SMART Prices Act could lead to fewer rare disease therapies: Study

Loss of revenue could mean to up to 237 fewer therapies approved over next decade

Marisa Wexler, MS avatar

by Marisa Wexler, MS |

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Proposed policy changes that would let Medicare set prices for therapies earlier could result in fewer new medicines being approved over the next decade and rare diseases like Lambert-Eaton myasthenic syndrome (LEMS) may be among the most affected.

That’s according to an analysis from Vital Transformation, whose clients include several large pharma companies like Pfizer, Janssen, and GSK. The work was funded by We Work For Health, a nonprofit that pairs pharma companies with other healthcare stakeholders.

“Our model indicates these proposals would substantially reduce the biopharma industry’s [research and development] investment needed to pursue new drug discovery and development,” Duane Schulthess, CEO of Vital Transformation, said in a press release.

The idea stems from proposed legislature called the Strengthening Medicare and Reducing Taxpayer (SMART) Prices Act that follows other medication price-controlling measures passed last year as part of the Inflation Reduction Act.

A core part of the SMART Prices Act is that it would let Medicare, the government program that provides insurance to the elderly, set prices for new medications just five years after they’re approved, which is sooner than currently allowed. Similar proposals have been introduced by the White House for fiscal year 2024.

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Effect of pricing controls on rare diseases

In this analysis, researchers used economic models to evaluate how pricing controls might affect the revenue generated by pharmaceutical companies.

“Despite the rhetoric, the biopharmaceutical sector is not overly profitable,” the researchers wrote, noting the pharmaceutical industry reported overall profits of 18%, based on data from this year. This makes it the 15th most profitable industry, ranking behind banking and financials, oil/gas, coal, tobacco, entertainment software, among others.

If the SMART Prices Act passed, overall revenue generated by pharmaceutical companies would fall by an average of 37%, the researchers estimated.

“Impact are most concentrated in a few firms. For each of the most impacted companies, between 8 and 14 of the medicines selected for price setting would likely not have been developed if [the SMART Prices Act] had been in place prior to those investment decisions,” they wrote.

Based on 2022 data, the biopharma industry invested about 28% of its revenue into research and development. Taking these numbers together, combined with the average rate at which new therapies are generally approved, the loss of revenue could translate to up to 237 fewer therapies being approved over the next decade, they said.

Therapies for rare diseases, and for cancer and neurological disorders, would be among the most affected, according to the analysis. The researchers said these models assume that all other factors, outside of pharma revenue due to price controls, remain constant.

The same models also indicate this loss of investment could translate to more than a million fewer jobs, the direct effect on the pharmaceutical industry being 146,000 to 223,000 jobs. Hundreds of thousands of other jobs would be indirectly affected.

“At a time when the biopharmaceutical industry is just beginning to experience the negative impacts of the Inflation Reduction Act’s government-mandated drug pricing policy, any new proposal only adds fuel to the fire and reinforces a deeply misguided and flawed approach,” said Tom Kowalski, national co-chair of We Work For Health. “This latest study demonstrates just how bad the damage could be should these plans be implemented.”