• Securing savings on drugs is certainly important -- but the president's approach is woefully misguided.
  • It's far from guaranteed that one of the experimental vaccine candidates holds the key to COVID-19 immunity.
  • Drug companies may decide to prevent any existing treatments from launching in the U.S. market. 

President Trump on July 31 issued a series of wide-ranging, but undetailed executive orders described as an effort to lower U.S. drug prices. The most significant ties Medicare reimbursements for certain medicines to the prices paid by foreign governments who impose price controls.

Securing savings on drugs is certainly important -- but the president's approach is woefully misguided. Like all price-setting schemes, the new order will deter private investment into biopharmaceutical innovation, thereby stalling progress towards cures, treatments, and vaccines for a host of debilitating conditions. And it will do so amidst the worst pandemic in 100 years.

Biotech firms, armed with billions of dollars in private venture capital, sprang to action following the outbreak of the novel coronavirus. Researchers around the world have worked at breakneck speed, sparing no resources, to deliver a vaccine as quickly as possible. At the most recent count, there are more than 165 vaccines in various stages of development.

Still, it's far from guaranteed that one of these experimental candidates holds the key to COVID-19 immunity. Even when an eventual vaccine is approved by the FDA, it could be months before it is made widely available to the public.

These are the long odds that pharmaceutical and biotech firms face daily in their attempts to develop new treatments and cures. Of the drugs that reach phase I clinical trials, less than 12 percent will ultimately earn regulatory approval. This failure rate drives up the cost of drug development considerably. As a result, the average new medicine requires an investment of $2.6 billion over the course of 10-to-15 years to bring to market.

Despite these challenges, the U.S. biopharmaceutical industry has distinguished itself as the most prolific source of medical breakthroughs. About two in three new drugs originate here in the United States. American firms are actively pursuing more than 4,500 cures, treatments, and vaccines for conditions like Alzheimer's, heart disease, cancer and COVID-19.

What sets America apart from the rest of the developed world is an innovation ecosystem that encourages private investors to take a risk on new medical technologies, with the hopes of outsized returns for the few successes. And it's precisely this investment-friendly environment that Trump's executive order chills.

The president wants to save the federal government money on prescription drugs in the hopes that those savings get passed to patients. To that end, the order indexes U.S. drug prices to the lower prices paid in several reference countries -- including Canada, France, and the United Kingdom.

In most of these countries, drug prices are heavily regulated by government agencies. So, with his new executive order, the president would effectively be importing foreign price controls into the United States.

Upending our market in this manner will create substantial uncertainty -- enough to drive away investors and, thus, hinder vital medical research. After all, for a potential drug to attract investment from a venture capitalist it needs to stand a chance at recouping its development costs.

Under the president's new plan, most drugs would fail to meet this base requirement. If the federal government artificially limits the price of a new drug, the chances of losing money on a project would increase considerably -- and investors would quickly flee to less risky sectors. Soon, the number of new medicines in active development would plummet.

Meanwhile, drug companies may decide to prevent any existing treatments from launching in the U.S. market. That's exactly what happened in other countries that have adopted price controls. For instance, fewer than half of the 243 new drugs released between 2011 and 2018 were immediately available to patients in Canada. French patients gained access to only 53%. By contrast, Americans had access to nearly 90% of those medicines.

With the stroke of his pen, Trump began the process of dismantling the greatest engine for drug development ever known. His executive order would prove harmful even in the best of circumstances. But at a moment in which the world is looking to the American drug industry to end the COVID-19 crisis, obstructing medical innovation puts global health at unnecessary and extraordinary risk.

John Stanford is the executive director of Incubate, a Washington-based coalition of life-science venture capitalists.