Reforming The FDA Can Save $900 Million Annually

Without a doubt, one of the most important American regulatory bodies is the FDA. As the agency charged with ensuring the safety of everything from the protein shake you drank after the gym to the ibuprofen you take the next day because you forgot to stretch, its responsibilities affect every American every day of their lives.

With such a broad mandate, of course, come enormous challenges. Unless you're Amazon, Apple AAPL +0.2%, or Google GOOG +0.84%, doing “everything” is tough. And when you have over 300 million heterogeneous shareholders, it's impossible to make everyone happy all the time. So what's a government agency to do? For the most part, the FDA's dominant strategy is to be as risk-averse as possible, setting what are sometimes unrealistically high bars for drug approval. This isn't a very controversial view – when approved drugs save lives, the agency gets no credit; but when nasty side effects start killing, the FDA takes much of the heat. No one blames the FDA for deaths that would have been prevented with a more streamlined approval process.

Thus, we've reached a point where we have an agency operating at less-than-peak efficiency. The typical drug approval costs between $1.2 and $1.3 billion. And while estimates vary, effective patent life for approved drugs tends to fall at around 10 or 11 years – just about half of total patent life. Much of the high cost and shortened patent life is due to significant, and often unpredictable, drug development times. FDA clinical trials tend to eat up a significant share of patent life and drug development cost, with Phase III trials – the largest and most expensive – capturing the lion's share. This means that drugs needed to treat the diseases of the 21st century – which are often highly personalized and targeted – take much longer to develop, cost much more, and may not make it to the patients who need them.

This doesn't mean doom and gloom, however. We should see this as a glass-half-full. Inefficiencies in the agency should illuminate tremendous opportunities for reform. This is precisely what researchers argue in a new Manhattan Institute report, An FDA Report Card: Wide Variance in Performance Found Among Agency's Drug Review Divisions. Co-authored by Tufts researchers Joseph DiMasi and Christopher Paul-Milne, as well as George Mason University economist, Alex Tabarrok, the report takes a different approach to evaluating the FDA. Rather than look at one-dimensional measures (such as drugs approved per $1 billion spent on R&D) that treat the FDA as a monolithic organization, the authors evaluate 12 of the FDA's 15 divisions using data on 200 drugs approved from 2004-2012.

As it turns out, there is enormous variation (in case the report title didn't give it away) in the efficiency of different FDA divisions. The mean approval time at the slowest division (Cardiovascular and Renal) was 3.77 times slower than the mean approval time at the fastest division (Oncology). And to assuage concerns of astute readers, these differences stand out even when adjusting for workload (difficulty) measures.

The bottom line of the report is best left to the authors:

And it's these sorts of numbers that are key to understanding the real value of drugs to patients.The true value to patients may not be the price paid by insurers. Critics might very well wonder whether society can afford a much more efficient FDA –

.

Data suggest, at least for certain types of drug therapies, that the costs of new medicines may be cheap even at seemingly astronomical prices – if they offset other, larger medical costs.

(Focusing even on costs/savings in the medical sector alone, isn't enough, however. A new drug that costs twice as much as existing treatments, but provides a cure rather than simply disease management might not increase life expectancy, but gains in quality of life and productivity can be significant too. The moral of the story is that simply examining drug costs isn't enough.)

Take for example the public backlash against Gilead's pricing for the blockbuster Hepatitis C drug, Sovaldi, which costs around $84,000 (note – for a more complete cost you would need to add in the cost of ribavirin; Sovaldi is currently only approved as a dual-use therapy) for a full course of treatment (popularly referred to as the $1,000/pill treatment). Understandably, payers, patient groups, and governments are upset about the cost.

Prior treatments using interferon and ribavirin (which themselves tend to have nasty side-effects) had “viral clearance rates” (essentially cure rates) as high as 80 percent for people with certain strains of the virus, but as low as 45 percent for others. For the strains of the virus studied, Sovaldi (in combination with other treatments) showed significant improvements for most – with cure rates hitting 96 percent for one strain in particular. (Cure rates were 89% in a non-RCT for the most common strain, genotype 1.)

It's clear then, that a single, pecuniary price should not be the only factor in considering whether a treatment is overpriced or not. Indeed, an article published by University of Chicago researchers notes that while a treatment that became available in 2011 costs $70,000 for a full course, the total cost of therapy (including management of complications) jumps to $172,889 to $188,859 per sustained virological response (meaning that the individual is cured). With SVR rates over 30 percentage points higher, Sovaldi may very well be more cost-effective­ if it prevents serious liver complications or cures those who already have serious complications (possibly avoiding a dangerous and expensive liver transplant).

Sovaldi's approval is an FDA success story, price notwithstanding. And if this latest report is any indication, improving the agency's efficiency across the board could spawn many more.

This piece originally appeared in Forbes

This piece originally appeared in Forbes