President Donald Trump recently released an ambitious, 44-page plan to drive down prescription drug prices. The blueprint relies, in part, on negotiating and enforcing trade deals to prevent other countries from freeloading off of American researchers.
That’s a smart strategy. Right now, most of our trading partners impose government price controls on drugs. Ensuring that these nations pay fair market value for medicines would spur additional research spending by U.S. drugmakers. Ultimately, this process would lead to more new drugs, forcing manufacturers to compete for market share by continually lowering their prices.
The end result? Cheaper, more advanced drugs and more choices for American patients.
The U.S. is a pharmaceutical powerhouse. Our drug companies invest about one-fifth of their revenues into research and development, more than any other industry does. Developing a new drug is an expensive endeavor. On average, it costs $2.87 billion and takes more than a decade of hard work. The burden of paying for this research and development falls disproportionately on Americans. According to a 2018 report by the Council of Economic Advisers, an agency within the executive branch, the U.S. market funds nearly half of the world’s medical research and development.
Many countries, especially ones with single-payer health care systems in which the government purchases medicines, arbitrarily set prices instead of relying on competitive market-based prices. As a result, they leave most of the cost burden to Americans.
In Canada, for instance, the Patented Medicine Prices Review Board caps drug prices at the median price paid in a handful of other industrialized countries. In the U.K., the National Institute for Health and Care Excellence—a regulatory body better known as NICE—refuses to cover many advanced drugs at all. Japan lowers drug prices every two years by administrative fiat and may cut prices even more often. This makes its market unpredictable and unstable for drug companies.
These price controls prevent adequate funding for research and development. A recent economic analysis from Precision Health Economics shows that eliminating price controls could lead to the creation of eight to 13 new drugs annually by 2030, thereby extending the life expectancy of 15-year-olds by up to 1.6 years.
Congress has recognized the unfairness of such foreign policies. In the bipartisan Trade Promotion Authority legislation passed in 2015, for example, Congress directed the president, in trade negotiations, to push other nations to eliminate price controls.
Complicating the situation, many nations have relatively weak intellectual property protections, which enable generic drug makers to copy and sell innovators’ drug designs just a few years after those designs have been released.
Consider biologics, a cutting-edge class of drugs made from living organisms. These treatments hold great promise for treating diseases like cancer, multiple sclerosis, and Alzheimer’s. But they’re extremely difficult, time-consuming, and expensive to make. To encourage researchers to develop these treatments, the U.S. grants innovators 12 years of biologic data protection. During this period, rival firms are forbidden to use the innovator’s clinical trial data to create knockoff products. The protection period effectively gives innovators time to recoup their development costs and earn a profit.
In contrast, Canada only provides eight years of biologic data protection. Mexico provides no data protection at all unless innovators undergo a substantial legal process. That means Mexican drug firms can immediately start using innovators’ data to test the effectiveness of knockoff “biosimilars,” so long as the original biologic is sold in Mexico.
If U.S. companies earned more revenue from foreign nations, then the American companies could spend more on R&D. This ultimately would result in new treatments and inject more competition into the U.S. drug market, leading to lower prices for American patients.
Just consider what happened with the numerous next-generation hepatitis C medicines released in recent years. These revolutionary drugs have been shown to cure 70-99% of patients. The first medicine gained FDA approval in late 2013 and debuted with a list price of $84,000 for a full course of treatment. Over the next four years, several competing drugs flooded the market.
Prices subsequently dropped about 70% a few years later, as manufacturers heavily discounted their cures to win market share. For some of these drugs, a full course of therapy is now less expensive than the average treatment costs incurred by patients using interferon and ribavirin—the go-to prescription regimen for decades. Patients on interferon and ribavirin frequently suffered severe side effects; the new next-generation cures are comparatively painless.
Or consider PCSK9 inhibitors. These drugs can sharply lower so-called bad cholesterol levels in patients at high risk of heart disease. A recent study found that one PCSK9 inhibitor, Praluent, reduced patients’ risk of cardiovascular disease by 15% and their risk of death by 29%. Despite the drug’s effectiveness, its manufacturer recently announced a 69% price cut to win market share.
In short, free-market competition works. It delivers cutting-edge medicines at reasonable prices.
The Trump administration already has proved that it’s possible to drive a hard bargain and stop trading partners from freeloading. Consider the recently renegotiated U.S.-Korea Free Trade Agreement, or KORUS. South Korea previously paid higher reimbursements to domestic drug manufacturers than to international drug manufacturers. This practice discriminated against American companies.
In the renegotiated pact, South Korea agreed to end this discrimination. Now American companies have a greater incentive to expand into the South Korean market. Firms will earn more revenue to plow back into research and development.
By strengthening the North American Free Trade Agreement (NAFTA) and striking strong trade deals with Japan, the U.K., and other allies, the U.S. could level the playing field for domestic drug companies operating abroad and increase competition to give American patients and payers more options and lower prices.
Charles Boustany is a retired physician and former congressman from Louisiana.
