Nevada State Senate

401 South Carson Street

Carson City, Nevada  89701-4747

Dear Senator,

The Senate Committee on Health and Human Services will hold a hearing on Wednesday, March 29, 2017, on SB 265, a bill which imposes destructive price controls on drugs essential for treating diabetes, and arduous transparency requirements that would cripple the private-sector drug pricing market in Nevada, drive up costs, and ultimately harm patients.  On behalf of the more than 13,445 supporters and members of the Council for Citizens Against Government Waste (CCAGW) in Nevada, I ask that you oppose this bill.

Among the harmful price control measures in SB 265 is a requirement for a manufacturer to reimburse a claimant for the difference between the wholesale acquisition cost (WAC) of a diabetes prescription drug and the capped price of the same drug sold in an Organization for Economic Co-Operation and Development (OECD) member country, either on January 1 of the current calendar year or if the price should increase by a percentage that is larger than the increase of the Consumer Price Index (Medical Care Component) during the year.  Since the WAC is a benchmark, not a final cost, the use of the WAC price ignores the lower costs of drugs that are negotiated every day among pharmaceutical companies, pharmacy benefit managers, and pharmacists.  Even worse, the cost of drugs in OECD countries are subject to strict price controls and therefore irrelevant to prices in the U.S.

In addition, a manufacturer would have to notify a third-party payer 90 days in advance before increasing a WAC of a diabetes drug by a percentage larger than the percentage increase of the Consumer Price Index (Medical Care Component) for the 12 months immediately preceding the date of notification.  This provision again ignores the fact that WAC does not represent the final cost of drugs.  In addition, this legislation would be particularly costly and harmful to generic drug companies because their products behave more like commodities where prices routinely fluctuate.  Generics represent approximately 88 percent of all prescription in the U.S and these companies already operate on small profit margins.

CCAGW urges members of the Nevada Legislature to read our issue brief, “Pharmaceutical Price Controls – A Prescription for Disaster.”  It explains why price controls always cause market disruption, shortages or excesses, and end up hurting the economy, consumers, and taxpayers.

SB 265 would also impose extraordinarily complex and expensive price “transparency” burdens on manufacturers about pharmaceutical costs.  The bill would require manufacturers to produce information on a variety of outlays associated with a drug, such as the cost of preclinical and clinical trials; costs associated with preparing and submitting documents to the Food and Drug Administration (FDA); the cost for research and development incurred by the manufacturer or a predecessor; manufacturing and administrative expenditures; costs of acquiring the patent rights to a drug; marketing and advertising expenses; costs associated with patient assistance programs; and the profit the manufacturer has earned from the drug and the percentage of the manufacturer’s total profit attributed to the drug.

Many of the costs requested are proprietary and its exposure would threaten innovation and stifle competition.  Furthermore, research and development outlays can already be found in company annual reports and are also reported to the Securities and Exchange Commission.  It is also difficult to quantify exactly what a manufacture spends to create a particular drug.  Pharmaceutical companies spend tens of millions of dollars testing different compounds, many of which end up being discarded or shelved because they do not work, or are unsafe.  Researchers still need to be paid even if a compound they are working on never makes it to human clinical trials.  Other compounds may be ultimately successful, but not for the originally intended indication and sometimes years later.

It is understandable that legislators, government officials, and consumers are concerned about high drug prices, but an environment that fosters competition is the better approach to lowering prices.  It takes 10 to 12 years for a new drug to move through the FDA approval process and costs about $2.6 billion to do so.  The 21st Century Cures Act (P.L. 114-255), which was signed into law on December 13, 2016, provides new methodology, such as biomarkers and real-world evidence, to speed up clinical trials and the approval process.

In addition, Congress will be considering reauthorization of the Generic Drug User Fee Amendments (GDUFA II) in 2017.  One of the law’s primary goals is to speed up the availability of generic drugs to consumers.  Currently, with a backlog of more than 4,000 generic drug applications, the FDA has a lot of work to do.

Therefore, rather than approving SB 265, members of the Nevada Legislature should instead prod their U.S. Representatives and Senators to hold the FDA’s feet to the fire to make sure the agency quickly adopts the new methods found in the 21st Century Cures Act, and ensure that GDUFA II will force the FDA to focus like a laser beam on reducing the generic drug backlog.  That would be the most effective solution to any perceived, or imagined, problems with the price of pharmaceuticals.

On behalf of Nevada consumers and taxpayers, I urge you to oppose SB 265.

Sincerely,

Tom Schatz

President, CCAGW