Drug Reciprocity with Europe Gains Support

by on September 1, 2016 at 7:24 am in Economics, Law, Medicine | Permalink

As loyal readers know, I’ve long been in favor of a system where a drug approved in another major, developed country is also approved here. For a long time it seemed as if I was shouting in the wilderness but in the last few years support for the idea has grown, as the Cruz-Lee Reciprocity bill indicates. In A Cure for Swelling Drug Prices: Competition, Greg Ip at the WSJ notes another new development:

Mr. Tabarrok says the FDA should also offer reciprocal approval of drugs that regulators in other advanced countries have already cleared. Imports of generics from countries with government-negotiated prices ought not to be as controversial as patent-protected drugs because they involve far less expensive and risky research. Indeed, the Generic Pharmaceutical Association and its European equivalent, Medicines for Europe, have proposed a “single development pathway” under which approval in one jurisdiction would automatically confer approval in the other.

The proposed plan is for generics only where the issues are simpler but Greg is right to conclude more generally:

The FDA has long insisted, for safety reasons, that it approve all drugs regardless of whether they have been approved overseas. But if the FDA was once a better regulator than its overseas peers, it isn’t now. Ken Kaitin, a professor of medicine at Tufts University who has studied drug regulation around the world, says there is “absolutely no evidence” the U.S. drug supply is safer than in Britain, Canada or Europe.

Thus, the FDA wouldn’t be compromising safety by harmonizing its approvals with foreign regulators. Indeed, by making more drugs available at lower cost, it could ultimately make Americans healthier.

1 rayward September 1, 2016 at 7:49 am

Yes, generics approved by countries with government-negotiated prices. Do we get the benefit of the government-negotiated price?

2 prior_test2 September 1, 2016 at 8:34 am

Of course not, that would impair the ability of the American pharma industry to deliver the results it is justly famed for – high profit margins backed by a gvernment granted monopoly.

3 Edmund C. September 1, 2016 at 8:43 am

Not a fan and not voting for him, but shocked that DT has not made this a campaign issue.

4 msgkings September 1, 2016 at 1:11 pm

Why does that shock you? Whatever his positives are, being brilliant and policy-oriented aren’t among them.

5 Slocum September 1, 2016 at 10:06 am

For the most part, the U.S. has very low (and falling) generic drug prices. So low that Walmart can do this. But some generics have been getting much more expensive? What happened? Industry consolidations combined with a more restrictive FDA happened:


We don’t need government-negotiated prices for generics. For the most common drugs, there’s no problem to solve. For uncommon drugs where generic prices are rising, we need more competition and relief from government-imposed restrictions on manufacturers that have been driving up prices. Allowing European generic manufacturers to sell their drugs here would address both issues.

6 Lord September 1, 2016 at 11:16 am

If this is a serious proposal, it would allow individuals to import them, but that would be shocking.

7 OneEyedMan September 1, 2016 at 8:15 am

Would you want to eat in a restaurant that 9 health inspectors failed and one passed? Just because all safety inspectors are of the same quality wouldn’t necessarily imply that it would be prudent to accept a rule that saying if any of them approve, then deem it approved. A rule like this would have more false positives than the status quo. It might still be worth it but we don’t seem to know much about the costs and benefits such a rule would entail.

8 JWatts September 1, 2016 at 8:23 am

“Would you want to eat in a restaurant that 9 health inspectors failed and one passed? ”

That’s a terrible analogy. The correct one is: should a restaurant remain closed if 9 health inspectors have passed it (many other countries have approved a drug) but 1 health inspector is still working on the paper work (the FDA hasn’t approved it yet).

9 mavery September 1, 2016 at 8:29 am

The analogies are equally relevant, as I understand the policy.

Incidentally, its odd around here to find people so willing to get the US involved in international regulatory frameworks where we wouldn’t have full sovereignty, which is basically what this is.

10 Erick September 1, 2016 at 9:02 am

I don’t think you know what sovereignty is.

