes podcatcher. It would make it easier for others to find Hubwonk if you offer a five-star rating or a favorable review. We’re, of course, grateful if you share Hubwonk with friends. If you have ideas or comments or suggestions for me about future episode topics, you’re welcome to email me at hubwonk at Please join me next week for a new episode of Hubwonk.

Joe Selvaggi talks with Pioneer Institute’s Director of Life Sciences Initiative Dr. Bill Smith about the policies that drove biopharmaceutical company from Europe to the U.S., and how proposed, similar price controls in President Biden’s Fair Prices Act could distort incentives away from innovation and threaten the success of a thriving and vital U.S. industry.


Dr. William S. Smith is Pioneer’s Visiting Fellow in the Life Sciences. Dr. Smith has 25 years of experience in government and in corporate roles. His career includes senior staff positions for the Republican House leadership on Capitol Hill, the White House Office of National Drug Control Policy, and the Massachusetts Governor’s office where he served under Governors Weld and Cellucci. He spent ten years at Pfizer Inc. as Vice President of Public Affairs and Policy where he was responsible for Pfizer’s corporate strategies for the U.S. policy environment. He later served as a consultant to major pharmaceutical, biotechnology and medical device companies. Dr. Smith earned his PhD in political science with distinction at The Catholic University of America.


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