By: Professor Brook K. Baker, Senior Policy Analyst Health GAP, Northeastern. U. School of Law
President Trump famously declared on the campaign trail that drug companies were “getting away with murder” and that his administration would tackle the problem of extortionate drug pricing. A major plank of his drug-price policy, announced today during a rambling speech, was to identify new targets for Big Pharma’s profiteering – foreign countries – that he alleges unfairly “extort unreasonably low prices from U.S. drug companies” who thereby shift the burden of financing bio-pharmaceutical research and development onto America patients and taxpayers. “The U.S. pays more to subsidize the enormous cost of research and development.” What costs of few dollars in a foreign country costs hundreds in the United States.
Resorting to Cold War red-baiting, President Trump’s Pharma sidekick, Health and Human Services Secretary Alex Azar, former president of Eli Lilly USA, just yesterday called foreign price controls and formularies, that try to better match drug prices to therapeutic effectiveness, “socialized healthcare.” He decried the successful efforts of other governments to curtail excessive pricing as “foreign freeloading” where “foreign governments, socialist single-payer systems, get a better deal” and where more restrictive formularies leave patients unable to access some innovative medicines. These comments, trace the rhetoric of the U.S. Trade Representative (USTR) in its recent Special 301 Report 2018: “pricing and reimbursement systems in foreign markets that are not market-based, or that do not otherwise appropriately recognize the value of innovative medicines and medical devices, present significant concerns. Such systems undermine incentives for innovation in the health care sector. It is important that trading partners contribute fairly to research and development for innovative treatments and cures.”
President Trump echoed Azar’s comments calling other countries global freeloading “unfair and ridiculous.” He specifically called on the USTR to “fix this injustice as a top priority with every trading partner.” He ended by saying that “America will not be cheated any longer and especially will not be cheated by foreign countries.”
There are almost too many flaws in the Trump/Azar/USTR pronouncements to recount. The first is that drug companies do not price medicines to recoup research and development (R&D) costs or to amass resources to conduct the next round of groundbreaking research. Drug companies spend more on marketing and advertising than they do on R&D. They earn far more in profits, even after paying for R&D, than they spend on R&D itself. Moreover, most of the R&D they do undertake is essentially wasted, from a public health perspective, on trying to evergreen their monopolies through tweaks of existing medicines, through me-too efforts to encroach on other blockbuster drugs, or through research designed to produce selective evidence they can used to shill their products. They rarely engage in breakthrough research, opting instead to piggyback on National Institutes of Health (NIH) and university research, paid for by taxpayers, but transferred to Big Pharma companies with no restrictions concerning affordable pricing.
As a further test of companies’ intentions and practices with respect to prioritizing research and development, one might ask what companies have done with the hundreds of billions of dollars they have repatriated this year and in the past in response to tax giveaways from Republican Presidents. Lo and behold, the evidence is overwhelming that the money is not invested in new R&D, nor in expansion of research and manufacturing facilities or job creation. Virtually all of it is used for stock-buybacks and dividends to reward stockholders and to pad the pay of corporate executives.
The second big flaw in the President’s pronouncements is that higher drug prices overseas will result in lower prices in the U.S. Pharmaceutical executives must really be chuckling over this one. Drug companies with exclusive rights over a medicine set prices to maximize profits – nothing else and certainly nothing less. They charge what the market will bear, as proven over and over again. The result is hepatitis C medicines from Gilead that cost over a $1000 a pill when first introduced, even though the cost of production is estimated at a $1 a pill. The result is new cancer medicines costing hundreds of thousands of dollars a year for small survival benefits. The result is more and more focus on so-called orphan drugs benefitting relatively small numbers just because there are even more monopoly protections in those areas resulting in medicines leaping toward a $1 million per patient price.
What the drug companies are seeking from the President – and getting – is a free shot to extract more monopoly profits from other countries – full stop. They like money whether it’s euros, pounds, yen, or rands. In exchange for President Trump’s promise to use all of the U.S.’s considerable trade and diplomatic pressure to coerce foreign government to fork over more taxpayer money or to grant even stronger, longer, and broader monopoly protections for medicines in trade agreements, President Trump has a one-sided, irrational expectation that foreign and U.S. drug companies will reduce prices in the U.S. to offset increased sales elsewhere. Has any Pharma executive actually promised this? Has any drug company actually lowered drug prices in the U.S. on any drug at any time in response to increased earnings abroad, such as those occasioned 23 years ago when the drug companies used U.S. trading power to win global expansion of their intellectual property rights? Of course, the answer is no. We have had steadily increasing domestic drug prices even as Big Pharma has secured increasing global hegemony over drug pricing through misguided IP maximalist trade policies.
Why does President Trump engage in this magical thinking? Is he really that blind to the excesses of monopoly power? Or does he think that the American public is just plain dumb? I’ll bet he’s betting on dumb.
The third flaw is more subtle. Instead of learning from the efforts of other countries to control drugs prices and to focus pharmaceutical innovation on better therapies, not just new and sometimes even inferior therapies, President Trump misrepresents the value for money we are getting from our current innovation system and ignores existing tools we have to moderate drug prices now. He is also mortgaging the future by burying the big ideas that might lead to more prioritized medical innovation and more affordable and equitable access in the future. He is blinding himself and Congress to immediate means to moderate prices, to increase real generic competition, and to explore new incentive systems for collaborative, open-source research and affordable pricing both internally and in concert with other governments.
The fourth flaw will lead to a human rights crisis. Trump and the USTR are not seeking higher prices in rich countries alone. They are also pursuing trade pressures and trade agreements that will inexorably raise prices in low and middle-income countries as well. The U.S. has sought stronger patent and data monopolies in all of its trade agreements involving low- and middle-income countries in recent years. In NAFTA, there is evidence that the U.S. is seeking pharmaceutical-related IP protections in excess of what had been achieved in the now rejected Trans-Pacific Partnership Agreement. The bulk of drug prices in many poor countries are paid out of pocket. Developing countries have insufficient tax revenues to pay higher drug prices while still delivering other essential public services. The fifteen million people awaiting treatment for HIV and their governments cannot afford higher drug prices. For them, the price of higher prices is death.
Lining up new foreign victims for Pharma’s murderous pricing while getting nothing in return is pure folly. It’s not even smoke and mirrors – his policy speech on making foreign countries pay is a blueprint created by Pharma’s architects, to whom Trump is just an apprentice.