11 mavery September 1, 2016 at 12:47 pm

I’m using it here to mean “rightful ability to do whatever we decide”. Google’s first definition is, “supreme power or authority”. Their second is, “the authority of a state to govern itself or another state.” So perhaps the modification “full” was unnecessary? Not sure what your quibble is.

12 Thomas September 1, 2016 at 4:44 pm

The quibble is that any treaty under your system of definitions would necessarily degrade national sovereignty even though treaties are voluntary. It would be like arguing that a customer who voluntarily buys a Snickers bar is being exploited by a producer, but alas…

13 mavery September 2, 2016 at 8:58 am

Well, it would be more like a person who signed away authority to purchase snacks to a 3rd party was then dissatisfied with the choices of that third party.

My point was that this is a primary reason many folks failed against things like the dispute settlement courts in the TPP.

14 TMC September 1, 2016 at 11:40 am

Just a work around for my own abridged sovereignty

15 Sam Haysom September 1, 2016 at 1:15 pm

I understand that this type of passive aggressive argument style is extremely popular with leftists, but what on early is surprising about a globalist like Cowen supporting this policy. You are confusing this sites commenters with its posters.

16 Pshrnk September 1, 2016 at 10:02 am


17 Cliff September 1, 2016 at 10:47 am

Not wrong

18 Phillip September 1, 2016 at 9:30 am

Unfortunately, this is exactly correct. Once this rule is approved, there will be strong incentives for pharma firms to identify and/or encourage the most lax drug approval agency. Suppose Ireland wants to get into this game – the Irish government could basically dominate drug approval by offering lower standards, and in turn receive modest “kickbacks” such as fees or getting pharma firms to locate some operations in Ireland. Instead of introducing greater efficiency as people are imagining, the policy will funnel drug approval to the least scrupulous regulatory agency.

19 Pshrnk September 1, 2016 at 10:09 am

Even if they are scrupulous it would only take one of the regulators erroneously approving a harmful to drug to then multiply the error.

If this is done, why shouldn’t it also apply to not allowing drugs that are not approved in one of the other developed countries? Maybe because we would have riots when Adderall was no longer approved here, since it is not approved in S. Korea.

20 Cliff September 1, 2016 at 10:48 am

So we have a list of approved foreign regulators and we can change it.

21 Alain September 1, 2016 at 11:39 am

You mean that this could undermine the regulatory apparatus? The horror.

22 carlolspln September 1, 2016 at 5:49 pm

“Instead of introducing greater efficiency as people are imagining, the policy will funnel drug approval to the least scrupulous regulatory agency” [SNIP]

Hey, it worked for the US banks in the 1990’s & early ‘oughts! http://www.usc.edu/schools/business/FBE/seminars/papers/F_9-7-12_SERU.pdf

‘Step right this way, folks, for Tabarrok’s Road to Hell!’ [paved with the most superficial of intentions]

23 Slocum September 1, 2016 at 10:13 am

So does that mean you think we’re all at risk in the U.S. now because we’re relying *only* on FDA approval, and Europeans are at risk because they are relying *only* on EMA approval? Do you think American doctors should have to wait until a drug gets approval from all the ‘restaurant’ inspectors (FDA, EMA, Japanese PMDA, etc) before being allowed to prescribe it?

24 Pshrnk September 1, 2016 at 11:05 am

We are all at risk because we are relying on humans.

25 Cliff September 1, 2016 at 7:33 pm

“Life is risk”

Great, good insight

26 ZZZ September 1, 2016 at 4:40 pm

If my only other option was starving to death, I’d eat at a restaurant that was failed by every health inspector.

The other side of your analogy is if you were a health inspector and 9 other highly qualified health inspectors had approved the restaurant wouldn’t you open the door if you saw a group of people starving in the street?

27 OneEyedMan September 2, 2016 at 3:58 am

I would eat in a restaurant with a 9/10 pass rate. But the false positive (probability of mistakenly approving a dangerous drug) rate is very different for a 1/10 rule and 9/10 rule. In the former your approval rate is only as good as the weakest or most mistaken regulator. In the latter you only as good as the 9th weakest or most mistaken regulator. The flip side is lower false negatives (probability of mistakenly rejecting a safe drug) in the 1/10 than in the 9/10 rule. Medically, we can’t know what that trade-off looks without studying it empirically. But with restaurants and with drugs, I suspect most people have an intuition that the 9/10 rule would be better than the 1/10 rule and likely better than the 1/1 rule we have currently.

