FDA Attempts to Shame Pharmacuetical and Biotechnology Companies

The U.S. Federal Drug Administration (FDA) recently decided to try to “shame” some pharmaceutical and biotechnology companies for failing to provide samples to companies who wish to produce generic versions of their pharmaceuticals.  The FDA states:

In passing the 1984 Hatch-Waxman Amendments to the Federal Food, Drug & Cosmetic Act, Congress created a system that balances encouraging and rewarding medical innovation with facilitating robust and timely market competition. One of the primary ways that FDA facilitates a competitive marketplace is through the efficient approval of generic drugs, which are often lower-cost than brand drugs.

Unfortunately, the process established by Congress may not always function as intended. At times, certain “gaming” tactics have been used to delay generic competition. One example of such gaming is when potential generic applicants are prevented from obtaining samples of certain brand products necessary to support approval of a generic drug. The inability of generic companies to purchase the samples they need slows down, or entirely impedes, the generic drug development process – leading to delays in bringing affordable generic alternatives to patients in need.

As described in further detail below, these kinds of problems with generic access to necessary samples may occur when brand products are subject to limited distribution – whether the company has voluntarily adopted limitations on distribution, or the limitations have been imposed in connection with a Risk Evaluation and Mitigation Strategy (or REMS), a program that FDA implements for certain drugs to help ensure that their benefits outweigh their risks. In some cases, brand drug sponsors may use these limited distribution arrangements, whether or not they are REMS-related, as a basis for blocking potential generic applicants from accessing the samples they need.

As part of the FDA’s Drug Competition Action Plan (DCAP), FDA is committed – among other things – to addressing and improving transparency about this and other gaming tactics that delay the generic competition Congress intended.

There are around 50 drugs listed, including about 40 different pharmaceutical and biotechnology companies.  Do you think this tactic will work?  Interestingly, a New York Times article describes Celgene’s response, here. 

The Coming Increased Transparency in Pharmaceutical Pricing in the United States?

Pharmaceutical pricing has been viewed as a black box type of affair.  However, a recent Wall Street Journal article authored by Jonathan D. Rockoff titled “How Pfizer Set the Costof Its New Drug at $9,850 a Month” reveals some of the process for at least one drug.  The author essentially observes that the process was mostly influenced by the price of other comparable drugs, the reaction of prescribing doctors to the price, and the amount of paperwork a health insurer may require a prescribing doctor to prepare to justify the medical necessity for the drug.  The amount of work by Pfizer in assessing some of those concerns and others is impressive.  The author makes a fascinating observation about his research: it seems that the price was not tied to the research and development cost for the particular pharmaceutical, which the author notes is the primary justification made by pharmaceutical companies for high prices.  So, would this mean that if insurers increased the amount of paperwork for prescribing doctors for drugs that cost more than $5,000 that the price would drop?  Could the solution be that simple?  My guess is no.  But, I do wonder about the amount of money expended on the marketing of new drugs.  On the other hand, the claimed cost of developing new pharmaceuticals often includes the cost of failure as well as the cost to directly develop a successful drug.  Moreover, it is clear from the article that commercialization costs, such as concerns about costly Food and Drug Administration trials are a large factor in bringing a drug to market.  It also doesn’t seem to be much of a shock that the pricing of new drugs would include analyzing the price of similar drugs which possibly may be non-infringing substitutes. 

The other interesting question is why the increased transparency now.  Well, for one, U.S. Democratic presidential candidate Hillary Clinton has set her sights on the pharmaceutical industry.  She has numerous proposals designed to lower the cost of prescription drugs, including reducing the exclusivity period for data for biologics.  Some proposals are similar to U.S. Democratic presidential candidate Bernie Sanders' proposals described on this blog, here, and some take them another step.  For example, one proposal focuses on pharmaceutical companies that receive Federal funding for research and development:

Clinton’s proposal would require pharmaceutical companies that benefit from federal support to invest a sufficient amount of their revenue in R&D, and if they do not meet targets, boost their investment or pay rebates to support basic research. If elected President, she will convene business leaders, experts on drug pricing, and consumer advocates to set new parameters for federal support in order to ensure this requirement. The basic principle is based on a provision of the Affordable Care Act that required insurance companies to pay rebates to consumers if their profits and administrative costs were an excessive share of benefits actually paid out to consumers.

PhRMA has strongly opposed Clinton’s proposals, here, and so has the Republican Party, here.  The second reason for the transparency is the U.S. Senate’s recent hearings (started on Wednesday) on pharmaceutical pricing—which currently appear focused on generic pricing.  I expect that we’ll see more—rather than less—information released about how companies are pricing pharmaceuticals very soon. 

Future President Obama and Generic Drugs and Biologics

Investment analysis website Morningstar.com has an interesting article on Yahoo pointing out the effect of one of future President Obama's policies on the finances of pharmaceutical companies. Barack Obama has gone on record as wishing to encourage the use of generic drugs, including generic biologics. His advisors have gone on record as  wishing to speed up approvals of generic drug approvals with the US Food and Drugs Administration (FDA) and also to introduce a new legislative pathway for generic biologics. 

Speeding up the approvals of new generic drugs and biologics is likely to lead to substantial reduction in the value of the patents. The current lethargic FDA approval process in fact leads to effective patent term extensions as generic companies have difficulty in obtaining approval for sale of their drugs on expiry of the patent protection. The value of such patents are therefore enhanced compared to the value that would be expected if products could be put onto the market on expiry of the patent.

Currently the approval process for generic biologics is not yet established. The characteristics of biologics means that the FDA demands full testing, rather than relying on data already on file. This hurdle means that few (if any) generic biologics have been approved - and that it will be some time before generic counterparts to brand name drugs appear. The new administration will continue the work done by the previous Bush administration to put a new procedure in place during 2009. Morningstar point out that this will mean that . Israeli generics company Teva has already welcomed the initiative in a press release before christmas.

Politically the lure of cheaper drugs by increasing the supply of generics once the brand name drugs have come off patent is tempting. The other side of the coin is, however, the reduction of the return on the investment made by the pharmaceutical companies. These depend on the cash flowing in from successful drugs to fund their future research and development. Pushing for greater use of generic off-patent drugs may mean that the US government may have to increase funds for health research to counteract the reduction in R&D dollars spent by pharmaceutical companies.