PITTS: Biden Claims He’s Lowering Drug Costs. If Only That Were True

President Biden just announced the first slate of drugs subject to government price-setting under the Inflation Reduction Act, his marquee legislative effort.  

Many politicians celebrated the announcement. But ordinary Americans have no reason to cheer. Not only will the IRA make it harder to discover a cure for cancer — it’ll also inflate drug prices, resulting in higher, not lower, drug spending. 

Here’s why. 

Some of our most promising medicines are biologics. These drugs, which are grown from living cell cultures, include such treatments as monoclonal antibodies and recombinant proteins. They’re generally administered as injections or infusions.

Physicians often turn to biologics to treat patients with complex medical conditions like multiple sclerosis, Crohn’s and colitis, and rheumatoid arthritis. One of the top-selling drugs of the past decade, Humira, which treats rheumatoid arthritis and a host of other autoimmune conditions, is a biologic. 

Biologics are often more expensive than traditional small-molecule pills, in part because they’re more difficult to develop, manufacture and administer. In fact, biologics make up a small slice of prescriptions — about two percent of those filled each year — but account for nearly 40 percent of annual prescription drug spending. 

Of course, biologics don’t stay expensive forever. Just as with small-molecule pills, the patents on name-brand biologics eventually expire, and other companies can then legally bring much cheaper copycat versions to market. For biologic drugs, these copycat versions are known as “biosimilars” ( rather than “generics”), but the concept remains the same. 

Recent studies suggest that, by driving down prices, biosimilars could reduce drug spending by $180 billion over the next five years. We’re already seeing this happen. Humira’s patent protections expired earlier this year, and six biosimilar versions have already hit the market — at as much as an 85 percent discount off Humira’s list price. 

That’s just one example of the system working as intended. Innovation happens today, and down the road, generics or biosimilars sell at a fraction of the price. There is no other aspect of the healthcare system that works this way. And yet, we may soon be heading for total system failure, thanks to the IRA. 

Since the manufacturing process is so complex it takes an incredible amount of time and money to bring a biosimilar to market. While it typically takes one or two million dollars and a couple of years to launch a generic version of a small-molecule drug, it often takes researchers up to nine years and around $300 million to produce a biosimilar.

Biotech companies and their investors will only commit that kind of time and money if they know they’ll be able to introduce a cheaper biosimilar and earn market share from the original biologic. Only by doing so can they generate enough sales to recoup their investments. 

But the IRA flips this entire business model on its head. The law empowers Medicare to set the price of certain high-cost drugs. That includes biologics, which are eligible for price controls after 13 years on the market. The government is stepping in and undercutting generic and biosimilar manufacturers.

The problem is that no one knows which biologics the government will select until just 24 months before the federally mandated price kicks in. So manufacturers have no clue whether Uncle Sam will one day decide to slash a biologic’s price so low that they can’t beat it with a biosimilar — making it all but impossible to earn back their up-front investments and turn a profit.

Lawmakers attempted to minimize the damage by allowing biosimilar manufacturers to request a delay of up to two years in price controls on a biologic if there’s a “high likelihood” that a biosimilar will enter the market during that period. 

It’s a nice gesture. But to fully take advantage of the pause, biosimilar manufacturers would somehow have to correctly predict whether CMS will choose a given biologic for price controls, whether their biosimilar will be ready for launch before the price-setting takes effect and whether CMS will grant their request for a delay — all years in advance, before they even start investing in research and development. That’s a near-impossible task, especially since CMS officials haven’t offered much information about how they’ll process these delay requests.

Rather than take that risk, biosimilar companies may simply shy away from developing biosimilars in the first place. Massive and unprecedented government intervention will have a chilling effect. As a result, there will be less cost-deflating competition in the biologic market, and patients will pay higher prices for prescription drugs than they might have otherwise.  

Put simply, the logic behind the drug pricing provisions in Democrats’ signature legislation was terribly short-sighted. Sure, government price setting will lower costs for certain drugs in the short run. But it won’t take long for the true cost of big government meddling with innovation and market forces to become clear. 

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.

Peter Pitts is a former associate commissioner of the Food and Drug Administration and President of the Center for Medicine in the Public Interest.