NCPA - National Center for Policy Analysis

How to Make New Drugs More Affordable

January 6, 2017

Over the past several years, a few high-priced drugs have elevated drug spending to a political issue. Patients are more sensitive to rising costs due to increasing deductibles and, because consumers pay more of their drug costs, pharmaceutical companies are less able to pass on high prices without anyone noticing.

A significant driver of high drug prices is the excessive regulatory regime at the U.S. Food and Drug Administration (FDA). FDA regulatory overreach is exacerbated by a lack of guidance from Congress. To boost competition and hold the line on drug prices, a more rational path to drug approval is badly needed.

The Drug Approval Process

A drug that makes it through the FDA approval process is guaranteed years of high monopoly prices due to regulatory barriers to competition. Increasing competition among innovative drugs could prevent some of the egregious price hikes of the past. Me-Too Drugs. "Me-too drugs" are new drugs similar to existing ones that treat the same condition. A little over a decade ago, many in the public health community began asserting that follow-on or "me-too" drugs offer little added benefit and are a waste of resources that would be better spent to research novel drug therapies. The FDA seemingly took this criticism to heart; in recent years it has fast-tracked approval of new, first-in-class drugs thought to show promise.

Yet, as with any new drug, a "me-too drug" could take up to 15 years to research, develop and obtain FDA approval. A drug that comes to market one year after a first-in-class drug could have been first-in-class if that research and development team had been just a little faster. Thus, when the FDA discourages me-too drugs it is discriminating against every competitor that did not cross the finish line first. As a result, approvals for expensive drugs to treat rare diseases are at a historic high while approvals of me-too drugs are down. This limits competition within drug classes, leading to higher prices, and limits patient choices -- something the FDA is just beginning to acknowledge.

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