What would Medicare price negotiations bring to the US? Look to Europe, Lilly CEO Ricks says

When posed with the decades-old question of how drug price reform would affect their operations in the U.S., pharma execs have a ready-made response: Reducing drug prices would hinder innovation.

While Eli Lilly CEO David Ricks falls in line with the mantra, he bolsters his case with a cautionary example, pointing to Europe and the effect government pricing regulations have had there.

“In the 80s and 90s, this was a European industry,” Ricks said in an interview. “Eighty percent of global R&D was happening on the European continent and today it’s less than 20. Where’s that going? It’s gone to America.”

While many pharma giants are headquartered in Europe, there is “no biotech cluster and no venture capital,” Ricks said. During an EU pharma conference in Brussels in June, the theme of the meeting was how to get the industry back, Ricks pointed out.

“They know they’ve lost the industry and it showed up in a big way in the pandemic,” said Ricks, who also serves as the chairman of the pharmaceutical industry lobbying group PhRMA. “Today there are six approved medicines in the United States for COVID and three approved vaccines. Five of the six medicines came from American laboratories and all three of the vaccines did.”

While New York drugmaker Pfizer is commonly credited with creating its namesake mRNA vaccine, German company BioNTech developed the shot before partnering with Pfizer.

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Meanwhile, with debate underway in Washington on whether to allow Medicare to negotiate prices, industry leaders are sounding a familiar refrain, reminding of the consequences of lost revenue that would come with the new proposal.

Ricks has said that Lilly’s U.S. revenues would decline by 40%, forcing many employees out of jobs and deep cuts to R&D. But those pushing for drug price reform say the industry claims are overwrought.

“Their argument has always been that Western civilization is going to end,” Senate Finance Committee Chairman Ron Wyden, D-Oregon, told reporters last week.

Changes are needed, Ricks said. He argued the real problem is patient out-of-pocket costs. The broken part of the U.S. system is the way that insurance is designed, the CEO added.

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A redesign of Medicare Part D is a palatable alternative for the industry, Ricks said. Those measures include an out-of-pocket cap for beneficiaries, required discounts from drug manufacturers and incentives for Part D plans to promote the least expensive drugs.  

“We’re for progress here,” Ricks said. “What we can’t have is wholesale disruption. That’s why we’re so vocal right now.”