President Trump's latest executive order will decimate U.S. innovation

With only a few months left in his first term, President Trump is trying to make good on his campaign promise to lower drug prices.

He has signed an executive order directing Medicare to tie reimbursements for most medicines to the lowest prices paid in other developed countries. This “foreign reference pricing,” if implemented, would purportedly give Americans cheaper drugs. But it would stifle biomedical research, leaving valuable new therapies undiscovered and dashing the hopes of patients whose conditions lack an effective treatment.

Drug discovery in the United States is diversified and collaborative. It often involves scientists at universities or government labs doing basic research without any obvious commercial application.

Those discoveries might nonetheless be patented. This opens the door to collaboration with a partner from the private sector — for example, a small biotech backed by venture capital -- to develop it further into a commercial product.

These private firms are better equipped to develop and commercialize a drug discovery. It’s risky, expensive, and time-consuming. Very few therapies make it from the lab into clinical trials, and of those only 12 percent receive FDA approval. On average, it takes 15 years and $2.9 billion to bring a new drug to market.

This public-private partnership, backed by the U.S. patent system, has fueled incredible innovation. Today, U.S. researchers invent and develop two-thirds of all new medicines.

President Trump’s executive order would destroy this public-private pathway and diminish biopharmaceutical innovation in general.

In most of the reference countries, the government sets drug prices. Those prices — even if the product of so-called “cost-effectiveness evaluations” — are arbitrary and invariably depressed as there’s only one buyer: the government.

In this system, there is no competition among buyers to offer patients — the end users — generous drug coverage. Foreign officials simply refuse to cover new drugs without significant discounts. Where companies can’t afford to sell at the suppressed prices set by officials, the drugs are excluded from the market and patients are denied the benefits of valuable therapies.

The U.S. system, however, rewards innovation. Innovators can more effectively and reliably set prices on newly discovered drugs to cover the costs of research and development. And it stimulates further innovation and competition by rewarding the development of competing, less-costly alternatives.

By tying U.S. drug prices to those of reference countries, the executive order would relegate American pharmaceutical innovation and diminish investment. Investors will place their bets elsewhere, unwilling to take the risk of developing a drug for which the government will only demand an unreasonable, artificially low price.

Having spent decades supporting innovative discoveries through technology licensing, I find this troubling. The United States has always recognized the public benefit of innovation, and encouraged it through market-based incentives. Those incentives have produced incalculable benefits in the form of drugs, vaccines, and medical devices. Now more than ever, having seen the havoc of COVID-19, we should be rewarding, rather than discouraging, innovation.

Regrettably, President Trump’s executive order does exactly the opposite.

Brian O’Shaughnessy is Chair of the IP Acquisitions Group of Dinsmore & Shohl, LLP, and a past president of the Licensing Executives Society (USA & Canada), Inc. This piece originally ran in the Boston Herald.