FDA moves signal storm warning for pharma firms

Regulator to expedite approvals for generics to damp prices

FILE - In this Wednesday, April 5, 2017, file photo, Dr. Scott Gottlieb, President Donald Trump's nominee to head the Food and Drug Administration, appears at his confirmation hearing before the Senate Committee on Health, Education, Labor, and Pensions, on Capitol Hill in Washington. The Food and Drug Administration is making two moves to rapidly increase the number of generic prescription drugs on sale in an effort to make medicines affordable and prevent future price gouging. New commissioner Gottlieb says the FDA will now give priority reviews to potential generic drugs until at least three are on the market. That’s the level at which prices tend to drop sharply, up to 85 percent off the brand-name price. (AP Photo/J. Scott Applewhite, File)

The U.S. Food and Drug Administration’s moves on generics are a storm warning for pharma. In a bid to combat high prices, new commissioner Scott Gottlieb will expedite reviews of generic-drug applications to promote competition. The changes will batter the likes of Valeant and Cardinal Health, and cast a cloud over branded drug makers.

The FDA traditionally left questions of pricing to pharma firms, but a political uproar about gouging has prompted a rethink. Companies have jacked up the prices of branded and generic drugs needed by AIDS patients, premature infants and cancer victims, among others in some cases by 100-fold or more.

Mallinckrodt’s drug for infantile spasm, which cost about $40 a vial around the turn of the millennium, is now over $30,000. Such behaviour has crept into the $85 billion-a-year U.S. generic market.

The Government Accountability Office found about one-fifth of the generics it surveyed had at least one 100% price increase over five years.

Prices are top priority

A doctor, one-time FDA official and former partner in a venture-capital firm, Mr. Gottlieb’s industry ties forced him to temporarily recuse himself from decisions involving more than 20 companies to win Congressional confirmation. Yet he has been anything but a pharma shill since taking office, making drug prices a top priority.

His plan harnesses sunlight and competition. The FDA published a list of branded drugs without patent protection, and it will expedite the approval process for generic versions of products on this list, and for any drug that has fewer than three copies. FDA research shows that generics cost about 6% less than branded alternatives when there is only one rival. With three, the price drops by more than half.

There’s more to come. The FDA will hold hearings next month on how to prevent companies from gaming the system. Tactics such as not allowing rivals to buy drugs to prove their version is equivalent will be nixed.

The initiative will intensify pressure on the generic industry, where prices are already declining at an annual rate of about 10%. Debt-laden companies that counted on price increases, like Valeant, will be hit the hardest. And distributors Cardinal Health and AmerisourceBergen will have fewer opportunities to profit from buying drugs before price rises occur. Even big pharma won’t escape these gales. GlaxoSmithKline, for example, sells over $1 billion a year of a drug for asthma in the U.S., yet the patent expired years ago and there is no direct generic competition.

Promoting alternatives is a partial prescription for U.S. healthcare’s runaway costs.

( The author is a Reuters Breakingviews columnist. The opinions expressed are his own )