28 Ray Lopez September 1, 2016 at 8:19 am

It’s not uncommon for major drug companies to test their drugs with poor people in the Third World before selling them in the First World. Typically with “volunteers” paid a “hefty sum” (recall $5 a day is a hefty sum in Lima, Peru), so AlexT’s ‘preference’ is actually de facto already being done. Human guinea pigs.

OT-AlexT, please tell us more about your patent views. We need a good flame war.

29 prior_test2 September 1, 2016 at 8:36 am

John le Carré, ‘The Constant Gardener.’

30 Thiago Ribeiro September 1, 2016 at 8:58 am

“The Constant Gardener”, directed by Brazilian Fernando Meirelles.

31 Jeff R. September 1, 2016 at 9:29 am

That’s their comparative advantage.

32 Axa September 1, 2016 at 8:23 am

I just turned the computer keyboard. There’s a salad of certifications acronyms CE (Europe), FCC (US), VCCI (Japan), NOM & NYCE (Mexico), UL (US), TÜV (Germany)….and many more. Some of them are for electrical safety other for electromagnetic emissions.

From a certain point of view, it looks dumb that a simple keyboard needs so many safety tests around the world. It would be way more efficient if a single testing and certification organism with worldwide reach test the product once and ready to sell globally. But……….we’re humans not angels nor saints, where would you place this new organism? If there’s no certification organism in your country, new local inventors/manufacturers have even higher entry barriers. Just imagine following paperwork in another country. The second worry would be just dishonest competition. If there’s only one certifying organism, these guys have control on what can be sold or not around the world. Finally, local certifications can be a boost to local testing and certification industry. If a high labor cost country as the US let’s go offshore the certification business to save a few bucks to the consumer, this business is not going to come back, ever.

Perhaps, the current situation is a compromise between economical efficiency (less certifications), conflicts of interest (1 global certification organism) and protecting local business.

33 Alan September 1, 2016 at 8:28 am

You want to “Offshore” well paying FDA jobs? Unpatriotic bugged.

34 Alan September 1, 2016 at 8:28 am

… bug.

35 Thiago Ribeiro September 1, 2016 at 9:28 am

Who would make sure the tilde key of my keyboard works under normal tilde using conditions? The Spaniards? The Bolivians? You?

36 A September 1, 2016 at 8:41 am

Doesn’t this system run the risk of a race to the bottom result? If pharmaceutical companies attractive to countries, and that ambition instruments higher approval rates, then sovereign approvals might resemble issuer-paid ratings.

37 prior_test2 September 1, 2016 at 8:48 am

Think of the market efficiency, though. I’m sure the pharma companies are.

38 Erick September 1, 2016 at 9:03 am

Why do people just start talking about races to the bottom even though there’s no reason for it to apply at all here, and there are very few regulatory races to the bottom observed in the developed world anyway.

Why would a country suddenly drop it’s regulatory framework? What’s the incentive?

39 prior_test2 September 1, 2016 at 10:29 am

‘there are very few regulatory races to the bottom observed in the developed world anyway’

Almost as if the idea of picking a jurisdiction – oh, let’s say one with an effective corporate tax rate of something like .005% for ‘head office’ entities lacking both offices and employees – never happens.

Especially if that rate, according to the company’s CEO, was 12.5% – http://www.theregister.co.uk/2016/09/01/tim_cook_says_european_commission_made_up_tax_claims/

40 Cliff September 1, 2016 at 10:51 am

Isn’t that absolute proof of the position you are arguing against? Even where you have a strong incentive to reduce corporate tax rates and you have a country that indeed has as very low corporate tax rate to lure foreign investment, you still see no race to the bottom because other countries are not changing their rate (not that it would be bad if they did).

Here there is no incentive whatsoever to allow shitty drugs that kill people.

