The Connection Between Pharma Innovation and Health Policy Development

In a video interview with Pharma Commerce, Geoffrey Joyce, PhD, director of health policy at the Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California (USC, describes how the 10% tax on Chinese goods and a potential 25% tariff on pharmaceuticals could have notable effects on the price, quality, and safety of generic drugs. He explains that while branded and generic drug markets operate differently, the cost of generics is typically much lower, with intense competition driving prices down. A 10% tariff on generics might not significantly impact costs because most of the price is tied to distribution, not manufacturing. However, the COVID-19 pandemic highlighted the risks of relying on countries like China and India for essential generics, which has led to a push to bring production back to the U.S.

A 25% tariff would likely make domestic production more attractive, but generics are low-margin products, so this may result in higher consumer prices. Joyce suggests that tariffs could disrupt supply chains but not lead to significant changes in US production in the short term. Additionally, the low-profit nature of the business could encourage foreign manufacturers to cut corners, potentially reducing drug quality. California's failed attempt to create its own generic drug industry illustrates the challenges in stimulating domestic production for these low-margin drugs.

While tariffs might encourage some domestic production, it could come at the cost of higher prices and possibly lower drug quality. The overall impact on the drug supply chain remains uncertain, with concerns about reliability and safety, especially if foreign manufacturers face increased production costs.

Joyce also describes what makes the generic drug market susceptible to supply chain disruptions; how the tariffs can affect price or competition within the branded drug space; health policy developments that coming down the pike that the pharma supply chain should prepare for; and much more.

A transcript of his conversation with PC can be found below.

PC: Are there any health policy developments coming down the pike that the pharma supply chain should prepare for or be aware of?

Joyce: Well, when you talk to pharm execs, their big concerns are the IRA and tamping down prices on branded products. The reductions have not been that great so far, but I think it's a Pandora's box, where now you're opening up price negotiations for branded drugs. Then, the other issue that they're all worried about is 340B and changing that system, which has been a problem. That's what at least from the pharm execs I've talked to in the last couple of months, those are their two primary concerns. They’re for-profit companies, so they have to think about, where am I going to make my investments? Am I going to get a return on investment?

We worry about if we focus too much on launch prices and the price of drugs in early stage, it's going to have a detrimental effect on innovation. We don't worry about that in the generic space. Those are homogenous products, and we don't have to worry about a downside. Anything that sort of facilitates that market and makes it more competitive, the better. I would argue—and I have argued in the past— you could set price floors on a lot of generic products and maybe induce domestic production.

Yes, it would be more expensive than getting those drugs from India and China, but I think people might be willing to pay an extra $2, $4, or $5 for what they perceive as a safer, higher quality generic product, given prices on generics generally speaking, are low. But again, basically pharma outsourced all this stuff because labor and materials were cheap overseas. It made total sense. And I think COVID and other shortages have made us realize that there's a risk and a downside to that.