Thompson Questions Witnesses on Overcoming Pharmaceutical Barriers

Thompson Questions Witnesses on Overcoming Pharmaceutical Barriers


[Thompson] Thank you, Mr. Chairman. Thank you for holding the hearing today and to all the witnesses, thank you very much
for being here and for your excellent testimony. Two years ago, the Republicans on this committee
gave billions of dollars in tax cuts to big pharmaceutical companies without paying for it. They told us it would lead to better and cheaper drugs, that it would drive investment
and that it would create jobs. Well, it’s been two years and I’d like to start by asking whether those predictions came true. Because to me the evidence looks pretty thin. Dr. Setser, you discuss this in you testimony
and I’d like to ask you to expand on it. Two years ago, Big Pharma
got tens of billions of dollars in tax cuts. In the two years since,
how have pharmaceutical companies used that money? [Setser] Well, it’s very clear that the bulk
of the tax cuts has been given back to the pharmaceutical companies’
large shareholders through a very large increase in share buybacks without any reductions in dividends. So the total announced buybacks
from pharmaceutical companies subsequent to the passage of the
Tax Cuts and Jobs Act has been in the – roughly around $80 billion. Research and development has grown a bit, but in line with the general increase in research and development of all successful companies. The bulk of the benefits have gone to shareholders. [Thompson] Has the price of pharmaceuticals
fallen meaningfully since those tax cuts? [Setser] If you look at the Producer Price Index
for pharmaceuticals and take as your starting point
the passage of the Tax Cuts and Jobs Act, the price of pharmaceuticals has gone up. As the Chairman noted – [Thompson] It’s gone up? [Setser] It’s gone up. The pace of increase may have slowed
in the past 12 months, but over the course of the past 24 months, the price index is clearly up. [Thompson] Has job creation in the pharmaceutical industry shot upwards since those tax cuts? [Setser] There is no evidence of any
significant acceleration in job growth. I mean, the overall economy has continued
to perform well and that has led to some increase in jobs. But remember that the increase in payouts to shareholders is something like 100 percent and there has been, you know, very modest increases in jobs. [Thompson] And then, just so I’m clear, the reinvestment of their profits relative to other industries
in research and development – that hasn’t led to tremendous growth in that area? [Setser] No, I think there’s one study that suggests research and development spending has gone up by like 7 percent, whereas I mentioned buybacks
were up by like 100 percent. A study by the Federal Reserve – which I think is, you know,
a relatively serious economics entity – that looked at not just the pharmaceutical industry but a broad set of America’s leading companies, found that research and development grew after
the Tax Cuts and Jobs Act at basically the same pace that it was growing before the Tax Cuts and Jobs Act, whereas buybacks and dividends shot up dramatically. [Thompson] OK, thank you. Dr. Kesselheim, earlier this year,
the House Democrats passed legislation that would empower the federal government to negotiate drug prices on behalf of all Americans, including Medicare beneficiaries. Critics say that this will stifle innovation. How would you respond to that? [Kesselheim] Um, I don’t – I don’t actually think there
is good evidence that it will stifle innovation. In fact, the cost savings that negotiation will allow in bringing drug prices closer to the value
that they actually provide – that doesn’t necessarily have to be pulled out of research and development costs. In fact, it could be pulled out of
marketing expenses or administration costs or other things that drug companies spend money on. Drug companies spend less than 20 percent
of their revenues on research and development. And, in fact, actually may increase innovation by requiring drug companies to
look harder for the next great cures of tomorrow to try to sustain their revenues. [Thompson] So they’re not going to –
they’re not gonna stop selling their products here because we require the negotiations. [Kesselheim] Right. I mean, they need –
that’s how they make – that’s – the drug companies are in this to make –
to – to sort of make drugs and make money from those drugs. So, I mean, I think that they’ll continue to do that. [Thompson] Thank you very much. I yield back.

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