Wednesday, January 4, 2017

Why Did The FDA Approve 57 Percent Fewer New Medicines Last Year Than 2015?

The Food and Drug Administration has reported it approved only 19 innovative new medicines last year, versus 51 in 2015. To be sure, 2015 was a high-water mark. Nevertheless, such a dramatic drop signals a problem for patients eager for new treatments. These new drugs, though few, represent advances in the treatment of ovarian cancer, Hepatitis C, and multiple sclerosis, among other diseases.

The FDA excuses itself for the slowdown, claiming it is receiving fewer applications from drug makers. However, this is symptomatic of a vicious circle. The regulatory burden of approval has increased so much, it is contributing to a significant reduction in the rate of return on capital invested in pharmaceutical development.

According to new research by Deloitte, the rate of return has collapsed from 10.1 percent in 2010 to 3.7 percent last year. The problem is that the cost of R&D is stable, but forecast lifecycle sales have declined over the years. This is likely because government-run payment systems are tightening the screws on payment for new medicines. (See, for example, this article on how Germany allows health insurers to act as a cartel, deciding whether to pay for new medicines.)

In the U.S., the government does not give insurers this power, but a large number of voters appear to think the government should cut drug prices using its own power. This invites the question: With the rate of return on capital so low already, who would invest in pharmaceutical innovation under U.S. price controls?

President Obama recently signed the 21st Century Cures Act, which will speed up FDA approvals for some medicines. However, the FDA’s role as a regulatory monopolist persists, and this has negative consequences for patients and innovators.

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