Prescription Drug Q&A: The U.S. market and COVID vaccines

Written by Derek Monson

October 22, 2020

This Q&A is part of an ongoing series seeking to describe and decode the prescription drug market for policymakers and the public so we can understand the price we pay at the pharmacy.

“The U.S. has a vibrant and thriving biopharma sector” – says American Enterprise Institute scholar and Milton Friedman chair James C. Capretta – “in large part because the payments system for these products is more favorable to the industry than it is elsewhere.” He suggests that this payment system incentivizes companies to take financial risk to develop breakthrough drug therapies, but he says it could also be improved through better data on the value of drugs and closing loopholes in drug patent laws.

Beyond these important insights into the prescription drug market, Capretta discussed his new research on the effectiveness of federal COVID-19 vaccine requirements in our Q&A with him.

Derek Monson, Sutherland Institute vice president of policy: Many Americans seem to be of two minds regarding the U.S. prescription drug market – criticizing the players in that market while hoping they will deliver a safe and effective COVID-19 vaccine. What do you see as the strength and deficiencies of the U.S. prescription drug market system?

Capretta: The U.S. has a vibrant and thriving biopharma sector in large part because the payment system for these products is more favorable to the industry than it is elsewhere. At the same time, U.S. laws do allow for some abuses of the patent and exclusivity systems from time to time, with products retaining monopoly status far longer than protection of intellectual property rights should require. Further, it is often hard to know the clinical value of new therapies. More consensus data on the actual clinical value of drugs would help inform price negotiations in the private sector.

Monson: You recently co-authored a paper examining the tradeoff between the power of Phase 3 vaccine trials to identify effective vaccines and the ability of those trials to quickly evaluate that effectiveness. What does your analysis say to Americans about the level of confidence they should have in the safety and effectiveness of an FDA-approved COVID-19 vaccine?

Capretta: The efficacy standards established by the FDA are fairly liberal. A vaccine only has to be 50 percent effective in preventing COVID-19. That is a threshold that several vaccine candidates might cross. To slow the pandemic, it will be important for the best vaccines to emerge from the trials.  That may take some time because the first vaccine that is approved may not be the one that is most effective at protecting the public.

The paper we wrote did not touch on safety considerations. By all accounts, the FDA is planning to require all COVID-19 vaccine candidates to meet rigorous safety standards. If leading vaccine experts in and outside government say a vaccine that is approved by the FDA is safe to use, then the public should be reassured that the value of taking the vaccine will far outweigh its health risks.

Monson: Policy proposals to try to address the affordability of prescription drugs include international reference pricing and authorizing Medicare to negotiate on drug prices. What are the likely impacts of these proposals on both patient costs and the U.S. prescription drug market more broadly?

Capretta: In all likelihood, these policies would lower prices for U.S. consumers. They would give the federal government the authority to establish ceilings on prices that do not exist under current law, and so, yes, there would be some price reductions for consumers.

Low prices through regulation should not be the only objective, though. Pricing also should provide incentives for companies to invest in new therapies. If regulated prices are too low, the incentives for taking risks will erode, which may mean fewer breakthrough drugs in the future.

Using international prices to establish payment ceilings in the U.S. also may prove to be less effective than its advocates assume. The U.S. is the most important market for many pharmaceutical products, and so manufacturers would react to new payment rules by altering the prices they offer to countries included in a reference-pricing arrangement.  Among other things, companies might refuse to sell their products in these countries until they have secured a U.S. price they find acceptable.

Monson: If you could offer prescription drug policy reforms to federal or state policymakers for a straight up-or-down vote, what would they be?

Capretta: I would recommend closing loopholes that give some products too much time with full protection from generic or biosimilar competitors. Also, I would recommend funding more clinical evaluation studies to ascertain the true value-added of new products.

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