The 340B Program’s Negative Impact on Pharmaceutical Innovation
As the Department of Health and Human Services considers changes to the federal 340B drug program, including switching mandatory drug manufacturer contributions from discounts to rebates, it is important for policymakers to recognize the myriad concerns with this program. In a white paper last year, we highlighted one negative aspect of 340B: its impact on pharmaceutical innovation and new drug development. In our paper, we estimated the hit to drug firms’ R&D budgets and the subsequent decrease in the number of new drugs brought to market as a result of 340B.
As we describe in the paper, drug companies’ willingness to invest in R&D has been shown to be sensitive to manufacturer revenue. In 2015, 340B discounts comprised nearly 2 percent of manufacturer net revenues. Within a decade, this increased to 6 percent. Based on our model, we estimate that a 50 percent increase in 340B discounts would result in a $3.3 billion-$4.9 billion drop in R&D per year industrywide. Given that the estimated average cost of successfully developing a new medicine is $2 billion over multiple years, this impact could reduce the number of new medicines in the coming decade by 16-24.
We also estimate the impact if 340B discounts were to return to 2015 levels, declining from 6 percent to 2 percent of revenues. In this scenario, R&D spending would increase $4.3 billion-$6.4 billion per year, resulting in 21-32 additional new medicines coming to market over the next ten years.
While 340B has an industrywide impact, its negative effect is greater on R&D-intensive firms–that is, those that spend a larger share of revenues on R&D–and all the more if these companies have a product portfolio with large 340B discounts.
The 340B program has grown far larger than ever intended. Considering the lack of evidence that this growth has improved health outcomes, its negative impact on new treatments and cures is even more concerning.
