Senator Sanders’ Price Controls Will Harm Patients
In a patently politicized press release, Senator Bernie Sanders (I-VT) who is Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, claims that the U.S. price of Ozempic is too high. As evidence, he cites generic companies that claim they can sell Ozempic for less than $100 a month, an inherently flawed JAMA study that claims that these same diabetes drugs can be profitably produced for less than $5 a month, and inaccurate price comparisons with other countries.
Debunking his assertions is essential. If allowed to set policy, Sanders will harm the more than one hundred million Americans living with chronic conditions, many of which lack efficacious treatments. These conditions include cancer, heart disease, Alzheimer’s, muscular dystrophy, and arthritis.
Some of these conditions can be managed with lifestyle changes. Others, such as patients living with untreatable muscular dystrophy, cannot. These patients are currently living with a disease that will progressively worsen over time. The hope is that drug manufacturers will develop efficacious treatments that will stop, and ideally reverse, the disease’s progression as was the case with Gilead’s drug Sovaldi, which is a cure for Hepatitis C and eliminates the need for an expensive and hard to get liver transplant. Making this hope a reality requires continued innovation.
If the goal is to encourage continued research that can help the millions of Americans living with conditions lacking efficacious treatments (and the millions more that will develop them), then the claims of the generic companies that he cites are irrelevant.
It is not surprising that generic companies can produce drugs cheaper than the company who created the medicine can. Innovators spend on average $2.6 billion developing new medicines over the course of 15 years. Only 10 percent of these drugs make it through lengthy trials and to market. And these costs do not include the additional hundreds of millions of dollars the companies spend conducting post-marketing research that improves the medicine, reduces its side effects, or expands the types of patients who can benefit from taking the drug.
Competitive companies do not need to make these types of investments because, while R&D is expensive, copying existing innovations is much cheaper. This reality is not unique to pharmaceuticals either, it is a problem that afflicts all in the sector.
The entire purpose of the U.S. patent system is to overcome this problem by granting the innovator an exclusivity period where they have an opportunity to recoup their cost of capital. This opportunity, and it is only an opportunity not a guarantee, incentivizes forward-looking companies across the economy including cutting edge pharmaceutical companies.
It is also important to note that the exclusivity period is not enabling pharmaceutical companies to earn “excessive profits” as Sanders claims. When you compare the profitability of the firms developing new medicines to other industries, their profitability is average at best. As of January 2024, pharmaceutical companies’ return on equity adjusted for R&D costs (a typical measure of profitability) was 12.4%; biotechnology companies had a negative return on equity (-3.9%). The return on equity for the market overall was a higher 13.8%.
Financial returns vary, of course; however, over time, the pharmaceutical and biotechnology industries’ returns are not exceptional compared to the market and often lag the market’s overall profitability. In other words, the profits of the drug manufacturers are, at best, similar to overall market profitability.
As for the JAMA study’s claims that diabetes drugs can be produced for less than $5 a month, aprevious PRI analysisdebunked its claims. Sanders is citing a study that fails to understand how the current drug pricing system works, ignores the expensive capital costs of developing medicines, and fails to account for the value of a medicine. It is a fatally flawed study that can cause irreparable harm to patients if its pricing recommendations were followed.
For good measure, Sanders also references the price differences for cutting edge drugs in the U.S. compared to Canada, Germany, and Denmark. The price gaps he cites are inaccurate – comparing the prices in other countries to U.S. list prices is inappropriate. U.S. list prices exclude the discounts and rebates that reduce U.S. net prices by as much as 50%, while the prices cited in the other countries are, for all intents and purposes, the net prices.
After accounting for the discounts, the prices in other countries will still likely be cheaper. But lower prices only arise because these nations are violating the companies’ intellectual property rights. The more effective response to these violations is for the international trade negotiators to insist that these countries respect U.S. intellectual property.
Continued pharmaceutical innovation is essential for the millions of Americans living with diseases lacking adequate treatments. Better treatments have the power to meaningfully improve the quality of their lives, better manage their symptoms, and in many instances, save their lives.
Sen. Sanders jeopardizes the research process that can transform patients’ hope into reality. He can still portray himself as a champion of the downtrodden, however, because the damage he inflicts is hidden. Those who are harmed don’t know he is to blame. While he may escape blame, that is no consolation to the patients who will suffer the consequences if his policies carry the day.
Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute and the director of PRI’s Center for Medical Economics and Innovation.