Pharmaceutical Regulation: A Matter of Life and Death

Sam PeltzmanBooth School of Business

University of Chicago

Overview

• Regulation of the Introduction of New Drugs

• Brief Early History

• Costs and Benefits– In principle– Evidence

• Political Response

• The Future

Historical Background

• New prescription drugs must be deemed ‘safe’ and ‘effective’ by Food and Drug Administration (FDA) before introduction to the market

• Proof of Safety: FD&C Act of 1938– Mfr conducts tests– Submits to FDA– Fixed time period. Default is “safe”

• 1935-1960: Industry enters a “golden age” – Sulfa drugs, antibiotics, early psychotropics– Enormous growth– Political scrutiny increases

1962 Amendments

• Two concerns come together1. Consumers are wasting money on drugs that don’t work (better)

• “me too” , mixtures, etc.

2. Rush to market compromises safety• Wonder drugs are also strong medicine• Thalidomide: a close call

• 1962 Act1. Adds proof of efficacy requirement

• Seller can only claim effects on approved drug label

2. Removes fixed time period. Default is “no, not yet”3. Regulates testing process

• Approval of all phases of testing protocol• In effect, requires double-blind randomized trials v placebo

A Brief Sketch of Drug Testing & Approval

• Pre-Clinical discovery• IND: Regulated testing begins• Phase I

– Mostly healthy subjects– Primary concern: safety

• Phase II– Patients with targeted disease– Safety & also efficacy

• Phase III– Large scale, double blind test v placebo– Efficacy & also safety

Main Effects of the Regulation• Drug development takes more time

– Today: 10 years (average) from IND to market• 1 to 6 years more in pre-clinical: animal testing etc

– How much is due to regulation?• Only 1.5 years directly in approval process• But all previous testing affected by need to prove efficacy

– Rough guess: 3 to 5 extra years

• Drug development is more costly– Around $1 billion/new drug– Probably more than half due to extra costs of regulation

• Most affected part of process (phase iii) has 3x monthly cost of earlier phases

And Fewer New DrugsAverage Annual Number of NCEs. US. 1951-2013

These Effects Can Be…

• Good– More unsafe, ineffective drugs screened out by longer,

more expensive testing

Or• Bad

– Some safe, effective drugs not developed because of the higher R&D costs

– The good drugs are more costly– The good drugs come to market later

• So potential benefits are missed

So, Do Costs Exceed Benefits, or Vice Versa?

• Most studies suggest that costs exceed benefits– Caveat: I said so many years ago

• For both safety and efficacy

• Will focus on safety

Limits on Net Benefits of Efficacy Regulation

1. Ineffective drugs lose sales rapidly• So direct benefits (saving wasteful expenditures) are

limited

2. Growth of “off label” prescribing lost benefits• Seller cannot claim new benefit for existing drug without FDA

approval• But doctor can prescribe the drug for any indication

– Even if the official label doesn’t mention it

• Up to half of all Rx’s “off label”• Suggests testing costs are restricting benefits

– From restricted information– Or similar, but better targeted, drugs that are not developed

Safety Regulation: Outline

• What is the plausible safety benefit of extra testing?

• Compare it to just 1 cost– Delay in benefits from extra time in testing

• Ignore loss of benefits from fewer new drugs– Or extra R&D costs

• Use recent history to give you a sense of magnitudes – why benefits are much less than costs

Safety Benefits of FDA Testing

• Pre-1962 : Unsafe drugs are rare• 1 or 2 per decade with significant mortality risks• Approx 1000 deaths before withdrawal

• Not entirely eliminated - e.g., “fen Phen”– Diet pill marketed for 1 yr 1996-97– Withdrawn after adverse safety effects

• Pulmonary hypertension– Estimated 1800 excess deaths (by opponent of drug’s introduction)

• Low incidence effects hard to detect in clinical trials – Need very large samples

So What Are the Actual Safety Benefits of Extra Testing?

