FDA's Big Task: Stop The Next Martin Shkreli and Valeant

Published: Mar 30, 2016

FDA Wades Into Drug Pricing
March 30, 2016
By Karl Thiel for BioSpace.com

Hey, there's a new sheriff in town! FDA Commissioner Robert Califf was confirmed by the Senate late last month, and he's taken little time in putting his imprimatur on the agency. Among the items on Califf's long to-do list is to grapple with the FDA's role in approving new painkillers and the growing issue of opioid addiction, which is ravaging parts of the country. But Califf has also taken on an issue that's perhaps a little more surprising—indeed, one that represents a 90 degree turn for FDA's traditional regulatory role.

Specifically, Califf is taking on, at least indirectly, the question of drug pricing—something that is officially outside the agency's purview. The first move looks low-key, to be sure. Under a March 11 proposal, the Office of Generic Drugs has updated its "Prioritization of the Review of Original ANDAs, Amendments and Supplements."

What it says, in essence, is that the agency is going to fast track the approval of drugs for which one manufacturer has a monopoly. This is aimed pretty squarely at the Martin Shkrelis of the world—companies that would take an old, off-patent but nonetheless necessary drug and price gouge because they have a chokehold the only source of supply.

Nor is the agency alone. A bipartisan Senate bill sponsored by Sens. Susan Collins (R-Maine) and Claire McCaskill (D-Mo.), the Increasing Competition in Pharmaceuticals Act (S. 2615), was introduced at the beginning of this month with the aim of reducing the backlog of ANDAs—and in particular drugs with only one manufacturer. Under the law such applications would receive action within 150 days, and there is a voucher system to provide further incentives for manufacturers to compete on old, potentially low-margin drugs.

But let's be realistic. While Shkreli is the easy-to-hate face of pharmaceutical price gouging, he's hardly the biggest problem, and it's not clear how much FDA's first step will really move the needle for, say, the next Valeant .

While Shkreli and Turing were engaged in price-gouging, plain and simple, Valeant has allegedly been engaging in something much more complex—price-gouging through an intermediary mail-order pharmacy (Philidor) that could help force excessive price hikes down insurers' otherwise unwilling throats. (If you missed this January article from New York Magazine, by the way, it's well worth a read). The prescription for that problem is considerably more difficult than simply encouraging more competition on old, off-patent drugs. It calls into question the entire reimbursement structure behind the pharma industry.

The main problem with Valeant wasn't that it was engaged in the kind of massive criminal fraud that short-seller Andrew Left first alleged. (There may have been some criminal activity, too, but that—if true—is almost beside the point when it comes to Valeant's broader impact on the industry). No, the main problem is that what Valeant was doing was (at least in large part) legal. It's just an extreme version of how the entire industry has evolved over the years, with no limits on the list price of drugs, no relationship between those list prices and what insurers actually pay, and no transparency that could help doctors, patients, or even payers detect more quickly when something shady is happening.

I know, I know: Valeant isn't biotech. But tell that to the investing public, who are fleeing the sector in part because they know that government action, if and when it comes, could be sweeping and indiscriminant.

The industry's best short-term strategy is to embrace FDA's latest proposal—and/or McCaskill and Collins' bill—wholeheartedly. It is literally just about the smallest and least disruptive change that could come to drug pricing. But lawmakers may be increasingly interested in looking to add transparency to drug pricing at the Federal level. President Obama has already made such a proposal in his 2017 budget, and at least 11 states are considering "transparency" measures aimed at forcing companies to divulge various information about what goes into pricing. (Interestingly, however, the California bill that kicked off state-level efforts to force disclosure of R&D costs and other data was withdrawn by its sponsor for lack of support back in January). Still, at least at the state levels, most of these efforts have received bipartisan support.

Many of these bills are misguided, because they are looking for "transparency" in the wrong place—namely, the cost of R&D, which is only tangentially connected to what companies ultimately charge for approved products. But the idea of making the entire system more transparent—and thus act more like a market—is a good one. Interestingly, the main lobbying arm of the industry, the Pharmaceutical Research and Manufacturers of America (PhRMA) , has recently switched from its traditional insistence that pricing is driven by the high cost of R&D to saying it is really all about competition and how beneficial drugs are.

The last part of this new formulation may turn out to be a Kinsley gaffe—when a politician accidentally speaks the truth. Ultimately, we're heading toward some combination of more open markets and value-based pricing. Drugs should be able to command sky-high price tags if they're worth it. Determining that, however, will require not only additional research (on things like cost-effectiveness and quality of life) but better clinical trial design to begin with. Don't hold your breath on that happening right away, but instead of eventually being dragged kicking and screaming, industry should be looking at how we can create a better system that improves on what they have over in Europe.

-Karl Thiel

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