41 prior_test2 September 1, 2016 at 11:03 am

‘Isn’t that absolute proof of the position you are arguing against?’

You are aware of why the EU did what it did in forcing Ireland to collect an additional 14.5 billion euros, right?

42 Cliff September 1, 2016 at 7:34 pm

?? WTF does 15 billion euros matter or have anything to do with this?

43 Slocum September 1, 2016 at 10:41 am

No. There would be no reason for the U.S. to establish reciprocity with dodgy foreign regulators. We’re really talking about just a handful here — perhaps only the European and Japanese agencies. As an aside, it’s kind of funny to see MR’s resident lefties line up as a team so quickly against reciprocity with European medical regulators (don’t they normally love European regulators and think they’re great)?

44 Thomas Taylor September 1, 2016 at 11:39 am

So we get all the supposedly bad European socialist drugs regulation, but at American “free market” prices? It must be great.

45 Cliff September 1, 2016 at 7:35 pm

What is your objection exactly?

46 The Other Jim September 1, 2016 at 8:54 am

It’s an interesting, albeit moot, question. The idea that the Feds would relinquish their gravy-train monopoly on this is laughable. No good statist would go anywhere near it. Trump might, but that is also moot.

No, you don’t want the FDA to bless something just because the Italians did. You could, however, form extradition-like treaties with certain Tier 1 countries where the FDA blessing does come automatically. And you could allow the US sale of drugs from Tier 2 countries, specifically labeled as not-FDA-approved. That would make a lot of sense.

But who cares – no Dem, and virtually no GOP’r, is doing this. Far too much rent-seeking to give up.

47 anon September 1, 2016 at 8:55 am

On the surface I see nothing wrong with reciprocity, for countries with strong standards.

But I am less convinced that more drugs means more health. See the ad campaigns for overtreatment of minor conditions, and the opiate epidemic.

Do we need $5 billion in direct advertising to consumers? Is that a health system or a profit system?

48 Cliff September 1, 2016 at 10:53 am

“I agree with you but want to argue about an orthogonal topic!”

Is your position that the FDA shouldn’t approve anything because drugs don’t improve health?

49 Ricardo September 1, 2016 at 11:41 am

One could limit it to generics that are on the WHO’s list of essential medications. I believe Daraprim and Epipen are both on this list as they are life-saving medications.

As for the opiate epidemic, there is nothing here about allowing the sale of opiates over the counter. That said, I can’t be the only one who remembers in the 1990s how there were articles about overzealous investigations of doctors who were prescribing opiates to terminally ill patients or those suffering from debilitating pain. Perhaps the pendulum has swung too far in the other direction but I doubt it.

50 Thomas September 1, 2016 at 4:51 pm

I suspect that your posts lower net utility of readers so my moral system allows me to enable agents to use physical violence against you if you post here.

“My aesthetic… so violence against those who disagree”

You are a paragon of virtue, anon.

51 anon September 1, 2016 at 8:57 am

Perhaps that is Alex’s implicit bottom line in his drug quests, that consumers are the ones who can best decide which drugs to take.

With help from advertisers, of course.

52 prior_test2 September 1, 2016 at 9:16 am

And whoever is paying the bills for the pharmaceuticals, of course. Particularly those that turn out to be utterly ineffective after being purchased by thousands of customers first.

53 prior_test2 September 1, 2016 at 9:14 am

‘As loyal readers know, I’ve long been in favor of a system where a drug approved in another major, developed country is also approved here.’

Yes, but were you as interested in radical reform of the FDA back then too? Bartley J. Madden was, writing about that in 2004 – Breaking the FDA Monopoly http://papers.ssrn.com/sol3/papers.cfm?abstract_id=568404

Apparently, you were – http://www.cato.org/pubs/regulation/regv27n2/v27n2-8.pdf

Such a nice example of how someone becomes entitled to hold the Bartley J. Madden Chair in Economics at the Mercatus Center, a public policy institute that is not part of GMU, a Commonwealth of Virginia public institution of higher learning.

