CBO: Congressional action on drug prices will make R&D spending less attractive
The greed of pharmaceutical companies has long been one of the reasons Congress has sought to reign in the industry’s high price tags for new drugs.
But a new report from the nonpartisan Congressional Budget Office on Thursday pours cold water on the idea that large pharma companies are pumping all their profits into share buybacks, marketing, and CEO salaries. In fact, the CBO notes that pharma spending on drug R&D ramped up by nearly 50% between 2015 and 2019, and now outpaces what other similar industries, like software and semiconductor companies, spend on R&D.
Smaller companies are also shouldering some of that increase in R&D spending in recent years. Companies with annual revenues of less than $500 million now account for more than 70% of the nearly 3,000 drugs in Phase III clinical trials, the CBO says.
“The share of R&D funded directly by revenues has declined in recent years because an increasing amount of R&D is now conducted by research-oriented drug companies with few or no products on the market,” the report notes. “Over the past decade, small or emerging drug companies have developed a rising share of new drugs. Those companies have relatively little revenue (some have none at all), and most of them must seek outside financing, such as venture capital, and collaborative agreements with larger drug companies.”
And that spike in R&D spending has paid off, at least in terms of the numbers of new drugs approved in recent years, although the increased numbers do not explain if the drugs were innovative or just incremental improvements.
“Between 2010 and 2019, 38 new drugs were approved each year, on average. That is about a 60 percent increase compared with the previous decade,” CBO reports.
Overall, the report raises questions on what certain types of congressional action on drug prices might do for the continued growth of biopharma R&D.
“If expected profitability of new drugs declined — because of a change in federal policy, a shift in demand or supply, a revision in the balance of power between drug companies and drug buyers, or for any other reason — the expected returns on drug R&D would decline as well. Lower expected returns would probably mean fewer new drugs, because there would be less incentive for companies to spend on R&D,” the report says.
CBO previously estimated that under HR 3, a Democrat-backed bill that passed in the House in late 2019 and would allow drug price negotiations, approximately 8 fewer drugs would be introduced to the US market over the 2020-2029 period and about 30 fewer drugs over the subsequent 10 years. But the CBO also acknowledged that those projections “were in the middle of the distribution of possible outcomes.”