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July 7, 2017

More Competition And Perhaps Lower Prices Coming To The Drug Industry

  Forbes

Trump administration officials have drafted a presidential executive order intended to address the cost of and access to prescription drugs.  That’s good news, because the left plans to make drug costs and access one of its major political bludgeons.

Ironically, the left’s various proposals—price controls on prescription drugs, shortening the patent life, importation of foreign-made drugs, etc.—would only exacerbate current problems.

These are the same people who were going to lower the cost of and improve access to health insurance by passing the Affordable Care Act, and the American people have never paid so much for health coverage, nor faced so few health insurance options.

You can expect the same result if they get their way on prescription drugs.

The draft of President Trump’s executive order—and to reiterate, it is only a draft and not necessarily the final version—takes a much different approach.

He seeks ways to:

  • Improve the efficiency of the drug development process and reduce the time from inception to ingestion;
  • Consider new reimbursement models that better reflect the value of a drug;
  • Claw back regulations and administrative procedures that increase the time and cost of developing new drugs without improving the results; and
  • Address the disparity in innovation support, where U.S. patients pay the bulk of the cost of developing new drugs

Worthy goals, though major reforms won’t be easy—or quick.

The good news is that newly installed Food and Drug Administration Commissioner Scott Gottlieb understands the problems and regulatory bottlenecks very well and plans to tackle them immediately.

For example, Dr. Gottlieb announced in June that the agency is working on what it calls a “Drug Competition Action Plan,” which seeks to reduce regulatory obstacles to generic drug competition. At the same time, Gottlieb stresses that the competition is only appropriate after a drug’s patent has expired.

That balance between protecting innovator drug companies’ intellectual property and promoting robust competition, especially once generic drug makers are legally allowed to make less-expensive copies, is critical to ensuring a steady stream of new drugs and keeping prices low for most consumers.

Another problem: Developing and approving new drugs takes too long and costs too much.

It took eight years from the time President John F. Kennedy proposed sending astronauts to the moon in 1961 and achieving that goal. But it takes 10 to 12 years, on average, to develop a successful new prescription drug that's approved by the FDA. An expedited drug approval process would go a long way in holding down costs.

However, dealing with foreign governments may pose a bigger challenge than some of the domestic ones.

U.S. customers arguably pay a disproportionate share of new prescription drugs’ research and development costs.  That’s in part because many developing countries will demand an innovator company sell its drug(s) to them for a ridiculously low price. If the company refuses, the country might issue a “compulsory license,” allowing the country to copy the drug, having spent little or none of the $1 billion-$2 billion research and development money.

While defenders of that intellectual property theft paint a picture of selfless foreigners just trying to increase access to needed drugs, that’s not the whole story. In-country drug manufacturers are often closely connected to the government, politically and financially, that’s demanding the right to make copies of the drug.

In addition, that manufacturer would almost certainly attempt to sell its copied drug in other countries, undermining the innovator’s market for its own product.

Recent multinational trade agreements opposed by Trump, such as the Trans-Pacific Partnership, had included enhanced IP protections as one of the U.S. goals. Perhaps bilateral agreements will be successful in addressing the problem.

But all of these efforts take time. Economist Art Laffer has proposed that the president use his deal-making skills to persuade drug manufacturers to negotiate what he calls “voluntary price restraints.” Drug maker Allergan is convinced. It has suggested companies voluntarily limit their price increases to single digits. A few other companies—AbbVie, Novartis and Takeda—are reportedly following suit.

There is some precedent for such an approach.  When President Obama was pushing what would eventually became the Affordable Care Act, the major health care trade associations made voluntary commitments to cut health care costs.

However, real reform will have to come from Dr. Gottlieb and Congress, and at least Gottlieb is moving quickly.


 

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