Remarks at the FTC Workshop Understanding Competition in Prescription Drug Markets: Entry and Supply Chain Dynamics November 8, 2017

Speech | Virtual

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Speech by Scott Gottlieb, M.D.
Commissioner of Food and Drugs
Understanding Competition in Prescription Drug Markets: Entry and Supply Chain Dynamics
Federal Trade Commission, Washington, DC
November 8, 2017

(Remarks as prepared for delivery)

Thank you for inviting me to join you today for this important workshop. Although the FDA and the FTC have very different responsibilities relating to healthcare, among our shared goals is the critical one of ensuring that all Americans are able to benefit from competition when it comes to medical products.

This is especially true when it comes to drugs, and the availability of safe and effective generic medicines. Generic drugs provide a vital benefit to the public. They can cost a fraction of the price of the brand-name version of the same medication. It should come as no surprise that nine out of ten prescriptions today are filled using generic drugs.

Yet even as generic medicines comprise a growing share of the overall drugs that people use, many patients still find themselves priced out of getting the medicines they need. That reflects a number of trends.

Many of today’s medicines are transformative drugs that are highly effective -- where patients quite literally can’t live without one of these new medicines. This includes many new and innovative treatments for serious and sometimes fatal diseases, such as cancer or rare diseases.

The good news is many critical medical problems can now be addressed through safe and effective medicines. But a patient can’t benefit from a medicine if they can’t afford to pay for it.

The costs are high for many of these drugs because they face little or no competition when they’re first launched. That’s precisely because they’re so novel, and the investment in developing these innovative treatments and cures is so high. On average, the price to develop a single novel drug can top $2 billion once all the costs are added up. Even the direct costs can be $1 billion. Those costs factor into the price.

Moreover, these medicines often treat increasingly targeted, and thus small, populations of patients. To make the economic model work in cases where the high costs of drug development are being applied to drugs that are increasingly specialized and spread over a small number of patients, the result is that the drugs are often very expensive.

And then there’s also an issue with the inefficiency of the pharmaceutical supply chain. Discounts and rebates may be provided, but these typically don’t flow directly to the consumers who use those drugs. The system as it exists today does not incentivize savings for consumers who are paying the high costs for a medicine they need.

The question is what can be done about this. While some elements of this issue are not in FDA’s purview, I think there’s a lot we can do at the agency, and even more by working together with our partners at FTC and elsewhere, to address some of these challenges and help address the needs of patients. I want to talk about some of the places where I think there could be common ground between the FDA and FTC to address these issues, and where I hope to steer our collaboration.

A lot of this boils down to the steps we can take to address a root cause of high drug prices – and that’s often a lack of competition.

Sometimes competition is lacking because a pioneering drug has a monopoly on some highly novel and highly effective new technology.

In these cases, we want the market to be efficient and to reward the innovation. If a biotech company discovers a novel cure for a rare cancer; that’s precisely the kind of innovation we want to encourage because patients deserve to have such treatments.

But we still want to see competition enter all categories, and especially these transformative categories as quickly as possible.

Patients benefit when they have more than one choice of a drug – both clinically and economically. There are often small differences between even similar medicines that can have important clinical implications.

But just as important, we’ve seen when a second drug enters a new drug category, it creates competition that can lower prices and improve access, even in rare diseases. That’s an important public health goal.

FDA is taking steps to make the drug development process more efficient; so competition can enter novel drug categories more quickly. We’ll have much more to say on this effort in the coming weeks.

But I’m also committed to making sure that we allow for brisk competition when the exclusivity periods have lapsed on these branded drugs, and they’re eligible to be subject to generic competition.

Chairman Ohlhausen has outlined some of the history and critical responsibilities of the FTC within the regulatory and judicial framework surrounding generic drugs and her agency’s key role in helping to address some of the challenges that impact the cost of generic drugs.

I’d like to spend a few minutes filling you in on the details of FDA’s role in the development and approval of generic drugs, and how we’re helping to strengthen competition to benefit the American consumer.

First, we’ve taken a number of actions that will help encourage the development of generic versions of drugs that lack competition so that safe, effective generics can come to market as quickly as possible.

For instance, we’ve expanded our prioritization policy to expedite the review of the first three generic drug applications where competition is limited. New generic entry predicts lower generic prices. Earlier work suggests that there are large price declines with competition among as few as three generic products. Soon we’ll be updating this analysis.

In addition, earlier this year, we posted a list of off-patent, off-exclusivity products with no approved generic to proactively signal which products are available for immediate generic competition. 

We also held a public meeting to discuss additional ways we can work to more address unfair practices that can forestall generic entry. 

At that meeting, Markus Meier from FTC’s Bureau of Competition joined us in a similar way that FDA colleagues are here today.  I’ll pause to note that our docket related to that meeting remains open a little while longer and we’d welcome your comments there as well. 

One of the practices that concerns me the most is when branded firms “game” the system: taking advantage of certain rules, or exploiting loopholes in our system, to delay generic approval – and thereby extend a drug’s monopoly beyond what Congress intended.