54 Cliff September 1, 2016 at 10:54 am

Shocking, shocking I say. Almost as bad as someone pro-choice ending up working for Planned Parenthood!

55 prior_test2 September 1, 2016 at 2:00 pm

Sure – but a better example would be using someone who is pro-choice attempting to use an association with a government agency, governed by strict limits requiring political neutrality and funding transparency, while actually working for NARAL.

An example of this distinction in real life regards how the GMU PR department had to be extremely careful when handling any IHS PR, since IHS was not actually a part of GMU, and using state money for its PR was always an extremely ticklish subject for Commonwealth paid employees. Simply listing that IHS would have an event at GMU was considered acceptable enough, in the sense that many parts of the GMU community that were not state funded (religious groups, for example) had basic information such as time and place of an event listed, occasionally reaching enough importance to merit a low key press release (perhaps a sponsored Christmas concert where the community was invited to participate, or a famous speaker was invited to speak at an event held at GMU under the auspices of a church’s campus outreach). Obviously if an actual GMU faculty member was doing something involving IHS, the PR (a press release under GMU’s letterhead, for example) was considered related to the faculty member, and not IHS per se. Using taxpayer money intended to fund PR for GMU to instead fund non-Commonwealth public policy institutes advocating for their own purposes is still, to the best of my knowledge, not legal in Virginia.

Something that the Bartley J. Madden Chair in Economics at the Mercatus Center undoubtedly is already aware of, of course.

For anyone interested in how that works in practice, this link shows how to ensure that the PR is about Mason, ostensibly focusing on a GMU graduate and GMU faculty, while talking about ‘the independent Marginal Revolution University founded by Mason professors’ – https://www2.gmu.edu/news/1305 This game has been played for decades at GMU, after all, and the rules do not seem to have changed that much.

56 Cliff September 1, 2016 at 7:38 pm

Your objection is what exactly?

57 Denis Drew September 1, 2016 at 9:57 am

At $75,000 per patient, Gilead’s latest Hepatitis drug Epclusa which cures all forms of Hepatitis, A, B, C, D, E, at a 95% success rate — would cost to treat all 300 million chronic Hepatitis sufferers worldwide $22.5 TRILLION (minus the 1/5 of 1 percent manufacturing costs).

Yes, a generic from India would be nice.

58 Thomas September 1, 2016 at 4:54 pm

Monopoly profits < regulatory strength. Leftists ultimately prefer power to their own professed virtues. They'd rather have Hep patients die in the street than relax a single rule.

59 RohanV September 1, 2016 at 12:44 pm

As long as people remember Thalidomide, this is not going to happen. Thalidomide is pure kryptonite for this argument, approved in Europe, denied approval in the US, and caused birth defects.

As well, there’s a logical argument here about replicability. Isn’t it better to have multiple institutions verify something, rather than rely on a single point of failure?

60 Sam Haysom September 1, 2016 at 1:21 pm

So not for much longer. I only know about it because of that Billy Joel song and I only heard that song because boomers insist on replaying the cultural of their youth. No boomers, no Joel, no memory of the children of thalidomide.

61 prior_test2 September 1, 2016 at 2:06 pm

Well, apart from the extremely strict requirements concerning its use – ‘In 1998 the FDA approved the drug’s use in the treatment of ENL.[58] Because of thalidomide’s potential for causing birth defects, the drug may be distributed only under tightly controlled conditions. The FDA required that Celgene Corporation, which planned to market thalidomide under the brand name Thalomid, establish a system for thalidomide education and prescribing safety (STEPS) oversight program. The conditions required under the program include limiting prescription and dispensing rights to authorized prescribers and pharmacies only, keeping a registry of all patients prescribed thalidomide, providing extensive patient education about the risks associated with the drug, and providing periodic pregnancy tests for women who take the drug.’ https://en.wikipedia.org/wiki/Thalidomide#History

The memories go a bit deeper than boomer music, actually.

62 JimmyXi September 3, 2016 at 3:10 pm

If everyone from Sargents to Generals go to work for MIL contractors .. Banking committee staffers and Charmen go to banks …why would you not expect the FDA to protect their prospective futures?


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