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The Economy

Attacking Innovation

Budget Committee Chairman Sen. Bernie Sanders during a Senate Budget Committee’s hearing to examine President Biden’s proposed budget request for fiscal year 2022, June 8, 2021. (Shawn Thew/Pool via Reuters)

Bernie Sanders tweeting earlier this week:

This is obscene. Last week, 8 investors in Pfizer and Moderna became $10 billion richer as news about the Omicron variant spread. It’s time for these pharmaceutical companies to share their vaccines with the world and start controlling their greed. Enough is enough!

I checked to see what Sanders had tweeted in the early weeks of November, when the Moderna share price fell from roughly $345 on November 2 to some $229 on November 10. Oddly enough, he made no comment on the sell-off. Even today, the stock (at about $274) is still well below its highs of earlier in the year (some $413). The Pfizer stock has done rather better of late but fell by nearly 20 percent between mid August and mid September.

Markets are markets, and there’s a limit to how much of a conclusion can be drawn from the movement of a stock price on a short-term basis.

Besides, who is to judge what is “obscene”? Not, perhaps, someone who, in the past, has expressed at least some admiration for the USSR.

Pharmaceutical companies are certainly not angels, but it should be remembered that the super profits they make on some products also have to cover the cost of drugs on which they have spent a fortune but that fail to live up to the hope their development teams once had for them.

It should also be remembered that incentives work. I am unconvinced that Sanders is the right person to decide what represents “too much” of an incentive. Moreover, for all the profits that some companies have made from the vaccines, by limiting, however imperfectly, the damage caused by the virus, the financial value (and that includes jobs) they have preserved is far, far greater. There is also the small matter of all those lives saved . . .

Meanwhile, there’s this from Jonathan Bydlak, writing in Spectator World:

One aspect of the [Build Back Better] bill, however, has attracted far less fanfare than it should have: its impact on the cost of prescription drugs.

Provisions in the bill would, among other things, impose rebates on drug manufacturers if prices rise faster than inflation. It’s an idea that sounds great in the current moment of creeping inflation, but is ultimately little more than a market distortion likely to produce an array of adverse consequences.

A new University of Chicago study looked at the impact of the bill on “innovation and patient health” and found that BBB would reduce spending on drug research and development by “about 18.5 percent.” It concludes that such a reduction might limit research and development, potentially leading to 135 fewer new drugs.

Perhaps most damning, the study also concluded that the corresponding drop in drug production would result in a loss of 331.5 million life years — a number 31 times larger than the life years lost in the United States as a result of COVID-19. That’s presumably not the outcome that Democrats had in mind . . .

Bydlack also goes on to explain how the proposed price regime could mess up the supply of generic drugs. That’s a different topic, but one worth watching too. Be sure to follow the links that he includes in the article, such as to this piece in Stat:

Policymakers are also seeking to apply to brands, and misguidedly to generics, in the Medicare Part D program and commercial plans a penalty if their prices rise faster than the rate of inflation. The so-called inflation-based rebate disproportionately harms the low-cost generic drugs on which seniors rely because it applies a penalty based on the percentage that a price increase exceeds inflation; meaning that a 1 cent increase on a 20 cent pill could trigger a penalty for the generic manufacturer. And manufacturers could also be penalized because of changes in downstream purchaser behavior, even if the manufacturer does not increase the price.

The imposition of these penalties in Medicare Part D and the commercial market would further compound a mistake Congress made when it applied inflation penalties to generic drugs in Medicaid. This makes it more difficult for older generics with very low prices, which may be the only option available for patients, to stay on the market. It would thus increase the likelihood of drug shortages for seniors and the nation’s most vulnerable patients, a phenomenon recognized by FDA’s drug shortage task force and reports from outside experts. It represents another challenge to the long-term sustainability of an industry that consistently delivers lower costs and generates great value in health care…

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