The Administration’s War on Drug Development

To complement the Trump administration's literal war on drugs in the Caribbean last year -- whatever happened with that, by the way? -- its Department of Health and Human Services (HHS) is waging a figurative battle against American drug development as well.

The U.S. pharmaceutical sector is one of the country's greatest economic success stories, producing a stream of lifesaving innovations and providing a key technological edge over China (although that gap has quickly narrowed, with China surpassing America in clinical trials last year). American firms are responsible for developing 47 percent of new pharmaceuticals on the global market. The industry spends over $100 billion annually to discover and test new molecules -- more than the rest of the world combined.

According to the Information Technology and Innovation Foundation, that is no accident. Europe used to dominate pharmaceutical R&D as recently as 1990, but "years of price controls in Europe and strict regulations [have] led firms headquartered in the United States to lead the world in pharmaceutical research. European firms are now responsible for just 29 percent of global drug R&D; U.S. firms lead at 55 percent.”

So, of course, the administration is leading the charge to copy the European pharmaceutical policy of imposing price controls and strangling firms with opaque regulation. On the former issue, the administration's explicit program is to suppress U.S. drug prices to be in line with those in other countries that have socialized health-care systems with prices fixed by bureaucrats. As a result of those policies, patients in other high-income countries have access to just one-third of the new treatments, on average, that Americans do. The country with the second-greatest availability of novel medicines, Germany, has access to just 61 percent of new drugs, while America has access to 85 percent.

Worse still, Trump is upholding the price-control policy of his predecessor. President Biden, as part of his woefully misnamed Inflation Reduction Act in 2022, oversaw the creation of pharmaceutical price caps in Medicare, disguised as mere negotiations with companies. If developers refused to sell their drugs at the government's "negotiated" price, they would be forced to pay an extortive 95 percent excise tax on all U.S. sales.

Recognizing this policy as the coercive measure it is, drugmaker AstraZeneca has taken a constitutional challenge to the Supreme Court, alleging that the Medicare price-control scheme punishes the company without due process. Trump's Department of Justice could have let AstraZeneca's claim go unchallenged. Instead, it has chosen to defend the price controls in court.

Why wouldn't it? Biden's law gives Trump the kind of leverage over private companies that he loves, and he can use it to force drug prices down by fiat if developers don't agree to his terms, er, "voluntarily."

But there is, in fact, a terrible downside. Since the price controls were enacted in 2022, pharmaceutical and biotech firms have canceled at least 55 research programs and given up on 26 medicines under development. Based on government projections of the long-term impact on drug revenue, the Tax Foundation estimates that the law will result in "up to 135 fewer drugs brought to the market, amounting to $18 trillion of health losses through 2039." Fearing they could be targeted by Medicare with each annual update to its drug list, companies have also cut back on research for new medical uses of their existing medicines. A recent study found that the average monthly number of industry-sponsored trials on post-approval drugs has fallen by 38.4 percent since the Inflation Reduction Act's passage.

On the regulatory side, agencies under Robert F. Kennedy Jr. are making drugmakers reconsider even more of their investments, especially in vaccines. Last month, Moderna -- one of the few companies on the cutting edge of mRNA technology -- announced that it would stop initiating late-stage vaccine trials due to opposition from health officials. "You cannot ‍make a return on investment if you don't have access to the U.S. market," the company's CEO said, and regulatory headwinds at HHS are making that market "much smaller."

Specifically, Moderna and other vaccine developers have faced delays at the FDA in getting their products reviewed for approval. Even if a vaccine does get approved eventually, the CDC is busy limiting its potential market size by slashing its recommended immunization schedule. Those recommendations carry no legal force in themselves. But because the vast majority of states automatically regulate vaccine access based on CDC guidelines, the agency can effectively prevent nurses and pharmacists across the country from administering any shot it removes from the schedule. Sales then plummet, as people can only get the routine vaccinations they want when they visit the doctor's office.

The economic formula for pharmaceutical innovation is simple: Companies must expect that the revenue from a new drug will exceed the cost of developing it, factoring in both time and money. Therefore, the formula to deter new cures and immunizations from coming to market is equally simple: Increase the cost of development while simultaneously decreasing expected sales.

That dangerous combination is not merely the effect of the Trump administration's price controls and regulatory onslaught; it is the object of such policies. Mark me down as doubtful that America will be made healthier as a consequence.