Private Investment Fuels Public Health
The House of Representatives voted last week to pass The Lower Drug Costs Now Act, a bill that allows the government to cap the price of hundreds of medicines.
The legislation, though crafted with the best of intentions, worries scientists like me. It would reduce biopharmaceutical companies' revenues by a mindboggling $1 trillion over a decade. If you believe that the drug industry is unduly profitable, that sounds like a good thing. But despite the negative press, profit margins in biopharma range from just 10-20 percent -- less than software and banks. When R&D budgets are cut, we all lose. A $1 trillion reduction will directly translate to fewer medicines for patients -- a whopping 56 fewer new drugs over 10 years according to the most recent estimate.
The bill's supporters admit that private-sector research will slow down. But they believe the federal government can offset this drop by boosting public funding for medical research. They're mistaken.
As the recipient of an NIH grant, I appreciate firsthand the importance of government-funded research. But as someone who now works in biotech venture capital, I also know that when it comes to drug development, the government can't replace the private sector.
The government plays a crucial role in the earliest phases of medical research. NIH-funded scientists at universities and government labs investigate how diseases work. For instance, my NIH-funded research focused on finding a potential growth inhibitor for a type of brain tumor associated with neurofibromatosis type 2, a rare neurological disease.
This is vital work, and it helps advance our cumulative scientific knowledge. But NIH-funded researchers are charged with exploring the frontiers of medical science, not tasked with developing drugs. Their job is to uncover the mechanisms that drive human disease, opening the door to a possible future where academic discoveries are leveraged into cures. It’s the difference between designing a prototype of an electric car and actually building and manufacturing millions of Teslas.
It's up to the private sector to turn scientific insights into effective, reasonably safe building blocks for medicines, and then repeatedly refine and test those experimental drugs in clinical trials. All told, it takes more than a decade and costs $2.6 billion, on average, to develop just one new drug.
The development process is fraught with failure. Just 10 percent of experimental drugs that enter clinical trials ultimately receive FDA approval.
Successfully navigating that process requires a level of investment that only the private sector can muster. Biopharmaceutical companies poured $97 billion into their U.S. research and development projects in 2017 -- almost triple the NIH's annual budget.
I've seen firsthand how these investments fuel American innovation. After earning my Ph.D. from Harvard Medical School, I went to work at RA Capital Management, a venture capital firm specializing in health care. I made the career switch because I wanted my work to more directly impact patients, including family members impacted by disease. Having worked in an NIH-funded laboratory, I realized that helping to guide private investment was a more efficient way to bring pathbreaking medicines to those I love.
When investors fund drug development, we don't just bet on a single drug -- we distribute our risk over a whole portfolio. Our portfolio includes over 80 small biotech companies. Given the staggering odds against success in drug development, it’s likely that most of them won't develop a blockbuster drug anytime soon. But it’s the prospect of the few big winners that make it possible for us to justify investing in all of them, including those that fail and those that help only a few patients.
The Lower Drug Costs Now Act would upend this system. By capping the amount of money a successful drug can generate, the bill reduces the potential rewards tied to biomedical innovation. This would make entire portfolios of biotech investments less attractive to investors, who would funnel their money into safer, but potentially less transformative projects, like iPhone apps or streaming content.
We must make medicines affordable to patients. Fortunately, there are other reforms, such as lowering out-of-pocket costs and making sure that older drugs reliably go generic, that can achieve that noble end without undermining innovation. But patients will never benefit from the public funding we direct to academic research unless Congress leaves the incentives in place for investors and private-sector innovators to turn ideas into actual medicines.
Jessica Sagers, Ph.D., is a scientist and investor with RA Capital Management.
