In an excellent new paper (SSRN also here) Vahid Montazerhodjat and Andrew Lo use a Bayesian analysis to model the optimal tradeoff in clinical trials between sample size, Type I and Type II error. Failing to approve a good drug is more costly, for example, the more severe the disease. Thus, for a very serious disease, we might be willing to accept a greater Type I error in return for a lower Type II error. The number of people with the disease also matters. Holding severity constant, for example, the more people with the disease the more you want to increase sample size to reduce Type I error. All of these variables interact.In an innovation the authors use the U.S. Burden of Disease Study to find the number of deaths and the disability severity caused by each major disease. Using this data they estimate the costs of failing to approve a good drug. Similarly, using data on the costs of adverse medical treatment they estimate the cost of approving a bad drug.Putting all this together the authors find that the FDA is often dramatically too conservative:
Examining Firm Responses to R&D Policy: An Analysis of Pediatric Exclusivity by Mary K. Olson, Nina Yin :: SSRNSeptember 15, 2018
Policies that offer extensions of market exclusivity are becoming an increasingly common strategy to incentivize pharmaceutical research, but the policy design may affect incentives in some unforeseen ways.Our paper investigates this issue for the Food and Drug Administration’s pediatric exclusivity policy, which offers drug sponsors a six-month exclusivity extension for conducting additional pediatric studies of marketed drugs. Policy makers wanted to encourage pediatric studies for drugs that are medically important for children. However, since the exclusivity extension covers all indications and its private value increases with total sales, firms may have greater incentives to study drugs with large adult markets rather than drugs that are medically important to children.We use data from IMS Health,Medical Expenditure Panel Surveys, and the FDA to investigate the determinants of the FDA’s demand and firms’ supply of pediatric studies. We find that firms are more likely to conduct pediatric studies for drugs with larger sales markets, but little evidence that the likelihood of conducting the study relates to a drug’s medical importance to children. Firms also conducted pediatric studies for older drugs with less remaining patent life over newer drugs. Our results provide evidence of incentive distortions from the policy design.
Circumvention Medical Tourism and Cutting Edge Medicine: The Case of Mitochondrial Replacement TherapyJune 2, 2018
“Medical Tourism” is the travel of patients from a home country to a destination country for the primary purpose of receiving health care. “Circumvention Tourism” is a sub-type of such travel where the motivation is circumventing a domestic prohibition on accessing a medical service. This Article, adapted from the George P. Smith Lecture given at the University of Indiana’s school of law, focuses on such circumvention tourism for cutting-edge medicine. I use the recently reported case of travel to Mexico for Mitochondrial Replacement Therapy as a springboard for examining the legal and ethical issues raised by the practice and to discuss restrictive regulation in place in the United States.
In their article, “Biologics: The New Antitrust Frontier,” Michael Carrier and Carl Minniti provide a comprehensive review of the various kinds of antitrust violations that beleaguer pharmaceutical markets in the United States. Carrier & Minniti examine the applicability of these anticompetitive behaviors to biopharmaceutical (a.k.a. biologics) markets, and in doing so alert regulators and courts to such potential antitrust violations in the emerging area of follow-on biologics. Carrier & Minniti’s article also provides recommendations for limiting anticompetitive behavior in biologics markets that will, no doubt, serve as a valuable guide for regulators, judges, and practitioners. Yet, Carrier & Minniti’s article appears to share in an optimism about the prospects of such markets: that if we just policed them properly, competition could be guaranteed and, with it, prices would drop significantly. Such optimism is unwarranted.
