Enactment Of Clinton Prescription Drug Plan Will Result In R&D Job Losses

Hillary Clinton today unveiled her plan to rein in drug costs, a very hot topic in light of Turing Pharmaceutical’s unconscionable price increase of the life-saving drug Daraprim. Among her proposals are:

1. lowering the amount of time that companies can exclusively market their new drugs, thus paving the way for earlier generic competition;
2. allowing Americans to import cheaper drugs from abroad;
3. giving Medicare the opportunity to negotiate the prices of drugs.

There is no doubt that enacting these proposals will result in lower drug costs for Americans and the federal government. But, as with everything, this will come at a cost – in this case, R&D jobs in the biopharmaceutical industry. The biopharmaceutical industry invests roughly 15% of its top line revenues in R&D, far more than any industry. The Clinton proposal will result in lower sales for these companies. How much lower will depend on the extent these proposals are instituted. But for illustrative purposes, let’s say that the Clinton plan results in a decrease in 10% to the top line sales of a company. A pharma critic might think this is no big deal as many of the companies are big and successful. Who cares if they make 10% less?

Actually, their employees might. Let’s take a company that has annual sales of $60 billion. It’s R&D budget could be on the order of $9 billion/year. Post Clinton cuts, this company’s sales could drop to $54 billion, thus setting the R&D budget at $8.1 billion. This is still a hefty amount. However, it would result in the need to cut $900 million from that company’s R&D. This cannot be done by simple business efficiencies. Rather, you would do the following:

1. cut programs, resulting in fewer drugs being discovered;
2. close research sites, thereby eliminating jobs;
3. outsource work to low cost venues like China, India, and Eastern Europe.

This isn’t fantasy. In 2006, Pfizer lost a promising new cholesterol modifying drug, torcetrapib, and as a result had to cut 10% of its R&D. This resulted in the closure of the research labs in Ann Arbor, Michigan and along with it, 2,200 jobs. But such an action isn’t unique to a big company like Pfizer. Last year, during the same week, three very different companies experienced a major clinical failure that led to similar R&D reductions. Novo Nordisk , a Danish company known best for its diabetes drugs, had an experimental RA drug fail and not only did Novo end this program but it exited the field entirely, putting its entire inflammatory R&D team out of work. The biotech company Exelixis had a prostate cancer trial fail for its drug, cabozantinib, resulting in 70% of its workforce being let go. As all of this was going on, the Indian company Piramal closed its research labs in Mumbai, affecting 200 scientists, citing that drug R&D hurdles were overwhelming.

Looking at such cuts on an individual basis may not be too worrisome – unless you or a loved one have been impacted. But just think of the loss of jobs and R&D efforts that the industry would face with an across-the-board 10% cut in R&D. Furthermore, with fewer researchers, fewer drugs would be discovered and developed for patients in need. Here’s is what a former presidential candidate, Howard Dean, a doctor and former Democratic Vermont governor, has said about the importance of the American drug industry and the imposing of price controls on it:

The American drug industry is by far the most successful and innovative in the world in addition to being the most expensive because we are the only country that pays the true research and development costs, not only for Americans, but for the rest of the world……But schemes to launch a federal attack on one of the last growing, innovative industries in America are in the long run counterproductive for both job creation and, more important, for the health of human beings around the world. By all means let us try to reduce the cost of drugs. But over the years, advances in drug efficacy and scope have saved us far more in hospital costs than we have spent on drugs.

You will hear a lot about drug prices in America over the coming months. Drug prices aren’t sacrosanct and surely the behaviors of Turing Pharmaceutical and its CEO, Martin Shkreli, need to be addressed. But price controls for the drug industry will bring about the loss of jobs and billions of dollars invested in new drug R&D. Do we really want that?

(The author is the former head of Pfizer R&D and still holds Pfizer stock.)