07.28.2020 0

Government creates the high drug costs it then seeks to fix

By Rick Manning

$2.6 billion!  That’s how much Tuft’s University research says it costs to bring a new drug from the research lab to the pharmacy counter.

As President Trump wrestles with trying to rein in the high cost of medicine in the United States, he is mistakenly focused upon the symptom rather than the cause of the problem.  The symptom is the cost, the cause is the incredible barriers to approval and premature patent life expiration that drive the cost of new treatments through the roof.

And the price control victims are those in our nation and indeed around the world whose hopes lie in medical breakthroughs, whether it be for crippling degenerative diseases like Alzheimer’s or Multiple Sclerosis or for the development of innovative biologic treatments which are becoming prevalent in treating previously untreatable cancers.

The same Tuft’s University study claims that the approval process for new treatments typically runs from ten to twelve years.  With a twenty year patent life for pharmaceuticals, unless the treatment inventor finds a way to restart the patent clock, they have, on average, a very short window to make up the cost of approval, pay for the cost of other medicines that didn’t make it through the process and provide their shareholders a profit.

The other very real impact of the $2.6 billion cost to bring a medicine to market is that it effectively freezes out small innovators from fully realizing the value of their work as they discover that the only way to get the capital to move through the FDA maze is by selling off much of the future revenues of the discovery to a fully capitalized pharmaceutical firm with an FDA approval team already in place.

Companies which try to go it alone oftentimes find themselves choked out by regulatory and patent renewal costs with their medicine never reaching the mass market regardless of its therapeutic value.

About eight years ago, I helped a small pharmaceutical company which had what was and is still the treatment standard for a common skin ailment with some marketing.  The company had three separate patents which made their product unique and not replicable.  In order to protect markets in more than twenty countries with significant populations, the company maintained these patents in each of these countries, burning millions of dollars of cash they didn’t have just to protect their product from poaching.

While the product was and is sold without FDA approval as all the components were individually deemed to be safe and effective, the FDA approval process was such a heavy barrier to entry for a broader market, the company eventually gave up trying to get approval even though they had thousands of testimonials from customers. They even had customers provide extremely favorable comparative results between the new product and one with FDA approval owned by a big pharmaceutical company. Yet, none of this swayed the FDA to give the product a positive nod without millions of more dollars spent on tests that the company did not have.

I do not have permission to share this company’s name, but the above circumstance is true.  And today, the inferior product is still marketed as FDA approved and the superior alternative has virtually disappeared.

How does the freezing out of small innovators medicines impact pricing?  If the new treatment had been able to garner the marketing funds needed due to gaining FDA approval, it would have driven the price of the less successful treatment down as it would not have been able to claim federal government approval exclusivity and eventually the market would have shifted to the more effective of the choices.

Price and efficacy would both have chosen the winners and losers in the marketplace, but that didn’t happen because the FDA’s cost barriers to enter the marketplace put a massive thumb on the scale in favor of what customers identified as an inferior product.

As President Trump continues to grapple with the high cost of medicines, I would urge him to look at the lessons learned and irrational roadblocks identified in the federal government approval processes during this COVID-19 fight.

America has the greatest inventors in the world, by changing the rules as to when patents expire based upon the length of the FDA approval process and safely streamlining that process, more capital would flow to drug development creating more treatments in a shorter time frame at a lower cost to the consumer.  The classic, win, win, win that this President is famous for creating as he works his art of the deal magic.

Rick Manning is the President of Americans for Limited Government.

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