• Hard to tell– How many lives lost per year today– Compared to how many would be lost with less testing

• And greater reliance on market forces & tort law

– We do not observe the counterfactual

• But we can get a sense . . .– Of why benefits are less than costs– By exaggerating the benefits

• i.e., the lives lost in the counterfactual world

Say The Extra Testing Saves 500 Lives Per Year

• Less testing = 4 fen-phen’s per decade – 3 more than we observe in today’s world

• Probably exaggerated, because…– Observed only 1 or 2 per decade before 1962– Tort law has gotten tougher

• fen-phen cost Wyeth $34B

• But saving 3 fen-phen’s would save ~5000 lives/decade

What are the Safety Costs of the Extra Testing?

• Look only at 1 cost

• The extra time it takes to get every good new drug to market– Which means some benefits are missed

• Use treatment of heart disease

• To give you a sense of how significant the cost of delay is

Some Basic Facts

• Heart Disease is leading cause of death for males over 45– Mortality was improving before 1970

• Then mortality decline accelerated– Especially for males

Death Rate from Heart Disease. US. 1960-2012

Per 100,000. 2012 population weights

Some Basic Facts

• Heart Disease is leading cause of death for males over 45– Mortality was improving before 1970

• Then mortality decline accelerated– Especially for males

• Current male mortality rates much lower than 1970– Or what they would be with previous trend

Death Rate from Heart Disease. US. 1960-2012

Per 100,000. 2012 population weights

The Role of Drugs and Regulation

• 300,000 fewer deaths per year (compared to trend) in this age group

• New drugs make a modest contribution to this improvement– Around 25% of the overall improvement (Lichtenberg,

2009)– Which ~ 75,000 fewer deaths per year due to new

drugs

• All these new drugs made it through FDA process• BUT

Not So Fast

• Recall: proof-of-efficacy adds 1.5 years to regulatory process directly– And a similar extra time indirectly

• For every new drug - including those that save lots of lives

• In this case: each extra year in testing = 75,000 extra deaths– You would need 15 decades of safety benefits (at a generous estimate

of 5000/decade) to pay for costs of only 1 extra yr of testing

A Big Benefit for Lots of People Becomes a Big Cost

• If you make people wait even a little bit

• And the benefit from the extra time is not nearly as large as the cost

• Both are true of current regulation

How Did This Story Play in Washington?

• Most economic analyses since early 1970s show benefits << costs

• BUT official reaction evolves slowly– Denial: 1970s & 1980s– Recognition & Some Response

• Orphan Drug Act (1983)– Special treatment for drugs with small market

• Prescription Drug User Fee Act (1992)– Drug companies pay a ‘user fee’ to speed up NDA process

– Both have ‘worked’– No serious questioning of overall process

Why Does New Drug Regulation Survive Politically?

• If economists are right regulation kills more – many more – than it saves

• But the regulatory system is politically safe

• Why? 3 protective forces1. Asymmetry2. Interest Group Politics3. Progress

1. Asymmetry: Who Will Speak for the Victims?

• The victims of the regulation are anonymous– They would not have died if drug was available sooner– We – and their relatives & friends – never know exactly

who they are

• But the victims of an unsafe drug are visible– Their relatives, friends - & the world - hear their story

• Avoiding harm dominates politically

2.Interest Groups: Who Would Lobby for Change?

• Industry? Well organized, but ambivalent– Each developer would like to avoid costs/delays– BUT once you get approval…

• Costs/delays are barrier to competition

– AND ‘Big Pharma’ can sell regulatory expertise• Most biotech startups sell to large player by stage iii

• Consumers? Not organized & ‘rationally ignorant’– One exception: AIDS activism in 1990s– ‘Consumer lobbies’ – push for even more regulation

3. Medical Progress

• New drugs do get to market – eventually

• People live longer– Life expectancy at birth increases steadily– 71 years in 1970 78 years now

Years of Life Expectancy. US. 1960-2011

70

72

74

76

78

1960 1970 1980 1990 2000 2010year

3. Medical Progress

• New drugs do get to market – eventually

• People live longer– Life expectancy at birth increases steadily– 71 years in 1970 78 years now

• Where’s the crisis?– Economist: ‘but for the regulation lives would be saved’– Non-economists do not live in a counterfactual world

In Conclusion

• Economic analysis suggests FDA is neither safe nor effective– Many lives could be saved by reduced testing

• Eliminating pre-market approval• Eliminating efficacy requirement

• But fundamental change is politically inconceivable

• Do not be discouraged– 15 minutes is a long time