Original Source: https://vitaltransformation.com/2022/07/build-back-better-act-total-market-impact-of-price-controls-in-medicare-parts-d-and-b/
Build Back Better Act
Total market impact of price controls in Medicare parts D and B
The Executive Summary
- The Build Back Better Act (BBBA) is designed to allow the US Government to ‘negotiate’ pricing under a set framework of reductions based upon the amount of time a drug has spent on the market.
- New research published by Vital Transformation (VT) shows the BBBA would essentially cut to zero the annual net earnings of a quarter of the 12 companies the firm researched as measured by EBIT (net annual earnings).
- VT developed a model that measures the impact of BBBA on the investment ecosystem and drug development of the biopharmaceutical industry and entire commercial market assuming several scenarios:
- We assume the “Maximum Fair Price”, or ceiling price, is a best-case scenario for the cohort of drugs price controlled each year.
- We estimate a further reduction of 10% below this ceiling price, based upon the evolution of pricing controls in the EU.
- We compare the projected global revenues through 2031 at average market growth rates which are far below the current rate of inflation, to the revised revenues after the implementation of BBBA.
- We use the PCE price index to measure all values in constant 2022 $USD.
- 340B prices are increasingly flowing into the commercial market and will be reset by the new ceiling price.
- BBBA states clearly that the “Maximum Fair Price”, or ceiling price, will be “announced”; there is no provision for “announced” price reductions to be confidential, inviting political pressures to apply reductions to commercial prices.
- The experience in the EU shows that prices have continued in a downward spiral once the EMA centralized procedure was put in place, we see no reason to doubt the same political pressures on pricing will be seen in the US.
- VT researched 20 therapies most likely to be placed into the BBBA negotiation framework if the bill is passed, given the current market conditions in 2022. They found those 20 therapies are produced by 12 firms and represent a substantial portion of each firm’s revenue. Fully half of all companies they researched saw a reduction of their net earnings greater than -70%, and the average reductions across the entire cohort were roughly -55%
- The 12 firms VT researched had made pipeline investments more than $588 billion over the last 10 years and 75% of that total, $439 billion, had been made in the United States. California, Massachusetts, New Jersey, and New York accounted for 80% of the US total of investments, and 60% of all pipeline investments globally
- Vital Transformation used a standard economic model for industry revenues as a jobs multiplier to calculate the employment impacts of the implementation of US price controls. The model estimated that annual reductions in revenues caused by BBBA would lead to roughly 600,000 lost biopharma jobs in the US and territories such as Puerto Rico in the year of 2031.
- China launched 93 early stage, venture capital backed biopharma startups in 2021.