From The Editor | November 12, 2019

How The Medical Innovation Act Could Stifle Medical Innovation

Matt Pillar

By Matthew Pillar, Editor, BioProcess Online

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Senator Elizabeth Warren (D-Mass.) refueled a 2015 Medical Innovation Act effort earlier this month via the reintroduction of a bill backed by Senators Sherrod Brown (D-Ohio), Tammy Baldwin (D-Wis.), Bernie Sanders (I-Vt.), and Kamala Harris (D-Calif.).

The bill seeks to garnish a percentage of the profits of certain pharmaceutical companies that settle allegations of criminal wrongdoing with the federal government, and it calls for that money to be appropriated to NIH and FDA.

The bill’s sponsors use different language. The Warren-released press release announcing its reincarnation puts it this way: “The bill … would increase funding for critical medical research by requiring large pharmaceutical companies that are accused of breaking the law and settle allegations of criminal wrongdoing with the federal government to reinvest a small percentage of their profits in the (NIH) and the (FDA).”

The NIH and the FDA do work that deserves the kind of healthy budgets and responsible financial stewardship of those budgets that drive American pharmaceutical innovation. But the overt inferences in the talking points of this bill are problematic, and there are devils found in the bill’s details.

  • The bill manufactures a burden for an isolated group of companies, which reeks of a cash grab. The profit forfeiture it calls for applies only to manufacturers of “covered blockbuster drugs,” or those that earned a half billion dollars or more in net sales the previous calendar year. There is no corollary regulation or similar additional punishment aimed at manufacturers of anything less than billion-dollar blockbusters, whose successes have left them with targets on their backs. It’s as unethical for a small specialty drug manufacturer to incite doctors to prescribe its drugs as it is for a giant pharma company. The small guy’s accountability simply doesn’t pay as well.
  • There are a whole host of stipulations that suggest the additional “fine” only applies to companies whose science, development efforts, technology, and more were aided or informed by government-funded research or IP. That language is written in such a way that cannot be escaped by any drug on the market—any federal oversight, which all of these blockbusters are subject to at some point in their development and market readiness—could be interpreted as federal involvement or investment.
  • The bill further financially penalizes the accused, beyond the financial forfeiture of its settlement payment(s), without a definitive legal verdict. The effective profit tax is levied on “alleged violations.” It’s not naïve to acknowledge that it’s often financially sensible for big pharma to settle out of court even in the absence of admission of or proven wrongdoing. Are we comfortable accepting that hefty supplemental federal fines in the absence of an actual guilty verdict are a fair and just approach?
  • The bill is too arbitrary, which sets up an opportunity for the “tax collector” to name her own price. Fines range from .75 percent to 1.5 percent of profits, multiplied by the number of the manufacturer’s covered blockbuster drugs. In the case of a pharma company with $15 billion in earnings and three billion-dollar blockbusters, a single settle-out-of-court infraction could cost an additional $675,000,000 beyond the settlement cost. The appropriation of this potentially massive amount of money is too loosely and arbitrarily defined—by congress—an institution held in only slightly higher regard than our own industry.
  • I don’t see clear evidence that furthering Big Pharma’s financial burden wouldn’t drive drug costs even further north, a potential unintended consequence that flies decidedly against the bill’s intentions and its authors’ ideologies.

Bills like this make beautiful fodder for election year politicking to the general public. Its original 2015 pre-election timing was no coincidence, and neither is the timing of the bill’s resurrection. The implications on the business of pharma, however—and biopharma in particular—are dangerous. It’s overreach and duplicative inefficiency for the federal government to legislate additional profit garnishment on companies that have already reached settlement agreements with that same federal government through proper legal challenges. Perhaps the solution is to negotiate the desired NIH/FDA funding into those court-managed settlement structures, rather than create an altogether new and inefficient layer of opportunity for the federal government to double-dip.

NIH and FDA do important work that requires more funding. Big pharma must be held accountable to ethics and regulatory bodies. But, I’d prefer to see progress on both fronts take place through negotiation and civil discourse, absent of charged election year legislative proposals.