Deregulation Can Make Medications Cheaper

 A month ago the Wall Street Journal published a short article that Solomon S. Steiner and I wrote. (David R. Henderson helped behind the scenes.) Here’s the full article:

When politicians such as President Trump and Sen. Bernie Sanders want to lower pharmaceutical prices, they resort to heavy-handed approaches through mandates. While that approach is direct and at least superficially logical, it’s not optimal. Instead of trying to force drug prices lower, we should make drug development cheaper.

Drugs are expensive to develop. If the government mandates lower prices, drug companies are squeezed and respond by developing fewer drugs—reducing innovation and the therapeutic choices desired by patients and doctors. Lowering the cost of drug development would foster more innovation, more therapeutic alternatives, more competition and lower prices for new drugs, which wouldn’t need to return outsize profits to pay for high development costs. It would be a win for everyone.

There’s an easy solution that won’t compromise safety—a solution that was once the law of the land and has strong evidence to suggest it worked better than the system we have today. From 1938 through 1962, the Food and Drug Administration required proof of safety before drug approval but not proof of efficacy. The approach was abandoned due to a significant misunderstanding of the thalidomide tragedy—when thousands of babies outside the U.S. were born with severe birth defects.

The issue with thalidomide was a failure of safety, not efficacy. But under pressure to react, Congress required, through the Kefauver-Harris Amendments of 1962, proof of efficacy before granting marketing approval. The new rule addressed a problem that didn’t exist and, in doing so, imposed a substantial new cost burden.

Before 1962, developing a drug took about two years. Now it takes 12 to 14 years. Since 1975 real development costs have risen about 7.5% a year, roughly doubling every decade. Today, we estimate that bringing one successful drug to market costs about $9 billion on average. (This includes the cost of failed drugs and the time value of money.)

Requiring proof of efficacy to the satisfaction of a government agency, even after the drug has been found to be safe by that same agency, is expensive. It also doesn’t help patients much. In actual medical practice, treatment is derived by trial and error. A doctor might start a patient on one drug and switch to another if it doesn’t work. Even if a clinical trial shows that a drug works for 60% of patients, no one knows in advance if it will work for a particular patient.

The proof-of-efficacy requirement doesn’t eliminate trial and error. It delays new drugs, raises costs and reduces the number of options available. When the FDA rejects a drug for “insufficient” efficacy, it often removes a lifeline for patients who don’t respond to other treatments.

Consider anticoagulants, medications that prevent blood from clotting. Some patients respond well to Pradaxa but not Xarelto, and vice versa. A drug might fail for one patient but be the right one for another. Fewer approved drugs means fewer chances for patients to find their match.

Biosimilars, the generic versions of biological “large molecule” drugs, cut prices by about 30% because of competition. Four or more generic competitors for regular “small molecule” drugs can push prices down by nearly 80%.

Many may fear that without the government requiring efficacy studies, no studies will be run and hence drugs will be marketed with limited evidence of efficacy. That fear is unfounded. Drug companies would still run efficacy trials because it is in their interest to do so. Doctors, insurers and patients want assurances that a new drug actually works. But those trials would be designed to answer the medical community’s pressing questions, not to satisfy a bureaucratic checklist that can send companies down expensive rabbit holes.

The FDA is well-positioned to ensure safety, not to decide which drugs work well enough to deserve a place on the shelf. Doctors and medical researchers, informed by clinical evidence and patient response, are far better judges of what therapies to try.

By rolling back the efficacy requirement to the pre-1962 standard, we could flood the market with more treatment options, cut costs and still protect patients from unsafe drugs.

Price controls offer quick political wins, but they threaten to slow the innovation we depend on for future cures. If we want affordable medicines and innovation, the answer isn’t more regulation—it’s more competition. We can lower prices, expand drug access and accelerate cures all by letting doctors, not bureaucrats, decide what works.

Charles Hooper is President of Objective Insights, a life sciences consulting firm. Previously worked at NASA/Ames Research Center. Coauthor of "Making Great Decisions in Business and Life" and author of "Should the FDA Reject Itself?"

https://incidentalinsights.substack.com/p/deregulation-can-make-medications