My view: The FDA is part of the problem
MKTXS President Sandip Shah was recently published in the Desert News for his insights on rising pharmaceutical costs in the U.S. The original article was published here:
By: Sandip Shah
Dec. 8, 2016
Ordinary Americans, reporters and even a congressional panel heaped scorn on pharmaceutical company Mylan after it raised the price of its epinephrine injector set from $100 to more than $600.
Mylan deserves criticism for making it harder for patients to afford the injectors they need to prevent fatal allergic reactions. But Mylan isn’t the only culprit in this scandal. The FDA is sitting on a huge backlog of generic drug applications. Such bureaucratic lethargy enables companies to form monopolies and gouge consumers.
Policymakers could solve the problem by giving the FDA the mandate and resources to clear this backlog. Instead, they’re training their fire on innovative drug companies that have nothing to do with this price gouging. Their proposed crackdown on these firms wouldn’t stop abusive pricing practices, but it would stifle innovation and deprive patients of lifesaving new medicines.
Price gouging is only possible when companies face no competition. The FDA has created just such a scenario. In October, a full 2,996 generic drug applications were pending approval or review. At least two of those would have offered allergy sufferers an alternative to Epi-Pens.
But the FDA has stalled both applications. The agency complains that one product uses a slightly different design than Epi-Pen, and that the manufacturer of the other product left some testing data out of the application.
This nitpicking is ridiculous. Researchers developed epinephrine in 1901. It’s now off-patent — as are the older, perfectly effective, designs for injectors. The only thing stopping companies from creating an inexpensive, generic epinephrine injector is FDA lollygagging. In Europe, regulators have approved a handful of competing injectors — and prices are under $100 as a result.
Other firms have similarly taken advantage of the agency’s delays. Turing Pharmaceuticals infamously hiked the price of Daraprim, a medicine used to treat AIDS patients, from $13.50 to $750 overnight. The drug hit the market 62 years ago, so its patent expired long ago. Likewise, Valeant Pharmaceuticals increased the prices of the off-patent heart drugs, Isuprel and Nitropress, by 525 percent and 212 percent.
These companies got away with upping their prices so dramatically because they knew the FDA would take years to approve competing products.
When manufacturers introduce generic drugs to the market, prices plummet. The introduction of a second generic drug cuts brand-name drug prices in half, on average. And as more generics gain approval, the price of a drug can drop by as much as 94 percent, according to a study ironically published by the FDA.
If policymakers want to prevent price gouging, they simply need to enable the FDA to approve applications far quicker than the current average of 47 months. The Senate is already considering a bill that would require the FDA to approve or reject generic drug applications in 150 days or less. And policymakers are currently reworking a bill that allows the FDA to raise hundreds of millions in revenue to ensure it can complete this mission.
Instead of enacting these targeted solutions, many of our leaders are on the warpath against the research firms that spend billions of dollars to create innovative new medicines. They’re calling for all manner of direct and indirect price controls — including a cap on drug prices in California, importing price-controlled medicines from abroad, and giving Medicare de facto authority to dictate prescription drug prices.
Inventing and bringing a new drug to market is a risky and expensive endeavor. It costs about $2.6 billion and takes 10 years.
When a company does strike gold — developing a unique product and gaining FDA approval — restricting competition for a limited time makes sense. Patents give the company a chance to recoup its massive investment in research and development, and ultimately reinvest its profits in developing other new treatments.
Price controls would take away the financial rewards of drug development. So companies wouldn’t take the risk to tackle our toughest diseases.
We’d lose out on lifesaving new medicines. Between 1999 and 2006, thanks largely to pharmaceutical innovation, the mortality rate for cardiovascular disease — the number one killer in America — dropped 29 percent.
It’s worth paying for truly innovative drugs. But once medicines go off patent, there’s no reason for consumers to continue shelling out top dollar. Speeding the generic drug approval process would introduce competition, slash prices and prevent rapacious behavior. Patients will suffer if our leaders neglect this straightforward, targeted solution and instead clobber the entire pharmaceutical industry with price controls that deter risk-taking and innovation.