Pharmaceutical Regulation: A Matter of Life and Death

1
Pharmaceutical Regulation A Matter of Life and
Death

• Sam Peltzman
• Booth School of Business
• University of Chicago

2
Overview

• Regulation of the Introduction of New Drugs
• Brief Early History
• Costs and Benefits
• In principle
• Evidence
• Political Response
• The Future

3
Historical Background

• New prescription drugs must be deemed safe and
  effective by Food and Drug Administration (FDA)
  before introduction to the market
• Proof of Safety FDC Act of 1938
• Mfr conducts tests
• Submits to FDA
• Fixed time period. Default is safe
• 1935-1960 Industry enters a golden age
• Sulfa drugs, antibiotics, early psychotropics
• Enormous growth
• Political scrutiny increases

4
1962 Amendments

• Two concerns come together
• Consumers are wasting money on drugs that dont
  work (better)
• me too , mixtures, etc.
• Rush to market compromises safety
• Wonder drugs are also strong medicine
• Thalidomide a close call
• 1962 Act
• Adds proof of efficacy requirement
• Seller can only claim effects on approved drug
  label
• Removes fixed time period. Default is no, not
  yet
• Regulates testing process
• Approval of all phases of testing protocol
• In effect, requires double-blind randomized
  trials v placebo

5
A Brief Sketch of Drug Testing Approval

• Pre-Clinical discovery
• IND Regulated testing begins
• Phase I
• Mostly healthy subjects
• Primary concern safety
• Phase II
• Patients with targeted disease
• Safety also efficacy
• Phase III
• Large scale, double blind test v placebo
• Efficacy also safety

6
Main Effects of the Regulation

• Drug development takes more time
• Today 10 years (average) from IND to market
• 1 to 6 years more in pre-clinical animal testing
  etc
• How much is due to regulation?
• Only 1.5 years directly in approval process
• But all previous testing affected by need to
  prove efficacy
• Rough guess 3 to 5 extra years
• Drug development is more costly
• Around 1 billion/new drug
• Probably more than half due to extra costs of
  regulation
• Most affected part of process (phase iii) has 3x
  monthly cost of earlier phases

7
And Fewer New DrugsAverage Annual Number of
NCEs. US. 1951-2013
8
These Effects Can Be

• Good
• More unsafe, ineffective drugs screened out by
  longer, more expensive testing
• Or
• Bad
• Some safe, effective drugs not developed because
  of the higher RD costs
• The good drugs are more costly
• The good drugs come to market later
• So potential benefits are missed

9
So, Do Costs Exceed Benefits, or Vice Versa?

• Most studies suggest that costs exceed benefits
• Caveat I said so many years ago
• For both safety and efficacy
• Will focus on safety

10
Limits on Net Benefits of Efficacy Regulation

• Ineffective drugs lose sales rapidly
• So direct benefits (saving wasteful expenditures)
  are limited
• Growth of off label prescribing? lost benefits
• Seller cannot claim new benefit for existing drug
  without FDA approval
• But doctor can prescribe the drug for any
  indication
• Even if the official label doesnt mention it
• Up to half of all Rxs off label
• Suggests testing costs are restricting benefits
• From restricted information
• Or similar, but better targeted, drugs that are
  not developed

11
Safety Regulation Outline

• What is the plausible safety benefit of extra
  testing?
• Compare it to just 1 cost
• Delay in benefits from extra time in testing
• Ignore loss of benefits from fewer new drugs
• Or extra RD costs
• Use recent history to give you a sense of
  magnitudes why benefits are much less than costs

12
Safety Benefits of FDA Testing

• Pre-1962 Unsafe drugs are rare
• 1 or 2 per decade with significant mortality
  risks
• Approx 1000 deaths before withdrawal
• Not entirely eliminated - e.g., fen Phen
• Diet pill marketed for 1 yr 1996-97
• Withdrawn after adverse safety effects
• Pulmonary hypertension
• Estimated 1800 excess deaths (by opponent of
  drugs introduction)
• Low incidence effects hard to detect in clinical
  trials
• Need very large samples

13
So What Are the Actual Safety Benefits of Extra
Testing?

• Hard to tell
• How many lives lost per year today
• Compared to how many would be lost with less
  testing
• And greater reliance on market forces tort law
• We do not observe the counterfactual
• But we can get a sense . . .
• Of why benefits are less than costs
• By exaggerating the benefits
• i.e., the lives lost in the counterfactual world