I see this clearly, for example, in steps branded companies sometimes take to make it hard, or altogether impossible, for generic firms to get access to the doses of the branded drug needed in order to complete bioequivalence studies that FDA requires for a generic approval.

Consider this: FDA requires generic firms to complete certain bioequivalence and bioavailability studies as a condition of the approval of a generic drug. To do these studies, they need to purchase doses of the branded drug that they seek to copy, to prove that the generic copy performs the same way original medicine.

The generic companies are willing to go into the market and buy these branded doses at full market price. They’re not asking for a discount.

They’re just asking for the right to be able to buy the drug at its retail price, just like a pharmacy or a hospital can make these legal purchases.

But we know that branded companies sometimes adopt tactics to make it nearly impossible for the generic firms to accumulate the doses they need to run their studies. That’s a real concern of mine.

We have a system that relies on, and requires, the ability of generic firms to conduct certain studies for approval.

When drug manufacturers game the system in ways such as this, they upend the generic drug framework created by Hatch Waxman.

The effects of this gaming do not end within FDA or drug manufacturers.  Medicare relies on this process working to help make sure its beneficiaries can get access to the benefits of low cost generics.

Patients depend on this system. So does innovation. I’ll say this plainly:

Our economic model, which rewards highly innovative drugs with the opportunity to hold monopolies for a limited period of time through patents and exclusivities, and to freely price their products to a measure of the value that a transformative drug offers, also depends on the generic approval process working as intended.

It depends on the ability to have vigorous competition once those patents and exclusivities have lapsed.

Our system would not have functioned so well for so long without this carefully crafted balance between access and innovation.

If innovators want the current structure to continue to work, but they actively prevent certain parts of the system from functioning as Congress intended, then at some point, they’ll find more advocacy for moving away from this incentive based model.

I don’t want to see that day come. Because I’m convinced that this model -- one that was the result of careful compromise -- properly balances rewards for innovation with eventual competition and increased access. It’s worked for decades and, as a result, America has the most productive and innovative life science sectors in the world.

But it has to continue to work.

That means that it must work at both ends of the marketplace: the end where the highly innovative drugs are developed and rewarded, and also at the other end, where those medicines face brisk competition once their patents and exclusivities have lapsed.

So my message is this: end the shenanigans.

Branded companies’ use of REMS – which FDA adopts as a way to ensure the safe use of certain drugs – is also sometimes being used as a way to frustrate the ability of generic firms to purchase the doses of a branded drug that they need to run their studies. This needs to stop.

I believe drug makers also sometimes use restrictive agreements with pharmaceutical supply chain intermediaries – like specialty pharmacies – to frustrate or block the sale of a branded drug to a generic firm.

I consider these tactics unfair and exploitative practices, and they’re in direct conflict with our broader public health goals.

These practices frustrate the generic drug regulatory system that Congress created, and that Americans depend on FDA to execute.

So in coming weeks I plan to take other steps to address this anti-competitive behavior. Among other things, I’m going to contact pharmaceutical supply chain intermediaries to inform them of the FDA’s interest in making sure that generic firms can gain access to the doses they need to run bioequivalence studies.

When intermediaries sign on to these restrictive games, I want them to know that they’re challenging a broader public health goal.

I’m also going to make sure that our own regulatory processes are harder to abuse in ways that can disadvantage consumers. That means changing how we implement our REMS programs.

For example, we’re announcing today steps we’re taking to make it easier for branded companies and generic entrants to develop one common master file for the implemntation of a REMS.

I view this as a first step toward also making it easier to implement a single shared REMS. Our goal is to see sponsors share REMS systems to reduce burdens on providers. But when branded drug makers drag out these negotiations – sometimes as a way to forestall generic entry – we’re going to be in a stronger position now to say enough is enough.

Now that we’ve taken steps to make it easier to share a REMS as part of one program, when drug makers wont share their systems, we’ll have a stronger basis to issue a waiver that will allow the generic drug makers to go their own way if they have to, and develop their own REMS.

These aren’t the only things we’re doing to help increase generic competition. We’ve also announced several new polices concerning complex generics -- a category of medicines that represent some very expensive and widely used drugs for which there is not robust generic competition. We believe that our new policies will make it more feasible to expand generic competition for these complex drugs.

We’re also streamlining our process for reviewing generic drug files, to reduce review times. We’re especially focused on continuing to reduce the number of review cycles an application undergoes.

We promised to reduce review times to just eight months for priority drugs, down from a previous average of as much as 42 months.

Efficiencies in the drug development and approval processes, along with regulatory certainty, help to drive down costs of drug development and create incentives for new market entrants.

We know there’s no easy or single solution to the challenges posed by high drug development costs, and the high prices that result from these and other factors. But we also know that by strengthening and effectively applying our policies and regulations and our scientific and clinical standards to this problem, we can make significant headway.

I look forward to forward to building on and enhancing our partnership with FTC in order to achieve our shared goal of increasing competition, expanding access to quality generic drugs, and protecting consumers.

Thank you.