The case of the EU and Japan: How price controls hurt biotech innovation

biotech medical innovation research laboratory pharmaceutical company science

In light of the Senate’s current push for medication price limits, we examine the EU’s and Japan’s experiences to see how rapidly price controls would impede biotech investment, innovation, and competitiveness.

Senate Democrats are proposing legislation that would impose price limits on up to 100 medications by 2031, according to a recent study by Avalere. According to The Hill, Senate Majority Leader Chuck Schumer is “‘working with all the caucus’ to secure buy-in from all 50 members to send the budget reconciliation bill to the floor later this week.

Europe lost its biotech leadership

Europe’s experience shows that price controls hit innovation hard. According to a new report from Vital Transformation, “For every 10% difference in pricing between the EU and the U.S., we see a 9% change in the number of biotech startups.”

“By 2019, EU late-stage VC (venture capital) was just 3% of U.S. late-stage VC,” says the report.

Following pricing limits, Europe lost its biotech leadership, and now, according to the report, 60% of all medicines originate in the United States.

Japan’s experience with price controls

The story in Japan is similar.

Price restrictions were implemented in Japan in the 1980s and 1990s. “From 1995 to 2018, Japan’s share of worldwide value added in the pharmaceutical business plummeted by 70%, from 18.5 percent to 5.5 percent,” according to the Information Technology and Innovation Foundation (ITIF).

“Japan’s experience shows a nation’s leadership in advanced-technology industries is never guaranteed or assured and should serve as a warning for U.S. policymakers considering implementing drug price controls,” says the analysis.

China will capitalize on price controls

Meanwhile, China is gaining ground, says Good Day BIO.

“In 2021, Asia (mainly China) had 93 venture-backed start-ups,” according to the previously mentioned Vital Transformation study, around the same as the United States. Price limits imply that “VC will relocate to areas where they can get a consistent ROI,” hastening the “transition to China for new biopharma.”

As the Council of State Bioscience Associations (CSBA) highlighted in a letter to congressional leadership, price limitations impede development.

“Given the impact on investor confidence, the downstream effects of the recently released Senate Democrats’ drug pricing proposal will significantly chill research and development, eliminate American jobs, and drive capital investment away from the life sciences,” said CSBA’s letter.

Scroll to Top
SUBSCRIBE TO THE FREE GOOD DAY BIO NEWSLETTER