14
Say The Extra Testing Saves 500 Lives Per Year

• Less testing 4 fen-phens per decade
• 3 more than we observe in todays world
• Probably exaggerated, because
• Observed only 1 or 2 per decade before 1962
• Tort law has gotten tougher
• fen-phen cost Wyeth 34B
• But saving 3 fen-phens would save 5000
  lives/decade

15
What are the Safety Costs of the Extra Testing?

• Look only at 1 cost
• The extra time it takes to get every good new
  drug to market
• Which means some benefits are missed
• Use treatment of heart disease
• To give you a sense of how significant the cost
  of delay is

16
Some Basic Facts

• Heart Disease is leading cause of death for males
  over 45
• Mortality was improving before 1970
• Then mortality decline accelerated
• Especially for males

17
Death Rate from Heart Disease. US. 1960-2012
Per 100,000. 2012 population weights
18
Some Basic Facts

• Heart Disease is leading cause of death for males
  over 45
• Mortality was improving before 1970
• Then mortality decline accelerated
• Especially for males
• Current male mortality rates much lower than 1970
• Or what they would be with previous trend

19
Death Rate from Heart Disease. US. 1960-2012
Per 100,000. 2012 population weights
20
The Role of Drugs and Regulation

• 300,000 fewer deaths per year (compared to trend)
  in this age group
• New drugs make a modest contribution to this
  improvement
• Around 25 of the overall improvement
  (Lichtenberg, 2009)
• Which ? 75,000 fewer deaths per year due to new
  drugs
• All these new drugs made it through FDA process
• BUT

21
Not So Fast

• Recall proof-of-efficacy adds 1.5 years to
  regulatory process directly
• And a similar extra time indirectly
• For every new drug - including those that save
  lots of lives
• In this case each extra year in testing 75,000
  extra deaths
• You would need 15 decades of safety benefits (at
  a generous estimate of 5000/decade) to pay for
  costs of only 1 extra yr of testing

22
A Big Benefit for Lots of People Becomes a Big
Cost

• If you make people wait even a little bit
• And the benefit from the extra time is not nearly
  as large as the cost
• Both are true of current regulation

23
How Did This Story Play in Washington?

• Most economic analyses since early 1970s show
  benefits ltlt costs
• BUT official reaction evolves slowly
• Denial 1970s 1980s
• Recognition Some Response
• Orphan Drug Act (1983)
• Special treatment for drugs with small market
• Prescription Drug User Fee Act (1992)
• Drug companies pay a user fee to speed up NDA
  process
• Both have worked
• No serious questioning of overall process

24
Why Does New Drug Regulation Survive Politically?

• If economists are right regulation kills more
  many more than it saves
• But the regulatory system is politically safe
• Why? 3 protective forces
• Asymmetry
• Interest Group Politics
• Progress

25
1. Asymmetry Who Will Speak for the Victims?

• The victims of the regulation are anonymous
• They would not have died if drug was available
  sooner
• We and their relatives friends never know
  exactly who they are
• But the victims of an unsafe drug are visible
• Their relatives, friends - the world - hear
  their story
• Avoiding harm dominates politically

26
2.Interest Groups Who Would Lobby for Change?

• Industry? Well organized, but ambivalent
• Each developer would like to avoid costs/delays
• BUT once you get approval
• Costs/delays are barrier to competition
• AND Big Pharma can sell regulatory expertise
• Most biotech startups sell to large player by
  stage iii
• Consumers? Not organized rationally ignorant
• One exception AIDS activism in 1990s
• Consumer lobbies push for even more
  regulation

27
3. Medical Progress

• New drugs do get to market eventually
• People live longer
• Life expectancy at birth increases steadily
• 71 years in 1970 ? 78 years now

28
Years of Life Expectancy. US. 1960-2011
29
3. Medical Progress

• New drugs do get to market eventually
• People live longer
• Life expectancy at birth increases steadily
• 71 years in 1970 ? 78 years now
• Wheres the crisis?
• Economist but for the regulation lives would be
  saved
• Non-economists do not live in a counterfactual
  world

30
In Conclusion

• Economic analysis suggests FDA is neither safe
  nor effective
• Many lives could be saved by reduced testing
• Eliminating pre-market approval
• Eliminating efficacy requirement
• But fundamental change is politically
  inconceivable
• Do not be discouraged
• 15 minutes is a long time