Will U.S. Policymakers Heed the European Cautionary Tale on Drug Development?

By Penn Quarter Partners

“Oceans rise, empires fall,” sings King George III in the musical “Hamilton.” It’s a reminder that even the most sturdily built domains can be derailed by unfortunate decision-making. In that light, Europe has provided a valuable cautionary tale to American policymakers regarding global leadership in medical innovation. And it’s one with which Penn Quarter Partners is well aware as we advise companies on how to successfully navigate a fluid policy landscape.

Today, the United States leads the world in the development of new biopharmaceutical treatments, vaccines and cures. But, in a historical context, this is a fairly recent development. Not long ago, Europe stood in the space America occupies today.

As recently as the 1990s, European pharmaceutical companies were bringing more than double the number of new drugs to market as U.S. firms. At that time, industry investment in research and development in Europe was 50 percent higher than R&D activity in the U.S.

But, as we approached the turn of the century, the European empire in this sector began to fall and, by 2014, almost six of every 10 new drugs that entered the global marketplace were introduced first in the United States.

So, what happened? As the Information Technology & Innovation Foundation put it, “Europe’s decline from the ‘world’s medicine cabinet,’ and the corresponding rise of the United States, can be traced in large part to public policy choices.”

In brief, European countries began applying a variety of price control mechanisms to pharmaceutical products, from reference pricing systems (not dissimilar to the Most Favored Nation (MFN) approach pursued by the current administration) to regulations limiting hospitals’ use of higher-priced medications. Many of these policy approaches remain in place today.

During this period, by contrast, U.S. policymakers took steps to unleash its innovation potential. For example, the Hatch-Waxman Act created an important balance between spurring innovation and ensuring long-term affordability, providing patent term extensions for innovative medicines while facilitating entry of generic drugs to the market. In addition, the Bayh-Dole Act allowed universities, non-profits and small businesses to own, patent and license discoveries made with federal support, opening the door to technology transfer, development and commercialization of medical innovations.

The lasting impact of such policies on patients has been significant. Patients in the United States receive new novel treatments faster than virtually all countries in the European Union, where people with illnesses are forced to rely on older, less-effective medicines for a longer period.

This not-so-distant history should occupy a prominent place in the minds of America’s political leadership today, particularly as China pursues a determined strategy to supplant America as the pre-eminent biopharmaceutical developer, just as the United States did to Europe a few short decades ago.

And, again, policy is critical and there are legitimate concerns that the U.S. is dealing itself a losing hand. Studies have shown that the Inflation Reduction Act and its price controls on prescription drugs in Medicare will result in fewer new medicines coming to market.

The aforementioned MFN policies will import the price controls that undermined Europe’s research and development activities. Tariffs will make medicines costlier for American patients and undermine investment in innovation. Federal cuts to medical research grants shortchange the foundational early-stage research that is critical to the development of new treatments. And there continue to be efforts to weaken the Bayh-Dole Act and the intellectual property protections that have been so critical to America’s success in developing new life-changing products.

We will see in the months and years ahead if the axiom that those who cannot remember the past are condemned to repeat it holds true. But we will not be passive observers.

Penn Quarter Partners continues to work with a wide range of stakeholders to  emphasize the importance of pro-innovation policymaking in maintaining U.S. leadership in drug development and help industry leaders with the strategic planning necessary to succeed in such a volatile environment.

Oceans rise and empires may fall, but it is not predestined that they must.

For further conversation about this and other health policy topics, contact us at info@pennquarterpartners.com.