It’s time to stop thinking of Martin
Shkreli as a cartoonish villain and start considering the former CEO of
Turing Pharmaceuticals an unlikely therapeutic reformer. In part
because of Shkreli’s price-jacking of an old, essential medicine—not to
mention his public antics in and out of congressional hearing chambers—the
U.S. government is finally getting serious about the prices of
off-patent drugs. That’s something worth cheering and a signal that, in
general, legislators and regulators hope to address climbing
pharmaceutical prices more aggressively. But it’s only a start.
Last week, the U.S. Food and Drug Administration quietly put in motion a new plan to speed up the approval of generic competitors
for prescription drugs that are still made by only one manufacturer,
even though their patents and market exclusivities have expired. This
would mark the first time that the 110-year-old scientific regulatory
agency directly addressed the problem of pharmaceutical monopolies.
Along with a Senate bill currently working its way through committee,
the FDA hopes to ensure that the older drugs many of us assume to be
cheap actually will be.
Why now? Until recently, most public concern over increasing
pharmaceutical prices has focused on the monopolies enjoyed by
manufacturers of new drugs, which are protected by a web of
patents and other market exclusivities. Although we might debate to what
extent the high costs for new drugs are an acceptable price to pay for
innovation, older, off-patent drugs are generally imagined to be
available for pennies on the dollar. But thanks in part to Shkreli’s
attempts to justify a 5,000-percent price increase on a 50-year-old drug
his company had spent nothing to develop, a problem hidden in the 21st-century pharmaceutical marketplace has become painfully visible: A number of off-patent drugs are only available from one source.
In theory, these monopolies on old drugs should be highly vulnerable.
If the invisible hand was doing its job balancing supply and demand,
any increase in price would be met by a flood of new competitors
entering the market. But because the generic drug market requires FDA
approval for each new manufacturer, and because that approval process can easily take 15 months, many other actors besides Shkreli—including
executives at Valeant, Rodelis, and Amedra Pharmaceuticals—have found a
lucrative strategy in acquiring monopolies on old drugs and hiking up
the prices.
For most of its existence, the FDA has steadfastly avoided questions
of economics or access to pharmaceuticals, focusing instead on the more
technical issues of drug safety, efficacy, and marketing claims. But the
escalating problems of generic drug shortages and price hikes in the
past few years have led the agency to reconsider its accidental role in
sustaining monopolies on old drugs. And so the agency announced Friday a
new priority-review pathway that would grease the rails for any
would-be competitor to challenge an accidental monopoly like the one
Turing exploited.
The FDA’s move follows a bill introduced last month
by Sens. Susan Collins and Claire McCaskill to promote competition in
the off-patent drug marketplace by instituting a priority-review pathway
to break up off-patent drug monopolies and create an additional voucher
system to create incentives for generic drugmakers to take more
interest in low-margin, off-patent products. This bipartisan pair, who
head the Senate Special Committee on Aging, have led the Senate side of recent congressional investigations into drug pricing.
Though it’s still working its way through committees, their bill is
expected to find strong bipartisan support and, if passed, would
represent a substantial step in shoring up generic competition and
deterring future price gouging. In contrast to the 21st Century Cures Act approved by the House of Representatives last summer—which focuses only on the development and approval of new drugs—this Senate legislation serves as a reminder that valorizing innovation alone isn’t sufficient
to protect the health of Americans if the maintenance of the key
infrastructure of access to older therapeutics—like Daraprim, the
toxoplasmosis treatment whose price Turing jacked because it had no
competitors—is allowed to crumble.
Both the FDA and Sens. Collins and McCaskill deserve praise for
fighting the corrosive effect of pharmaceutical monopoly on the U.S.
health care system. Their actions should serve as deterrents to future
Turings and Valeants—who might seek to further exploit temporary
monopolies on off-patent drugs—and send a strong signal that these
rent-seeking behaviors will be unsustainable in the long run. But
they’re not enough.
We have a long way to go to thwart the broader problem of escalating
drug prices. First, and perhaps most obviously, these latest measures do
nothing to solve the spiraling increase in prices for new,
patent-protected pharmaceutical products, even when such prices are clearly set at rates to maximize profit over public health benefit,
as in the case of the recent breakthrough treatments for hepatitis C.
Second, they do not solve the limitations on generic savings for newer,
large-molecule biotech drugs once they go off patent, which cannot be
certified as “bioequivalent” in the same way generic versions of
small-molecule chemical pharmaceuticals are. The elaboration of new
regulatory pathways for off-patent “biosimilar” drugs is unlikely to produce the robust competition and price savings seen in the generic marketplace of the late 20th
century. Third, these measures do nothing to address the other problems
through which a series of new patents and other market exclusivities
have effectively undercut meaningful generic competition for key drugs
for the treatment of chronic diseases such as diabetes, asthma, and gout.
Perhaps even more importantly, while these measures help remove a
regulatory barrier to competition in off-patent pharmaceutical markets,
it’s hard to know if the FDA’s actions and the voucher program will
generate enough incentive for generic manufacturers to help produce
these competitive markets in very-low-margin drug markets. Nor do they
address the more general increase in prices for generic drugs that has taken place even where competition does exist.
These factors are influenced by deeper forces still poorly understood
by policymakers, including the substantial consolidation of the generic
drug industry in recent years into a few powerful “generic giants”; and
the role of pharmacy benefit managers, group purchasing organizations,
and other middlemen in distorting the marketplace for old drugs.
Sustained inquiry by Congress is needed to help shine more light on
these sources of prescription drug price increases so that more
meaningful long-term solutions can be found.
We can and should do more to address the unsustainable cost of
medicines in the United States, but these first steps are still
encouraging. In the coming weeks and months, it will be important to
monitor the new FDA policy to make sure it results in speedier approval
of “generic first” drugs. Likewise, it will be important to follow how
the Collins–McCaskill bill advances through the Senate and whether the
Senate’s efforts to guarantee competitive prices for old drugs will
coincide or conflict with the House’s efforts to reduce regulatory
barriers for new drugs under the 21st Century Cures Act.
Few could have imagined 12 months ago that this Congress would be
capable of taking meaningful bipartisan action on drug prices. And few
would have imagined that the FDA would embrace the task of fighting
pharmaceutical monopolies as a part of its public health mission. In
time, we may yet find ourselves thankful that in our time of need, this
troubled health care system found its Martin Shkreli, an agent of reform
in spite of himself.
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