As President Joe Biden and Democratic presidential nominee Kamala Harris tour the country touting cuts in prescription drug prices, the real costs will be in cures never invented. And you can already see that trend not only in drug companies cutting back on new-medicine development, but also in employee downsizing and the decline of small biotech and life-science companies where many of tomorrow’s drugs are developed today.
The lifeblood of medical innovation is research and development (R&D) spending. Innovator pharmaceutical companies spend billions of dollars every year identifying, developing, testing and, hopefully, releasing potential cures. The vast majority of those drugs won’t make it through the U.S. Food and Drug Administration approval process. Those that do have greatly improved or saved countless lives.
But the R&D process isn’t cheap, and the number of approved drugs can vary significantly by year. For example, the FDA approved 55 new drugs in 2023 (the second-highest annual number) but only 37 in 2022 and 50 in 2021.
Most of those newly approved drugs were years, if not decades, in the making. And once they are released their patents may have only eight-to-10 years left before they are ripe for generic competition.
Moreover, drug companies have been increasingly targeting some of the most difficult medical conditions and diseases, often requiring hard-to-develop biologics—large, complex molecules usually administered by injection—rather than a simple pill. Of those 55 new FDA-approved drugs in 2023, 17 were biologics. Of the 37 new drugs in 2022, 15 were biologics.
The misnamed Biden-Harris Inflation Reduction Act (IRA) poses a real threat to new drug development. The law essentially imposes price controls on some of the most popular drugs in the Medicare program. Democrats boast that they are just forcing drug companies to “negotiate” drug prices. But the penalty for not accepting the government’s final price is severe—what the government calls an excise tax of up to 19 times the price of the drug, that’s 1,900% of the drug’s daily revenue.
Given the restrictions and uncertainty that comes with price controls, drug companies will be more cautious with their R&D spending, and that’s exactly what we’re seeing.
R&D spending by U.S. pharmaceutical companies more than doubled from $48.6 billion in 2011 to $102.3 billion in 2021. Since then, R&D spending has declined to $100.8 billion in 2022, the year the IRA passed, and dropped even further to $96 billion in 2023.
Highlighting the trend, James Foster, the CEO of Charles River Laboratories, a pharmaceutical research contractor that helps with clinical trials, recently warned of “profound cuts” at drug companies and that decisions about future R&D spending don’t look good. For example, LifeScienceTracker.com highlights 36 research programs and 21 drugs discontinued as a result of the IRA.
The BioSpace website declares, “A total of 41 [biotech] companies declared bankruptcy in 2023, according to SEC filings, an all-time high. And this is far from the only indicator of the industry’s poor financial conditions. The biotech industry is grappling with its worst bear market in recent memory, marked by challenges in obtaining fresh capital and cost-cutting measures such as layoffs.” That downsizing is happening at both large pharmaceutical companies and startups.
Cutbacks and downsizing mean demand for biotech and pharmaceutical lab space has declined, forcing many developers to convert those empty labs into standard office space. The Wall Street Journal reports, “Many biotech, pharmaceutical and other life-sciences companies have lost their appetites for rapid expansion because of high interest rates, weak venture-capital financing and an uncertain economy.” All three of those concerns—but especially the Medicare price controls in the IRA that are affecting investment—can be traced back to Biden-Harris policies.
Even if some drug companies can live with the current price controls being imposed on certain existing drugs, they have to be concerned that a President Kamala Harris would double down, expanding drug regulations, demanding deeper cuts on a much larger number of drugs, and potentially expanding the “negotiated” prices to private sector health insurance. No wonder investment capital is scaling back.
Harris claims her policies will cut Medicare’s costs. But what she’s really doing is cutting the future cures that could save your life.