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: FD&C 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 don’t 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 R&D 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 doesn’t mention it • Up to half of all Rx’s “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 R&D 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 drug’s 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-phen’s per decade • 3 more than we observe in today’s 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-phen’s 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 everygood 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 << 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 • Where’s 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