The legislative and regulatory efforts to instill competition into biologics markets have been fraught, from their outset, with persistent and mostly successful counter-efforts by the brand-name pharmaceutical industry (“Industry”) to make follow-on biologics a limited and contained regulatory and commercial phenomenon. To that end, the Industry — with its lobbying spearheads, BIO and PhRMA — and its many allies in Congress, state legislatures, and state and federal administrations, have been waging war to maintain existing and erect new regulatory obstacles to the development, approval, and marketing of follow-on biologics. The Industry’s success in undercutting the emergence of truly competitive follow-on biologics markets thus far rests on four pillars: (1) an Industry-favorable, obstructed pathway for the approval of follow-on biologics; (2) acceptance and upholding of the view that regulatory filings submitted to the FDA are proprietary and confidential; (3) state laws making onerous the substitution of biologics with follow-on versions thereof; and (4) efforts to block any and all specific attempts to make, gain approval for, and sell follow-on biologics. Of these four pillars, the area of antitrust law (and, thus, Carrier & Minniti’s article) addresses mostly the fourth. Yet, the emergence of competitively robust follow-on biologics markets requires dismantling more than one pillar. Until then, efforts to open biologics markets to competition will continue to be no more than a rearguard battle over the approval and marketing of a small number of follow-on versions of a mere handful of original products with limited substitutability. The price, as always, will be borne by payors, patients, and ultimately, the public.
In this comment, I discuss each of the four pillars supporting the Industry’s success in inhibiting the development, approval, and marketing of follow-on biologics. I show that unlike the story of the Hatch-Waxman Act, that of the Biologics Price Competition and Innovation Act (BPCIA) does not and probably will not have a happy ending; that if the goal is to significantly lower biologics’ prices, then the paradigm of approval of follow-on biologics in the United States would need to change.
This paper connects ideas from recent literature on the economics of intellectual property (IP) to address the question: Did the strengthening and broadening of IP rights from important patent policy changes in the US promote greater innovation? The analysis rests on the theory of cumulative innovation, which shows that if IP rights on a pioneer invention extend to follow‐on research and impediments to contracting exist, then strengthening patents can actually reduce overall innovation. Recent empirical studies are consistent with the theory: patents can significantly deter follow‐on research in “complex” technology areas where contracting is difficult (computers, electronics, telecommunications) but not in drugs, chemicals and human genes. I outline remedies from court decisions and antitrust policy for addressing inefficiencies from patent trolling, patent thickets and the anti‐commons of fragmented ownership. I then apply the analysis to the antibiotics market, drawing on recent research, to examine how patent and competition policies can be used to improve incentives for drug development in the battle against antibiotic resistance. The literature provides persuasive evidence that the policy changes overreached in broadening and strengthening IP rights and reveals important patent reforms for improving the effectiveness of patent systems in the US and Canada.
The FDA’s regulation of regenerative medicine therapies, such as stem cell treatments, bioengineering and cell and tissue therapies, is an area of intense interest in Congress and the FDA and is the subject of current reform proposals. Vocal critics of the FDA’s current regulatory structure assert contradictory charges: some complain that the FDA over-regulates regenerative medicine therapies thereby impeding innovation and harming needy patients, while others charge that the FDA’s regulation is too loose and allows unsafe products to reach the marketplace. This article evaluates recent reform proposals that have arisen in proposed bills, policy reports, and public hearings. Relying on the recent scientific literature on regenerative medicine therapies, I argue that the FDA should incrementally reform its regulation of moderate-risk products to address technological and scientific developments, but that proposals to overhaul the regulation of higher-risk regenerative medicine therapies are unworkable and normatively unwise. The main thrust of these proposals is permit early licensing based on less robust clinical evidence but require substantial post-marketing studies. By applying a theoretical framework on iterative regulatory action that first arose in environmental law, I conclude that the current regime leads to a superior balance between the FDA’s dual goals of protecting public health and encouraging innovation.
The number of drugs approved by the FDA for treating cancer has increased substantially during the last 40 years. Moreover, cancer drug innovation has been accelerating: more than 8 times as many new cancer drugs were approved during 2005-2015 as were approved during 1975-1985 (66 vs. 8). During the period 2010-2014, the average annual growth rate of cancer drug expenditure was 7.6%–more than 3.6 times the average annual growth rate of nominal U.S. GDP. This has contributed to a lively debate about the value and cost-effectiveness of new cancer drugs. In this study, we attempt to assess the average cost-effectiveness in the U.S. in 2014 of new cancer drugs approved by the FDA during 2000-2014. Cost-effectiveness is measured as the ratio of the impact of new cancer drugs on medical expenditure to their impact on potential years of life lost due to cancer. We use a difference-in-difference research design: we investigate whether there were larger declines in premature mortality from the cancers that had larger increases in the number of drugs ever approved, controlling for the change in cancer incidence and mean age at time of diagnosis. The vast majority of the data we rely on are publicly available.
