The 2022 Inflation Reduction Act introduced modest drug pricing restrictions. In response, big pharma companies — which have seen record profits — are threatening to slow the rollout of a lifesaving drug.
Between 2012 and 2021, drug companies spent substantially more on stock buybacks and dividends to reward shareholders than they did on research and development. (Lock Stock / Getty Images)
A Swiss pharmaceutical company announced this month that it could slow-walk bringing a potentially lifesaving drug to market — in order to reduce the time that it could be subject to President Joe Biden’s recently enacted federal price regulations.
Those comments were made by the CEO of Genentech, whose parent company, Roche, has reaped as much as $10 billion from Trump’s 2017 tax cuts, seeing its net income go up by an average of more than 50 percent, while its spending on research and development has increased by just 25 percent.
Pharmaceutical giants like Roche are earning huge sums of money on record-breaking price increases, reporting historic profits — and yet they’re launching an all-out legal, media, and lobbying assault against the modest drug pricing restrictions implemented by Biden’s 2022 Inflation Reduction Act (IRA).
For two decades, Congress prohibited Medicare from negotiating drug prices like most other high-income countries do. As a result, pharmaceutical companies have been able to charge Americans substantially higher prices for their products than they do elsewhere. They’ve done so even though the American public subsidized research and development costs for every drug approved for sale in the United States between 2010 and 2019.
Now, thanks to the new law’s drug price provisions, Medicare can begin to negotiate lower prices for ten drugs beginning in 2026, with additional drugs added in subsequent years.
In recent interviews, Roche’s CEO and the CEO of its American subsidiary, Genentech, said that the companies may delay drug research and development because of the new pricing rules in the 2022 drug laws.
“We have decided that we are not going to do certain [clinical] trials . . . because it is becoming financially not viable,” Roche CEO Thomas Schinecker told reporters in July. That same day, Schinecker told CNBC that “there is an environment now that’s starting to emerge, that, you know, certain medicines would not make it.” In response to a request for comment from us, Roche disputed the gains that it made from the tax cuts, but did not provide details.
Earlier this month, the health news site STAT published an interview with Genentech CEO Alexander Hardy in which he said that the company could delay the release of an effective drug for ovarian cancers in order to first ensure that it is approved to be sold to the largest population of patients before it is subject to the new price controls.
“Normally, we would develop it in a fast-market approach for ovarian cancer. That’s the shortest path to patients . . . but that is a much smaller indication than prostate cancer, which would take three years longer,” said Hardy. “So the dilemma we’re facing right now is, do we go with the initial indication being prostate cancer and then hold off on the development and the approval [for] ovarian [cancer] because the clock will be started with prostate?”
He added, “We face a lot of difficult decisions to make, squaring the science and the societal patient unmet need together with the business case. It’s frustrating that this is an artifact of government legislation, which is creating a disincentive for us to do the right thing for patients.”
Between 2012 and 2021, drug companies spent substantially more on stock buybacks and dividends to reward shareholders than they did on research and development.
Patients Get Sick, Shareholders Get Rich
Roche’s shareholders have seen a windfall since Trump’s tax cuts passed Congress in 2017. The company’s net profits immediately jumped by nearly $2 billion to close to $11 billion in the following year. By 2022, profits had exceeded $13 billion, after steadily increasing for four consecutive years.
The company did not commit to a comparable investment in research and development, increasing this spending at half the rate of its expanding profits.
The CEOs’ comments have represented the most concrete threats from the pharmaceutical industry that the IRA’s drug price negotiation could mean worse outcomes for patients.
After Biden’s Centers for Medicare and Medicaid Services released guidance related to the drug pricing provisions in June, the pharmaceutical industry’s major lobbying group, the Pharmaceutical Research and Manufacturers of America (PhRMA), filed a lawsuit against the Biden administration. Lawyers charged that the law’s tax on firms that violate the drug pricing agreements goes against the “excessive fines” prohibition in the Eighth Amendment.
Four giant pharmaceutical companies — Astellas, Bristol Myers Squibb, Merck, and Johnson & Johnson — have launched lawsuits against the drug negotiation plan as well. Roche and its subsidiaries have spent nearly $6 million on federal lobbying efforts so far this year, including on implementation of the law.
Hardy, the Genentech CEO, told STAT that “we’re supportive of the legal action that PhRMA has taken. We’re considering all of our legal options right now.”
Genentech is a PhRMA member.
The idea that pharmaceutical companies need enormous profits to sustain drug innovation “is one of those zombie lies they’ve been making for decades,” said Steve Knievel, an analyst at the consumer advocacy group Public Citizen. “They make claims that anything touching their profits one iota is going to threaten innovation and that we won’t get the cures we need. . . . The profits go way up, but the R&D [research and development] doesn’t go up in conjunction.”
Knievel added that taxpayers already subsidize drug development by paying for federal medical research funding through grants.
“We the people, we undergird development through our tax dollars, through the $40 billion we budget to the National Institutes of Health,” he said. “So long as we continue to support that early stage research, we should expect to get the new drugs that we need.”
Bill Lazonick, a professor at the University of Massachusetts Lowell who has studied financialization in the pharmaceutical industry, echoed these concerns.
“The pharma industry is basically saying, ‘We have these profits, we need them to invest in innovation,’ and they are not doing it,” he said. “Just setting the price at any level you want is not the way it needs to be done.”
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