The ceiling on the price of drugs in the US poses risks … for everyone

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Varios medicamentos.
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Companies could focus on diseases with more patients, and in the long run, suffer more competition in those specialties

In August, Joe Biden signed a bill that would allow the government to negotiate drug prices on its own. The risk is for both patients and shareholders.

Braving skyrocketing prices appeals to most Americans. In 2009-18, the cost of brand-name prescription drugs has more than doubled. In addition, the US pays 2.5 times on average what 32 other countries pay, according to a report by the Rand Corporation.

Biden’s Inflation Reduction Act could help. It will limit price increases and allow Medicare, the public insurance for people over 65, to negotiate prices directly with manufacturers. It will initially apply to 10 remedies from 2026, gradually expanding. Although the Government has not given details, it is expected that treatments for cancer or arthritis, responsible for high costs, and that do not have cheaper generic alternatives, will be included.

Despite the protests of the pharmacies, the coup will not paralyze the industry. The expected reduction in costs in a decade would imply an average of about 29,000 million annual lost sales. That is, 12% of the combined profits before taxes in 2026 of 10 of the main manufacturers. Over the past six years, the industry has generated an average 10% return on research investment, above its 8% cost of capital, according to Berenberg.

Trying to raise prices higher can be counterproductive for companies. They can, as AstraZeneca’s Pascal Soriot suggests, focus on conditions with large numbers of patients. The risk is that they neglect those that have less, such as neurological disorders. And hot sectors like oncology will attract even more capital. Global spending on oncology R&D is already projected to soar to $300 billion in 2026, up from $185 billion in 2021. The more firms pile into those sectors, the less pricing power they will have when several similar drugs arrive. to the market. That can ultimately lead to lower profitability.

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