FDA’s Impact on Drug Competition – Matrix Global Advisors

What's the problem?

What's the problem?

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. The FDA affects, perhaps unintentionally and unknowingly, the prices of prescription drugs and can have a significant impact 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. 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.

FDA's Role

FDA's Role

Researchers have examined the FDA’s impact on various aspects of drug innovation in the United States and explored the effectiveness of programs geared toward expediting drug approvals. Recently, researchers assessed the FDA’s tools for ensuring timely approval and appropriate utilization of specialty drugs.

While drug prices are not directly within the purview of the FDA, the agency’s actions do affect the market price for drugs and can have a meaningful impact on access to medicines and consumer welfare. 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.

Current Drug Approval Process

Current Drug Approval Process

In pursuit of its mission to ensure that drugs are safe and effective, the FDA requires that drug manufacturing facilities meet standards of quality and safety, that new products undergo rigorous testing, and that patients receive accurate information about the risks and benefits of approved drugs.

Before a new drug is ready for review, the FDA requires that it undergo rigorous testing, including three successive phases of human testing. After completing this strict regimen, drug companies hopeful of bringing a new product to market can apply for FDA approval using a biologics license application (BLA) for biologics.

FDA oversight also includes drug safety and efficacy via post-market risk management plans such as Risk Evaluation and Mitigation Strategies (REMS) — programs the agency may have required as a prerequisite for approval. These requirements, intended to ensure the critically important safety and efficacy of prescription drugs, also result in high regulatory compliance burdens and generate significant costs for the innovator drug manufacturer.

By raising the cost of entry to the pharmaceutical industry, these safety and efficacy requirements also affect the degree of competition within the industry.

Need for Expedited Approvals

Need for Expedited Approvals

Recognizing that enormous development costs and lengthy process can delay or deter vital new medicines, the FDA, often at the direction of Congress, has established various ways to promote drug innovation and speed market entry, primarily by expediting certain new drug approvals and offering pre- and post-approval economic incentives for new drugs.

The FDA now has four means of expediting the approval of new drugs that treat serious conditions:

  • Breakthrough therapy designations for drugs in clinical trials that show greater promise than available products for treating serious conditions
  • Fast track designations for drugs that address an unmet medical need
  • Priority review for NDAs and BLAs that demonstrate significant improvement over available treatments
  • Accelerated approval for drugs with an intermediate clinical endpoint that indicates the likelihood of substantial clinical benefit
Economic Incentives

Economic Incentives

The FDA also makes available to drug manufacturers economic incentives, pre- and post-approval, for certain kinds of new drug development. These include:

  • Pre-approval incentives, including grants and user-fee waivers
  • Post-approval incentives, including patent term restoration and marketing exclusivity
  • Authorization to award a new drug three or five years of marketing exclusivity and restore to the drug’s patent term the time elapsed during FDA review of the product
  • Pre- and post-approval economic incentives for orphan drugs, including research grants, tax credits, and seven years of marketing exclusivity
  • Twelve years of exclusivity for biologic drugs, as established by the Affordable Care Act of 2010
Biosimilar Competition

Biosimilar Competition

Because biosimilars are expected to be “highly similar” to their reference products rather than identical, experts expect the competition between a biosimilar and its reference product to look more like the competition generally observed among brand small-molecule products within the same class. Nevertheless, CBO has projected that biosimilar prices will be 40 percent lower than biologic prices.

There have been multiple agency delays that have thwarted the introduction of biosimilars to the U.S. market—thus preventing the savings that competition would generate.

Today, there is a rigorous health policy debate about the impact of competition on health care spending, but largely absent from this debate is discussion of the FDA’s role in promoting or discouraging competition in the drug industry. While the FDA does have a positive impact on pharmaceutical competition in some respects, there are many ways that the agency hinders competition, and the consequences of these impediments need to be better understood and rectified.

Resources & References

Resources & References

Brill, A. Considerations of the FDA’s Impact on Competition in the Drug Industry. Matrix Global Advisors. November 2014.