Price gouging in the US pharmaceutical drug industry goes back more than three decades.
In 1985 US Representative Henry Waxman, chair of the House Subcommittee on Health and the Environment, accused the pharmaceutical industry of “gouging the American public” with “outrageous” price increases, driven by “greed on a massive scale.” Even in the wake of the many Congressional inquiries that have taken place since the 1980s, including one inspired by the extortionate prices that Gilead Sciences has placed on its Hepatitis-C drugs Sovaldi since 2013 and Harvoni since 2014, the US government has not seen fit to regulate drug prices. UK Prescription Price Regulation Scheme data for 1996 through 2010 show that, while drug prices in other advanced nations were close to the UK’s regulated prices, those in the United States were between 74 percent and 181 percent higher. Médecins Sans Frontières (MSF) has produced abundant evidence that US drug prices are by far the highest in the world.
The US pharmaceutical industry’s invariable response to demands for price regulation has been that it will kill innovation. US drug companies claim that they need higher prices than those that prevail elsewhere so that the extra profits can be used to augment R&D spending. The result, they contend, is more drug innovation that benefits the United States, and indeed the whole world. It is a compelling argument, until one looks at how major US pharmaceutical companies actually use the profits that high drug prices generate. In the name of “maximizing shareholder value” (MSV), pharmaceutical companies allocate the profits generated from high drug prices to massive repurchases, or buybacks, of their own corporate stock for the sole purpose of giving manipulative boosts to their stock prices. Incentivizing these buybacks is stock-based compensation that rewards senior executives for stock-price “performance.”
Like no other sector, the pharmaceutical industry puts a spotlight on how the political economy of science is a matter of life and death. In this paper, we invoke “the theory of innovative enterprise” to explain how and why high drug prices restrict access to medicines and undermine medical innovation. An innovative enterprise seeks to develop a high-quality product that it can sell to the largest possible market at the most affordable price. In sharp contrast, the MSV-obsessed companies that dominate the US drug industry have become monopolies that restrict output and raise price. These companies need to be regulated.
Following the generally accepted theories of the legal scholar Robert Bork and his Chicago School colleagues, vertical restraints such as exclusive dealing contracts are presumptively procompetitive and welfare-enhancing because it would be irrational for a buyer to exclude the lowest cost supplier.
On September 20, 2017, the drug manufacturer Pfizer filed a lawsuit Pfizer Inc, v Johnson & Johnson et al (link to the full court filing) claiming that Johnson & Johnson (J&J) violated Section 2 of the Sherman Antitrust Act by monopolizing the market for its incumbent biologic drug Remicade®.
This was achieved via rebate contracts with the largest insurance companies in the USA that had the effect of excluding from coverage Pfizer’s biosimilar drug Inflectra®.
We will present the case that Pfizer’s antitrust case is weak because it was unlikely that Pfizer was the low cost supplier based on a view of lump sum rebate offers as efficiency-enhancing “signals” of expected consumer demand for a product.
What insurance companies are doing is similar to the AdWord algorithm Google came up with for “slotting” search ads based on a calculated “AdRank”, which is a function of both unit bids and expected demand as measured by estimated click-through rates.
This Perspective estimates potential future savings from biosimilars in the United States, summarizes the experience to date with the first marketed biosimilar in the United States, and discusses key policy issues surrounding biosimilars. We estimate that biosimilars will reduce direct spending on biologic drugs by $54 billion from 2017 to 2026, or about 3 percent of total estimated biologic spending over the same period, with a range of $24 to $150 billion. While our estimate uses recent data and transparent assumptions, we caution that actual savings will hinge on industry and regulatory decisions as well as potential policy changes to strengthen the biosimilar market.