We Can use Market Forces to Moderate Drug Prices

In May 2018, the U.S. Department of Health and Human Services released its proposal for lowering pharmaceutical prices and reducing out-of-pocket costs. The “American Patients First” plan outlined four strategies: “improved competition, better negotiation, incentives for lower list prices, and lowering out-of-pocket costs.”

Those approaches, while well-intended, seem not to have had much effect. On July 1 this year, 20 drug companies increased the list prices of more than 40 prescription drugs by an average of 13.1%, according to Rx Savings Solutions, which makes software that helps employers and health plans to choose the least-expensive medicines. That’s worse than the price hikes in July of last year, when 16 companies raised the list prices of dozens of drugs by an average 7.8%.

What we really need is more competition in the marketplace, not more intrusive government interventions that would diminish pharmaceutical companies’ incentives to take risks, to innovate, and to find new treatments and cures. Bringing a new drug to market currently requires 10–15 years and costs, on average, more than $2.5 billion. Is it credible that more government involvement would lower development costs, bring more drugs to market, save more lives, and make drugs more affordable? Suffice it to say that I am reminded of the quip from the late economist Milton Friedman that if the government were put in charge of the Sahara Desert, in five years there would be a shortage of sand.

I have two proposals that would boost the number of drugs in the marketplace, which would increase both competition in the marketplace and patients’ access to new medicines, and also alleviate critical shortages of old drugs in the bargain.

Changes in FDA Policies

More Accelerated Approvals

First, the Food and Drug Administration should modernize its drug review process to approve drugs more rapidly in order to increase the pool of available treatments and vaccines. One way that could be accomplished is by greater use of “accelerated approvals,” which permit the FDA to issue what amounts to a limited, or conditional, approval of a new drug that is intended for a “serious or life-threatening disease” and for which there is an “unmet medical need.”

Such an approval can be achieved more rapidly because it is based on clinical trials that show improvement in “surrogate endpoints” that are believed to correlate with clinical benefit but have not yet shown efficacy on a “definitive” health endpoint such as increased longevity or an actual reduction in the incidence of heart attacks. Examples of surrogate endpoints are the shrinking of a tumor, improvement in a laboratory value such as blood urea nitrogen (BUN), or greater ability to ambulate in patients with a neurodegenerative disease.

Following accelerated approval, the drug sponsor (company) must perform confirmatory trials to prove to the FDA that the medicine is effective in meeting a definitive clinical endpoint (such as greater longevity), at which time the approval is converted to a standard, unconditional approval. If the studies are not done or they fail to provide such confirmation, the FDA can withdraw the drug from the market.

Better Management and Discipline at the FDA

Another way to get more drugs into the marketplace is by means of good, old-fashioned, conscientious management. The FDA is notorious for pushing the envelope of its statutory authority in ways that stifle innovation in drug development. Although there exists a legal requirement only to show that a new drug is safe and effective, the agency has invented new criteria, including a demonstration of superiority, which it applies arbitrarily. However, proving that a drug is better than existing drugs often is much more difficult and vastly more expensive than just proving that it is safe and effective, because if two medicines’ efficacy differs only marginally, the clinical trials must be very large in order to attain statistical significance. Drugs useful for some patients will fail to gain approval if this new criterion is widely implemented, putting a damper on competition in the drug market and boosting prices.

FDA’s management should also exert its influence on the appearance and uptake in the marketplace of “biosimilars,” which can be thought of as generic versions of “biologics” -- drugs that are complex biological molecules derived from living cells; typical examples include vaccines, gene therapy, cancer and arthritis drugs, and allergenic products. Biosimilars are projected to be priced between 10 and 51 percent less than corresponding brand-name biologics. Economist Wayne Winegarden estimates that small-molecule generic drugs “saved the U.S. health system $1.67 trillion between 2007 and 2016 alone,” and according to his analysis, with increasing market share of currently approved biosimilars, the savings could run well into the billions.

One obstacle to physicians’ prescribing of biosimilars is a whispering campaign against them by makers of the more expensive brand-name products. The legislation that established the regulatory pathway for biosimilars states explicitly that a biosimilar must be highly similar to, have the same mechanism of action as, and have no clinically meaningful differences from the reference product – and FDA is has been strict about ensuring those conditions are met -- but that hasn’t deterred producers of brand-name biologics from raising hypothetical concerns to prescribers and patients about the safety and efficacy of biosimilars. The FDA (and possibly the Federal Trade Commission) should ensure that public statements made about biosimilars by competitors are neither untrue nor misleading.

Reciprocity of Drug Approvals

My second proposal – reciprocity of drug approvals based on approval by foreign regulatory agencies that have approval processes comparable to the FDA’s – would increase competition and access to a greater number of drugs on the market in the United States, thereby putting downward pressure on prices.

