This issue brief reviews the evidence on the impact of price controls on biopharmaceutical innovation and calibrates what this evidence implies for recent price control proposals in the US. A large academic literature estimates the effect of future drug revenues on R&D spending with a mid-range effect of a 1 percent reduction in revenue leading to a 1.5 percent reduction in R&D activity. Using the range of such effects found in the literature we find the proposed price controls of US bill HR3, the Lower Drug Costs Now Act, would lead to a 29 to 60 percent reduction in R&D from 2021 to 2039 which translates into 167 to 342 fewer new drug approvals during that period. The mid-range effect of the evidence implies a 44.6 percent decline in R&D and 254 fewer new drug approvals. We argue this is a conservatively low estimate of the impact of such proposals even though it is as much as a ten times larger reduction in new drugs compared to a recent CBO analysis.
Issue Brief: The Evidence Base on The Impact of Price Controls on Medical Innovation
