Clinton's drug price cap will hit R&D spend and CRO revenues say experts

07-Oct-2015 - Last updated on 08-Oct-2015 at 12:50 GMT

Hilary Clinton called for a prescription price cap following the 5,000% price hike of a toxoplasmosis drug by Turing Pharmaceuticals

A proposed prescription drug price cap in the wake of the Turing Pharmaceuticals controversy will lead to reductions in R&D spending and could have a negative knock-on effect for CROs say experts.

US Democrat presidential hopeful Hilary Clinton last month proposed a $250 (€221) monthly cap on prescription drugs in an effort to stop “price gouging” in the pharma industry.

Her calls were a reaction to Turing Pharmaceutical CEO Martin Shkreli’s 5,000% price hike of toxoplasmosis treatment Daraprim, and in the days following her comments the NASDAQ Biotechnology Index dropped as did the share price of some contract research organisations (CROs).

While neither a fan of Shkreli’s actions nor Clinton’s proposal, Neal McCarthy - Managing Director of investment banking firm Fairmount Partners - told Outsourcing-Pharma the public’s eyes have now become focused on pharmaceutical pricing (a concept “more complex than rocket science”) and if a price cap came in there could be repercussions across the CRO industry.

“If the US makes drastic changes to pharmaceutical pricing, the pharmaceutical companies will have two choices – lower profits, or lower R&D,” he said. “If R&D is reduced, the number of new drugs will be reduced as well, and that would be a shame.”

The cost to develop a new drug is around $2.6 billion, including money on failures, McCarthy continued, adding the estimated R&D spend by members of trade organization PhRMA will be $51.2bn this year.

“Modest reductions in R&D spending are not likely to harm CROs. Pharma chooses CROs because they can work more efficiently and effectively than pharma.”

However, “drastic reductions would certainly harm drug companies and CROs but would do even greater harm to the people who need the drugs being developed. And for that reason, I hope that price caps are just another campaign promise.”

Potential upsides?

President of Industry Standard Research, Andrew Schafer, remained more positive about the prospect of a price cap.

“It is too early to tell the extent to which this might impact R&D at biopharma companies,” he told us. “If substantial price controls were to be introduced it could have both a positive and negative impact on R&D activities and, in turn, the CRO industry.”

Schafer suggested there could be some reprioritization of R&D programs, but there could also be an increased focus on services/analysis/studies that look at the economic value of biopharmaceutical products.

VP of Clinical Development at CRO Clinipace, Mark Shapiro meanwhile agreed that a price cap could harm R&D investment but said he does not expect there to be too much of an impact on CROs.

“I think that we’ll see relatively fewer new medications entering clinical development in a couple of years. [but] in the long-term, CROs will continue to provide a high-quality, lower-cost alternative to in-house drug development.”