November 14, 2014

New costly pharmaceuticals have caught the attention of the media and policymakers because of concerns about the impact of these expensive drugs on health care spending and access to care. Most prominent among these products is Sovaldi, the innovative new $1,000- per-pill cure for hepatitis C, a disease that afflicts approximately 3.2 million Americans. Other examples include Opdivo, a cancer drug expected to enter the U.S. market in the near future that currently costs $143,000 a year in Japan, and Keytruda, another cancer drug that recently won Food and Drug Administration (FDA) approval and will cost $77,500 for an average course of treatment. These drugs, like many new pharmaceuticals, are important innovations, providing critical advances in health care. But some lawmakers, seemingly unconcerned about the costs, risks, and time involved in successful drug innovation and dismissive of sellers’ and buyers’ right to freely negotiate prices, have pointed fingers at drug manufacturers for their pricing strategies.

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Concerns about the budget implications of costly medicines have led to proposals of federal government engagement (or “interference”) directly in price negotiations. Government involvement in pricing has been thoroughly studied and determined to be both ineffective from a budget perspective and harmful to innovation. But the impact of other federal policies on drug prices deserves consideration. This paper is intended to explore this topic by examining how the FDA affects, perhaps unintentionally and unknowingly, the prices of prescription drugs, and to encourage the agency to investigate and evaluate the impact it has on both brand vs. generic competition and brand vs. brand competition within the drug industry.

While the FDA’s core mission is to protect the public heath by ensuring the safety and efficacy of drugs (among other products), the agency also makes it a priority to facilitate drug innovation. As this paper argues, the FDA can have a critical impact on the degree of market competition. Competition among pharmaceutical products leads to lower prices and, in many circumstances, encourages additional innovation. Conversely, inadequate incentives for innovation may deny the marketplace new and efficacious treatments that patients need. A critical balance between competition and innovation must be struck.

As policy experts examine the causes and consequences of high drug prices, greater attention should be paid to the FDA’s impact on competition. Possible steps for lawmakers and the FDA to take to facilitate competition in the pharmaceutical industry include a more vigorous effort in support of biosimilars, faster review times for drug applications, legislation to prohibit misuse of Risk Evaluation and Mitigation Strategies (REMS), and adequate FDA resources to ensure that expedited approvals for certain novel drug applications do not impede the approval of competing brand drug applications.