Study weakens Lilly's fight against price controls

September 10, 2009

Eli Lilly and Co. and its peers might be back in Congress' sights as lawmakers hunt for more ways to cut health care costs.

A new study published in the influential Health Affairs journal concludes that European drugmakers operating in markets with pharmaceutical price controls have produced proportionally more innovations than their U.S. counterparts.

The study undercuts an argument made over and over again by Lilly execs John Lechleiter and Bart Peterson: that health reform must preserve profit potential for pharmaceuticals so companies can afford to keep pumping out innovative new drugs.

"One policy 'truth' in pharmaceuticals is that price controls hurt innovation. If price controls don't in fact diminish innovation as the recent study implies (contradicting previous work) then regulators in the U.S. can pressure prices," health care stock analyst Les Funtleyder, of Miller Tabak & Co., wrote in a note to investors. That could hurt drugmakers' stock prices and diminish their pipelines of new drugs, he added.

A health reform bill in Congress would allow the federal Medicare program to negotiate discounts with drugmakers, something Lilly and its peers have opposed as akin to price controls. Also, President Barack Obama has supported the reimportation of drugs to the United States from countries where they are sold at controlled prices.

Prescription drugs account for 10 percent of U.S. health care spending.

The response from the U.S. pharmaceutical industry was quick and strong. On the day the study was published on the Health Affairs Web site, the Pharmaceutical Research and Manufacturers of America issued a two-page statement rebutting its conclusion.

"Unfortunately, the paper paints a distorted picture that gives short shrift to the medical advances made possible by America's pharmaceutical research and biotechnology companies and ignores the chilling effect of government price controls on such innovation," the association's statement read.

In response to questions, a Lilly spokesman re-issued the association's statement.

The Health Affairs study was conducted by Dr. Donald Light, a professor of social medicine and comparative health systems at the University of Medicine and Dentistry of New Jersey.

He analyzed 20 years of data on new drug compounds, or chemical entities, that were introduced in a majority of the world's markets between 1982 and 2003. To measure productivity, he compared the percentage of the drug research funds invested by companies to the percentage of new compounds credited to the United States, Europe and Japan.

For example, a region that received 33 percent of research investment should be expected to produce 33 percent of new compounds-or a ratio 1.0.

While the United States' share of research funding increased dramatically, its research productivity remained at a relatively constant ratio of about 0.75, Light found. Over the same period, Europe's share of research funding plummeted, but its research productivity ratio increased from 0.99 to 1.17.

"Without jeopardizing domestic research or the development of new drugs, U.S. drug prices could be about half their current level, which would help significantly to hold down rising health care costs and the amount of out-of-pocket costs that consumers have to pay for medications," Light said in a release issued by his university.

But the pharmaceutical association faulted Light for not including in his analysis the efforts spent on getting existing drug compounds approved to treat additional conditions. Also, it said, Light failed to note that many Europe-based drug companies have moved "part or all their research operations to the United States"

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