Democrats would be wise not to denigrate innovation

The actions of a few pharmaceutical companies have saturated recent media coverage of the industry.  These outliers – Martin Shkreli of Turing Pharmaceuticals who raised an existing AIDS drug an absurd 5,000 percent and Valeant that dramatically increased the prices of two drugs – are threatening the market-based system that has produced breakthrough medications, which are saving lives all over the world.  This gross profiteering on the backs of sick people must stop.   

Unsurprisingly, the Turing and Valeant stories have already sparked a new round of scapegoating pharmaceutical companies as some Democrats played to their left-wing base.  As MSNBC’s Jim Cramer says, “Democrats know that bashing pharma is a pure vote-getter.”  One recent e-mail I received from democrats.com – an unofficial website of Democratic activists – accused the industry of “Price-gouging and patent monopolies.”   

{mosads}This week, the House Democratic leadership is sponsoring a hearing to delve into drug prices. That’s fine.  However, I urge the Democrats not to give into temptation and blame the entire pharmaceutical sector for high healthcare costs.  Scapegoating the industry as a whole by implementing price controls or eliminating patent protections would lead to worse outcomes for patients, as well as hurt both our economy and scientific innovation.  

The government controlling the price that a pharmaceutical company gets for a drug triggers unintended consequences.  Most proponents of price controls argue that pharmaceutical companies should charge a price for each pill (or dose) that is only a bit more than the cost to make each pill.  But the manufacture of each dose accounts for a small percentage of the actual cost of the medicine.

The reality is that bringing a new biopharmaceutical to market costs an estimated $2.6 billion in research and testing. Biopharmaceutical companies are allowed limited patent protection to help recoup that cost. And when the patent expires, generics step in, increasing competition in the marketplace.  This is a high-risk business where most drugs never make it to market and companies depend on a few successes to recoup their investments.   

So what would happen if we limited the price a pharmaceutical company charges or removed patent protection? There would be much less incentive to invest in new drugs.  If companies don’t make enough money on the pharmaceuticals they produce, they will not find investors willing to foot the bill to produce more. The pipeline for new drugs would dry up.  And unless we want to make up that difference with government spending – which is neither fiscally nor politically realistic – patients will be the ones to suffer.   

Furthermore, cracking down on pharmaceutical companies would not solve the problem of health care inflation.  Retail prescription medicines account for only about 10 percent of America’s health costs, according to the Centers for Medicare & Medicaid Services.  That is the same share that was spent on prescriptions in 1960, and it is not expected to increase.   

As in any industry, there are bad actors. But Turing and Valeant are not representative of the vast majority of R&D-focused biopharmaceutical companies –from Bristol-Myers Squibb to Allergan to AstraZeneca.   

And there are many good reasons why Democrats should avoid making this particular industry our enemy.   

First, pharmaceutical companies supported President Obama’s health reform legislation, including many provisions to make pharmaceuticals more affordable.   

Second, unlike some elements of the financial services sector, which were only recently regulated, pharmaceutical companies have been heavily regulated for decades.  In fact, the costs of clinical trials and other regulatory hurdles impact drug prices.   

Third, like the high-tech sector, most of the pharmaceutical sector focuses on innovations in science and technology – something we Democrats should be promoting.   

Fourth, Democrats should remember that the pharmaceutical industry makes products that save lives or make lives better.  If Democrats demonize an industry that makes money by producing lifesaving products, is there any kind of industry we’d be okay with?

Lastly, despite the rhetoric on rising drug prices, sticker price increases are increasingly offset by large rebates and discounts pharmaceutical companies pay insurers, pharmacy benefit managers (PBMs) and managed-care companies.   

The pharmaceutical industry is an easy target, but Democrats would be wise to not let the actions of a few rogue actors tempt them into vilifying an entire industry that is actually innovating and saving lives.

Maffei served in the House from 2013 to 2015 and from 2009 to 2011.