Don’t Write Off Pharma’s Nightmare Scenario

Our Report’s title repeats a headline in today’s “Heard on the Street” section of the Wall Street Journal.   Readers may have missed it but investors won’t.

The piece suggests that despite strong polling support for prescription drug price controls, equity investors seem to be ignoring Capitol Hill where the “Improving Access to Affordable Prescription Drug Act” (The Act) was introduced last week in both the House and Senate. (Both are similarly worded and linked below) As the WSJ article emphasizes, investors in pharmaceutical stocks may think they have time to watch and wait. The WSJ says their investments may soon be significantly devalued. Why should we care?

Investment in drug stocks is conceptually no different than related higher risk investment in the promising discoveries of early stage life science research. VC’s read the WSJ. If VC investors in life science research cannot calculate projected ROI they will not invest. If the Act passes their inevitable absence will eventually end life science research commercialization because without them NIH’s cannot complete its Bayh-Dole (B-D)-directed commercialization mission. HR 1776 and its senate counterpart can soon become the beginning of the end. Perhaps its authors saw B-D’s collapse ahead. The Act initiates prize-incentivized life science research. It establishes NIH medical centers for clinical research. Many research universities depend on life science grants to attract scientific talent. For universities and medical centers that rely on access to life science grants, university engagement in the commercialization impacts of proposed drug price controls is an existential imperative.

Bayh-Dole-directed life science commercialization is supported by congressionally appropriated R&D funding that is already strained by proposed budget cuts. R&D funding grants effectively blend support for otherwise un-investable basic research with training the next generation’s scientists. Life science grants support research universities’ tripartite mission of education, research and contributing to the public benefit. Clearly federal life science grants will last only if beneficial jobs, economic development, and critical therapies continue to emerge from their commercialization.

Can such commercialization continue if profit-driven private investors cannot control emergent product pricing? Common sense says “no” From the investor’s viewpoint by adding political pressure to pricing control popular success would ironically promise ROI failure. History says “no”. Requirements for “reasonable pricing” in CRADA drove private sector investors away from such investments until NIH itself asked that the CRADA’s “reasonable pricing” requirement be repealed. That was in 1995. Try selling funding curiosity-driven research to today’s deficit hawks. Since 1995 Congress has become less policy directed as it has become more politically oriented. Offered a chance to lower drug prices by political fiat, our highly partisan and increasingly populist Congress and administration may push the “pedal to the metal” when enacting prescription drug price controls. Hill observers doubt that biopharma interests by themselves can block their enactment. The Act’s grab bag of commercialization-harming proposals includes among other goodies; biologics exclusivity reduction from 12 to 7 years, importation of prescription drugs and installation of government negotiators into direct prices negotiations for Medicare.

“Improving Access to Affordable Prescription Drugs Act,” was introduced by Senators Al Franken (D-Minn.), Bernie Sanders (I-VT.), Sheldon Whitehouse (D-R.I.), Sherrod Brown (D-OH), Amy Klobuchar (D-Minn.), Elizabeth Warren (D-Mass.), Tammy Baldwin (D-Wis.), Jack Reed (D-R.I.), Kirsten Gillibrand (D-N.Y.), Maggie Hassan (D-N.H.), Dick Durbin (D-Ill.), Chris Van Hollen (D-Md.), Jeff Merkley (D-Ore.), Tom Udall (D-N. Mex.), Richard Blumenthal (D-Conn.), and Cory Booker (D-N.J.).  more have joined since. The identical house bill is. This omnibus proposal has many parts, some of which no doubt will catch the eye of President Trump who claims to be preparing his own prescription drug price control legislation. Thus far, there are no Republican sponsors. As the WSJ indicates, the ACT may be too comprehensive to pass “as is” this year. But having experienced AIA and HR 2, we have seen this “comprehensive” legislation movie before. Using it like an ATM, Democrats can “withdraw” the Act’s separable contents individually for use an amendment to some other bill. As matters now appear there will be many opportunities for the Democrats to do so.

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