Most important of all, reciprocity would benefit patients directly. The detrimental effects of delays in FDA approval of certain new drugs already available in other industrialized countries are well documented. One notable example is the FDA’s 2015 approval of Fluad, a flu vaccine that contains an adjuvant (MF59), which boosts the immunogenicity of the vaccine. It is intended for use in the elderly, whose immune response to flu vaccines is often poor, with devastating effects. People over age 64 account for 80–90 percent of seasonal flu-related deaths and 50–70 percent of flu-related hospitalizations in the United States.

Fluad was initially approved in Italy in 1997, and at the time of its U.S. approval in November 2015, had been licensed in 38 countries, including Canada and 15 European nations. The lengthy delay in the drug’s availability in the United States surely resulted in thousands of avoidable deaths.

Another example of a lethal regulatory delay is the sorry saga of a drug called pirfenidone, used to treat a pulmonary disorder called idiopathic pulmonary fibrosis (IPF), which used to kill tens of thousands of Americans annually.

The cause of the disease is unknown and there were no drug treatments approved for it in the United States until October 2014, although pirfenidone had already been marketed in Europe (since 2011), Japan (2008), Canada (2012) and China.

Pirfenidone was approved in the EU on the basis of three randomized, double-blind, placebo-controlled studies, one conducted in Japan and the other two in Europe and the United States.

In spite of a recommendation for approval by an FDA advisory committee (comprised of outside experts) in 2010, agency officials opted not to approve the drug and demanded another major clinical study. The results, published in May 2014 were impressive and the FDA finally approved the drug without fanfare in October 2014. But between 2010 and pirfenidone’s approval, more than 150,000 patients died of IPF in the United States, many of whom could have benefited from the drug, had it been available.

The Fluad and pirfenidone examples illustrate an endemic problem at “gatekeeper” regulatory agencies — those, like the FDA, that must grant an affirmative approval before a product can be legally marketed.

How would reciprocity work? Reciprocity of drug approvals with certain of the FDA’s foreign counterparts that have comparable drug approval regimes would cause an approval in one such country to trigger approval in the United States upon application by the foreign drug manufacturer or licensee (subject to the creation of approved labeling in appropriate format, etc.). That would make more drugs available sooner in the United States, increase competition and put downward pressure on prices.

Reciprocity of foreign approvals would also help to alleviate the pressing problem in the United States of shortages of certain critical drugs, many of which have been essential in medical practice for decades. The majority are generic injectable medications commonly used by EMTs and in hospitals, including analgesics, cancer drugs, anesthetics, antipsychotics for psychiatric emergencies, and electrolytes needed for patients on IV supplementation.

Hospitals are scrambling to assure adequate supplies of drugs that are in short supply, or to find substitutes for them. The FDA is severely limited in what it can do to address shortages. The agency’s app to enable health-care providers to keep current on shortages informs them about the problem but doesn’t actually remedy it. Reciprocity of approvals would make numerous needed alternative drugs available. It could have been in place decades ago if only the FDA had met its long-standing commitment to pursue it through the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH).

There has been some progress on harmonization at the margins. A number of countries now have a common standardized dossier for seeking approval of new drugs, the United States accepts research conducted in other countries to support applications for the approval of new drugs and devices, and the FDA has established Good Manufacturing Practices for foreign production facilities.

The ICH’s agenda (supposedly) includes reciprocity of drug approvals among certain governments, but generations of FDA officials have resisted any such “delegation” of their responsibilities. When a senior European regulator was asked about the extent of the FDA’s cooperation on this issue, she quipped, “It’s like discussing the Thanksgiving dinner menu with the turkeys.”

The FDA has improvised procedures for importing drugs approved and marketed abroad that have not been approved in the U.S., but that “enforcement discretion” approach – a kind of ad hoc reciprocity -- is legally questionable. In a footnote to the agency’s October 2013 Strategic Plan for Preventing and Mitigating Drug Shortages, FDA acknowledged its awareness of a relevant court decision, Cook v. FDA (D.C. Circuit, Case No. 12-5176), in which the court prohibited FDA from using enforcement discretion to permit the importation of an unapproved drug for capital punishment execution, because the law is clear that an unapproved drug cannot come through U.S. Customs for marketing. The FDA’s terse comment, “We are currently reviewing the decision in the context of our drug shortages program,” belies the existential importance of that decision.

Allowing market forces – i.e., competition -- to put downward pressure on drug prices is likely to be more fruitful, and to have fewer unintended effects, than heavy-handed government interventions such as price controls. Reciprocity of medical-product regulatory decisions, more accelerated approvals, and improved management of the FDA would move us in that direction.