NCPA - National Center for Policy Analysis


July 20, 2010

Pharmaceutical companies are forced to cut innovative drug lines -- and ultimately bring fewer drugs to market -- when governments regulate drug prices, according to a study conducted by the European School of Management and Technology Competition Analysis (ESMTCA) and commissioned by Novartis. 

The study was released as European governments, grappling with rising debt, attempt to address rising drug costs to control government spending: 

  • German lawmakers this month approved draft legislation that would reduce drug makers' pricing power and cut about $2.4 billion from the nation's annual drug spending.
  • Meanwhile, Greek lawmakers are planning to reduce drug prices by at least 20 percent. 

"Our study shows the consequences that pricing and reimbursement regulation can have on pharmaceutical innovation.  It also shows that, incorrectly applied, regulation can reduce the value of pharmaceutical projects and curtail the resources available to carry them out," says Hans Friederiszick of ESMTCA. 

"Rational investors will naturally look for the most profitable investment choices, which is why regulation has a direct impact on the number and characteristics of the medications developed." 

This means the more innovative drugs were like to get the most attention he said, while important areas like the development of new antibiotics may get left behind. 

Pharmaceutical companies are already cutting back on research and development (R&D) as they try to position themselves for a huge "cliff" of patents on big-selling drugs that are set to expire over the next five years. 

Source: Kate Kelland, "Cutting drug prices hampers new development: study," Reuters, July 1, 2010. 

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