2/21/2018
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`How Obama’s FDA Keeps Generic Drugs Off the Market - WSJ
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`http://www.wsj.com/articles/how-obamas-fda-keeps-generic-drugs-off-the-market-1471645550
`
`COMMENTARY
`
`How Obama’s FDA Keeps Generic Drugs Off
`the Market
`
`A lurry of new regulations is raising production costs and reducing competition for branded drugs.
`
`The Food and Drug Administration’s headquarters in White Oak, Md. PHOTO: CQROLL CALLGETTY IMAGES
`
`By Scott Gottlieb
`Aug. 19, 2016 625 p.m. ET
`
`One of the biggest factors fueling the angst over drug prices in the U.S. is that some older
`medicines that should be sold cheaply as generics are still priced very high, often owing to a
`dwindling number of generic competitors and the rising cost of producing these drugs. Bernie
`Sanders and Hillary Clinton like to blame generic-company mergers and greedy drugmakers.
`But a closer look reveals that a series of regulatory policy blunders is at fault.
`
`The modern generic-drug industry emerged after the 1984 Drug Price Competition and Patent
`Term Restoration Act, better known as Hatch-Waxman. The law created a cheaper and faster
`path for bringing generic copies of branded drugs to the market. By keeping regulatory barriers
`low, Hatch-Waxman enabled vigorous competition from multiple firms, each one vying to sell
`drugs for close to the cost of manufacturing.
`
`Yet in recent years the Food and Drug Administration has imposed on generic firms many of the
`same costly requirements that the agency applies to branded-drug makers. For example, in a
`push to reduce the risk of contamination, the agency in 2009 forced generic-drug makers to
`retool their sterile manufacturing plants and make production lines less intricate. The
`abruptness of the change caused many facilities to be shut down, creating drug shortages and
`driving up prices.
`
`The complexity and cost of completing a generic-drug application has also grown enormously.
`In 2003, when I began working at the FDA, we estimated that it cost less than $1 million for a
`firm to file a generic-drug application. A drug would have to fetch about $10 million in annual
`revenue before it would be subject to generic competition. Today, filing a generic application
`requires an average of about $5 million and can cost as much as $15 million. This means that a
`drug may not face brisk generic competition until it exceeds $25 million in annual revenue.
`Thanks to these changes, infrequently used generics—such as clomipramine for major
`depression—may now have only one competitor and cost as much as branded drugs.
`
`https://www.wsj.com/articles/how-obamas-fda-keeps-generic-drugs-off-the-market-1471645550
`
`Exhibit 1128
`IPR2017-00807
`ARGENTUM
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`How Obama’s FDA Keeps Generic Drugs Off the Market - WSJ
`2/21/2018
`When the price of a drug rises, it becomes profitable and the target of new competition. The
`FDA recently committed to review new generic-drug applications in a 15-month cycle, an
`improvement over a median of more than two years for applications submitted in 2013. For
`generics filed in 2009, the median review time exceeds three years. Yet generics launched in
`2015 took about four years for the FDA to approve, since less than 2% of applications were
`approved on their first submission. The agency has committed to improve first-cycle approvals,
`but it still rejects most applications before demanding resubmissions, further stymieing
`competition.
`
`The key to the generic-drug economic model is to keep entry prices low enough to attract
`multiple competitors. One FDA study estimated that consumers pay 94% of the branded drug’s
`price for a generic if there is only one generic entrant. But the price falls to about 40% if there
`are four competitors, and 20% when there are eight.
`
`Yet of the more than 1,300 branded drugs on the market, about 10% have seen patents expire
`but still face zero generic competition, according to the Department of Health and Human
`Services. New regulations have, in many cases, made it no longer economically viable for more
`than one generic firm to enter the market.
`
`The FDA should prioritize applications for generic categories where competitors are exiting.
`Companies that pursue copies of “abandoned” generics could receive a voucher that gives them
`expedited review of another generic drug. The value of this voucher would give firms more
`incentive to market copies of low-volume generics.
`
`It gets worse. Generic-drug makers usually manufacture dozens of different drugs on each
`production line and hundreds of drugs in a single plant. The FDA is now trying to require
`production lines to be dedicated to one or two drugs, citing potential safety hazards. But
`generic-drug makers say this can triple manufacturing costs. While brand companies typically
`run only one or two products on each manufacturing line, generics run 30 to 50 products. The
`FDA’s safety concerns could be addressed through better quality controls and improving its
`inspection capabilities.
`
`Things may get worse before they get better. A new FDA draft regulation is artfully crafted to
`expose the generic-drug industry to the same kind of costly product liability suits that plague
`branded-drug makers. This political sop to the trial bar would force the generics to clutter their
`drug labels with defensive advisories to avoid “failure to warn” lawsuits. Legal fees stemming
`from the regulation would add over $5 billion to annual health-care costs, rising to $8.6 billion
`by 2024, according to the American Enterprise Institute’s Alex Brill . The FDA should scrap this
`draft rule immediately.
`
`ObamaCare’s political architects blame its high costs on the rising price of prescription drugs.
`Yet the biggest drug-price increases come from a small number of very old medicines that
`would be cheap if not for careless policy-making.
`
`Dr. Gottlieb, a resident fellow at the American Enterprise Institute, was an FDA deputy
`commissioner (2005-07). He consults with and invests in drug companies.
`
`Appeared in the August 20, 2016, print edition.
`
`Copyright ©2017 Dow Jones & Company, Inc. All Rights Reserved
`
`This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit
`http://www.djreprints.com.
`
`https://www.wsj.com/articles/how-obamas-fda-keeps-generic-drugs-off-the-market-1471645550
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