Protecting biomedical innovation as a national security asset

This article was originally published by BioCentury on October 22, 2020.

Even in ordinary times, the answer lies in the collective value of scientific knowledge, intellectual property and physical and human resources that are based here in the United States; what BIO chair Jeremy Levin has rightly called a “strategic asset.” 

In the midst of a global pandemic, the biopharmaceutical industry’s pivotal role in developing vaccines and therapies to combat COVID-19 and restart the economy is readily apparent. In fact, our current predicament reinforces how the importance of life sciences industry and the need to properly nurture it reflect its critical role in maintaining the security and well-being of the nation.

Yet skeptics remain, and recent proposals to severely cut prices threaten to limit future biomedical innovation long after the pandemic has run its course. We understand that some patients cannot afford to pay the full cost (or even the copay) of some medicines, and that we must take steps to ensure universal access to essential therapies. But to do so by arbitrarily linking prices to those established by overseas governments risks losing yet-to-be-developed therapies that will address tomorrow’s unmet medical needs. 

While government and university scientists make important research discoveries, the safety and efficacy of new medicines is established primarily in animal and human clinical trials that are funded and conducted by the life sciences industry. During the six-year period 2011-16, for example, 170 new pharmaceutical entities were approved by the FDA; more than half were developed by venture-backed biotechnology entities and the remainder by established pharmaceutical companies.

New medicines come from the collective efforts of an interactive network of public, private and non-profit actors — all must thrive to improve patient health. If we dramatically reduce the potential for profit that rewards those who bring new medicines to market, venture funding will inevitably decline.

We propose adopting a broad set of policy reforms that would foster both innovation and access, while better preparing the country for the next pandemic by supporting the multiple players in our health security ecosystem.

Cognitive dissonance

Even before our commander-in-chief contracted COVID-19, it had become evident that the critical mass of life sciences companies based in the U.S. was important to preserving national security. Three of the four leading contenders in the race to develop a safe and effective vaccine — Pfizer Inc., Moderna Inc. and Johnson & Johnson— are U.S.-based; if successful these companies will first obtain FDA regulatory approval, to make the vaccine available equitably.

Of course, the fundamental purpose of government is to protect its citizens from harm. While we often think first of the danger of military conflict, the threat to human health actually looms larger; only two wars in our nation’s history (WWII and the Civil War) have killed more Americans than the 220,000 who have perished to date from COVID-19-related causes.

Granted, our government has been spending large amounts of money in support of prospective COVID-19 treatments and vaccines. As just one example, the Biomedical Advanced Research and Development Authority (BARDA) of HHS has agreed to provide AstraZeneca plc with up to $1.2 billion of funding in support of clinical development and the scale-up of manufacturing of its vaccine at a BARDA facility in the U.S.

Yet at the same time, U.S. policymakers are willing to effectively cede decisions about drug prices to other countries. President Trump has issued an executive order that would limit reimbursement for medicines covered under Medicare Part B and D to the best price available overseas. And House Speaker Nancy Pelosi and the Democratic caucus support passage of H.R.3, the Lower Drug Costs Now Act, which would use European reference pricing as a tool to apply draconian price reductions for innovative biopharmaceutical products.

It is impossible to reconcile this zeal for government-mandated price cuts with the immediate national security threat presented by the virus, and the longer term need for continued biomedical innovation to address cancer, dementia and other unmet medical needs of an aging population.

Importing price controls from overseas is the functional equivalent of unilateral disarmament in the middle of a fighting a war against COVID-19.

Analysts ranging from the Congressional Budget Office to the California Life Sciences Association have calculated that the legislation would reduce Medicare Part D prescription drug payments by more than $300 billion over a ten-year period, and we may lose as many as 100 new medicines as a result, 

Most of us will survive the pandemic, but the myriad other threats to our health and well-being will remain and we will never know what we have lost if anything like these proposals becomes law. In the words of Harvard economist Sendhill Mullainathan: “The wonder drugs of today are built on previous failures and marginal successes.” He continues, “Curbing prices risks squeezing out this kind of innovation. The consequences will not be felt today, but it could be a disaster in years to come.”

Seeking health security solutions

Rather than mandating arbitrary price cuts, there are a diverse range of important policy initiatives that we should take to support our long-term national security health interests.

We recognize that there is an affordability crisis that has multiple dimensions.

However, we can make medicines more affordable without limiting the price of important breakthrough therapies. As was proposed in a recent bipartisan bill in the U.S. Senate, we support capping out-of-pocket payments for patient copays and deductibles, and paying for this with budgeted savings realized by limiting annual price increases for existing drugs to the rate of inflation.

But making health security a national priority requires more than addressing the affordability problem. Limiting copays will do little to reduce the health risk from infectious diseases if patients don't have health insurance. More than 25 million U.S. citizens still lack health insurance.

We can do two things to remedy this shortcoming: add a public insurance option to the Affordable Care Act and expand Medicaid eligibility in the 12 remaining states that have yet to do so.

The president has received world-class care at Walter Reed National Military Medical Center while his administration continues to challenge the ACA and its protections for the tens of millions of citizens with pre-existing conditions. This is unwise and should be abandoned. An estimated seven million Americans will exit the COVID-19 pandemic with a documented pre-existing condition, and we should not add insult to injury condemning them to a lifetime of limited healthcare.

Biomedical innovation requires support at multiple levels. We can assist venture-backed, entrepreneurial companies by amending the tax code to provide a simplified R&D credit of up to 50% for biomedical spending. Investors would effectively share their gains if we required that a portion of this credit be repaid to the Federal government in the event of a sale of the company.

And we shouldn't stop there; we should invest in more public health spending at the Federal, state and local level. If we regard infectious diseases and other health risks as a national security threat, surely we can spend a larger portion of our wealth on meeting it.

We spend three quarters of a trillion dollars annually on our military, while the NIH budget still is shy of $50 billion. Public health interests will be accelerated by returning the NIH budget to its rightful place by an increase to $60 billion per year. This would be roughly the same level in real purchasing power as in 2003 when it peaked.

Spending more on public health also means investing in reviving a diminished CDC, improving and enhancing coordination with state and local public health offices, and adding $5 billion to the USAID budget to prioritize international public health programs focused on pandemic preparedness.

It will take all of these measures and more to simultaneously boost U.S. biomedical innovation and increase the access of its citizens of medicines. But the COVID-19 pandemic makes clear that we must do just that.

Over decades, the U.S. has enhanced its national security by attracting and developing the world’s leading biopharmaceutical sector that is the envy of our friends and rivals in the creation of new medicines. Government laboratories, research universities, venture capital and sound public policies that support basic research and protect IP, have all played a role in transforming our collective capabilities into this vital national security asset.

Despite this extraordinary success and the concomitant improvements to human health, there are members of both political parties who appear willing to act on the impulses borne of consumer frustration that would imperil further progress. This pandemic nightmare should convince policymakers across the political spectrum to resist this impulse and embrace constructive policies that will help us prepare for the next one.

Authored by David Beier and John Osborn

John Osborn is a senior advisor with Hogan Lovells. David Beier is a managing director of Bay City Capital and a former partner of our predecessor firm Hogan & Hartson.