What’s The Real Answer to Rising Costs of Blockbuster Drugs? Competition

• PCI Synthesis

The 400 percent increase in the cost of the life-saving allergy treatment EpiPen has gotten its manufacturer, Mylan, into some deep scrutiny – and rightly so. Maybe it’s a combination of greed, market dominance, regulatory requirements and clearly more and more entities taking a share of the profits. Yet this debacle should shed light on the real issue – the need for greater competition to prevent any one company from having a monopoly. It also should shed light on the regulatory environment which supports that monopoly. Although it makes for great political theater, with the media focusing on stuttering company executives trying to justify four-figure price increases or unhinged congressional representatives trying to convince their constituents that they are fighting for John Q. Public, everyone is ignoring the real issue: ever-increasing FDA regulations are preventing new approvals and thus stifling competition.

As with any business, the antidote to one brand monopolizing the market is competition, yet the odds have been in Mylan’s favor when it comes to alternatives to the EpiPen. Auvi-Q, a non-generic competitor, was recalled in October, while generics from major players, such as Teva Pharmaceuticals and Adamis Pharmaceuticals, have been rejected by the FDA. Both companies will have to go back to the drawing board and can’t anticipate launching their generics until at least 2017.

These situations are just a few examples of major global pharma companies with lots of resources and some of the world’s best scientists, who could not pass muster with the constantly changing, ever increasing FDA requirements.

FDA Requirements Need to be Balanced with the Need for a Competitive Marketplace

While rigorous testing and review of new generics must be conducted to ensure their safety and reliability, as well as assurance that they provide a perfect substitute to brand-name drugs, this has to be balanced with the need to get alternative treatments to market.

It’s quite possible that in the case of the EpiPen, if Mylan was seeking FDA approval today, as opposed to in the 1970s, it might not secure it, given today’s increasingly tight requirements and regulations. Yet the companies seeking to provide a more cost-effective alternative for life-saving treatments are required to meet different requirements, lower levels of impurities, stringent manufacturing processes, inspections and controls as compared to when the innovator product was approved. Luckily for Mylan, once it secured approval in the 1970s, during a time of less stringent requirements, that approval was essentially for life.

Another example of how an over-regulated industry is affecting market competition is the situation with many small-volume, high-value drug products. There are numerous industry examples in which one company has a stronghold over the entire market for a product that received FDA approval many years ago. While other players can develop a generic and seek approvals, the total market is too small to justify the costs to comply with the latest and ever-growing FDA requirements. The economics don’t make sense until the company that has the approval raises the price so high that all of a sudden a market exists. They can then enjoy the high profits (while patients suffer) until another approval comes along, if it ever does. Often, the cost to complete new rounds of testing, secure additional raw materials and provide the resources to complete the extensive paperwork for all the various filings would surpass the return on investment or would not justify the business risk. Ironically, in many cases the existing product currently on the market and approved years ago would never meet the standards that the generic must meet today.

It’s clear that the costs of drugs – generics and blockbusters alike – will rise and fall based on the competitive climate. Many a brand-name drug manufacturer has gone from being a $1.5B franchise to a $60M one overnight because several new generics have been approved for use and commercialized. While this may not be good news for the blockbuster drugs, it’s great for a free market, as well as patients who rely on these drugs to survive.

An over-regulated industry is not the only reason for soaring drug costs –there are clearly additional factors, such as a shortage of raw materials and manufacturing issues that can always arise to drive up costs. Even if the FDA opened up the barriers to entry for generics, consolidation in the industry could occur from this host of new players. Also, as patents expire, the generic drug market could have fewer players competing for sales and once again costs could climb.

As situations like the EpiPen have demonstrated, we have to work to ease some of the restrictions to the approval of generic and alternative drugs to ensure that no one brand gains a monopoly. Not only does such a monopoly impact the health and safety of consumers who may not be able to afford the rising costs, it impedes the innovation that is created from healthy competition.