The FDA often wants manufacturers to provide additional studies such as for pediatric uses or for testing of off-label uses of already approved drugs. How should the FDA incentivize these studies? Long-time reader Steve (who has good reason to know and thus shall otherwise remain anonymous) writes:
I was reading an article about pediatric drug testing and the BPCA, and I had an epiphany–the people at the
table don’t have the incentives necessary to solve the problem.…possible solutions to the problem of limited pediatric testing appear to boil down to: 1) Modify the reward (primarily through exclusivity); 2)
Give out grants; and 3) Force studies through a government mandate.
These solutions reflect the interests of the three groups sitting at
the bargaining table, i.e., 1) Big pharma, 2) Academics, and 3)
Bureaucrats. What is totally missing is the idea that incentives can be created on both the risk and reward side of the equation. … For example, if the FDA fast-
tracked NDAs with pediatric data, and guaranteed a decision in 90 days, they could, with minimal cost, cause a major shift in incentives.…Any thoughts on how the situation can be improved?
The FDA significantly raises the costs of creating new drugs – there are some benefits in better safety and efficacy but I think the current system results in too much drug lag and drug loss. I would cut back on FDA regulation considerably but I am not against more government-financed studies of safety and efficacy. Once a drug is on the market and especially when it is off-patent, knowledge about the drug is a public good and thus often underprovided. I would thus reduce the FDA’s control over drug choice but increase the budget for drug information e.g. through NIH financed studies like the Women’s Health Initiative which shockingly showed that then widely used homorone replacement therapy increased not decreased coronary disease.
Readers?
In general, I think more and more of the reimbursement, and perhaps exclusivity, should be given for the drugs that work best. Already we’ve seen a couple instances of “guarantees” of drugs’ effectiveness, whereby the manufacturers reimburse less effective or ineffective drugs.
Similarly with pediatric or off-label studies, the manufacturers would be given a higher reimbursement or granted an extended exclusivity.
Generally speaking, it’s attractive to give greater exclusivities for novel compounds and lesser for me-too drugs, but do we really want the government making these subjective decisions after the fact.
Unfortunately, the companies are public, need to post profits and grow fairly regularly. Their strategies of hitting singles (or bunt or just praying for a base on balls), rather than the occasional home run or even extra-base hit, is probably not best for healthcare consumers – arguably the most important stakeholder – while might be best for the shareholders.
And of course these companies spend many, many (hundreds of ) millions more on sales and marketing than R&D. That must change, and eventually will. R&D effectiveness, as measured by new drugs per dollar, is at or near all-time lows.
Glenn,
“…And of course these companies spend many, many (hundreds of ) millions more on sales and marketing than R&D. That must change, and eventually will. R&D effectiveness, as measured by new drugs per dollar, is at or near all-time lows. …”
Sales and marketing are better thought of as investments rather than as expenses. If they don’t pay off in increased revenue, they will not be pursued To the extent that they have positive returns, they increase the number of marginal drug development projects that will be undertaken.
Regards, Don
Glenn,
If drug companies did not spend (and Don Lloyd is correct, it is better to view it as an investment) money on marketing, you would see fewer dollars in R&D, not more. You are starting from the incorrect assumption that drug companies don’t know how to manage their enterprises to maximize their profits. If the marketing doesn’t lead to a greater profit, then the companies would not invest in it- they are not idiots.
A smaller return means a smaller R&D budget, a smaller R&D budget means fewer drugs developed, and you would pay more for the drugs that are developed.
The only half-way decent criticism I have seen about pharmaceutical marketing is that it drives the consumption of inappropriate drugs. However, in this case the blame, if there is any that is to be dished out, should be directed to the doctors, insurance companies, and the patients. No one is hold a gun to their heads.
Without rather extensive testing how do we know if the drug is high risk high reward for the patient or low reward high cost. If the idea is that informed consumers should be making the decisions then how are the consumers to make informed choices based on trials with e.g. 25 patients and a poorly designed experiment. The HRT experience is an example of years of uncontrolled experiment with drugs that probably on balance damaged health but improved the quality of life for many. A well controlled experiment at the introduction of HRT would have given women over many year the information to make the informed choice and probably would have resulted in reduced morbidity and reduced health expenditures.
Sebastian – I’ll stand by my statement, thank you. I’m not familiar with the article you mention, but I don’t need to be. I’ve picked up my information from SEC reports and discussions with the companies themselves (perhaps you should do the same). While simple line items are arregates of expenses (SG&A as well as R&D), and therefore difficult to say precisely, the industry as a whole spends more on marketing and sales than on pure research.
Yancey and Don – I think your viewpoint, while sometimes correct, in this case, is wrong. Valter is right. The industry had been in an arms race. I can almost guarantee you if Pfizer were to announce a halving of its salesforce, the other companies would announce cuts as well. In your world, the opposite would happen.
“I can almost guarantee you if Pfizer were to announce a halving of its salesforce, the other companies would announce cuts as well. In your world, the opposite would happen.”
This is kind of an ironic statement considering the large cuts in its sales force that Pfizer has announced in the past six months.
Sabastian –
Not ironic at all, since then Wyeth has followed Pfizer’s lead. Merck as well.
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