Drug Prices Become Target for FDA as Chief Expands Purview

(Bloomberg) -- The head of the U.S. Food and Drug Administration is considering using the agency's powers to bring more price competition to the market for generic drugs, targeting high-priced products by prioritizing the approval of additional competing treatments.

FDA Commissioner Scott Gottlieb said in an interview Monday that the agency is looking at how to push applications to the front of the line in cases where there are fewer than three competing generic manufacturers. The policy would target cases where there are few or no competing versions of drugs, which has led to high prices in some situations.

In one now-infamous case, Turing Pharmaceuticals AG, then led by Martin Shkreli, bought the rights to sell a decades-old anti-infective drug called Daraprim and raised the price to $750 a pill from $13.50. Valeant Pharmaceuticals International Inc. has likewise benefited from older drugs with limited competition, such as two treatments for the rare condition Wilson's Disease. Valeant bought the treatments and raised their prices by about 30-fold.

Adding generic competitors would mean lower prices, Gottlieb said. The goal is to have three manufacturers of every generic version of a drug. That's the point at which prices start to fall significantly, he said.

“We know the most significant savings to consumers comes when there are three generics on the market,” Gottlieb said in a telephone interview. President Donald Trump has said he wants to address the issue of high U.S. pharmaceutical prices, and drug executives said last week that they expected the administration to act soon.

Generic Drug Stocks

Shares of generic drug manufacturers and distributors fell Tuesday. Perrigo Co. dropped 1.3 percent, while wholesale distributors McKesson Corp., Cardinal Health Inc. and AmerisourceBergen Corp. were down 1.7 percent, 2.3 percent, and 2.5 percent, respectively, the biggest declines on the S&P 500 Health Care Index.

“Boo! The specter of lower price inflation is rearing its head again for the pharma supply chain,” Evercore ISI analyst Ross Muken wrote to a note to investors.

More aggressive approvals could result in short-term price reductions of 3 percent to 5 percent for generic drugs, versus the historical 2 percent, according to the analyst. Still, the threat is manageable, as generic price deflation would get back to historical trends once the backlog of pending approvals is cleared, Muken said.

FDA Analysis

The first generic drug that hits the market will “only slightly lower” the price compared to the brand, according to an FDA analysis. A second generic competitor approved will slash the price to almost half that of the brand version while subsequent approvals will drop the cost to 20 percent of the brand.

The action on generic drugs would be a shift from the agency's current stance. Presently, the FDA prioritizes applications for the first company to apply for a generic version of a brand-name product. The agency hasn't typically considered drug costs as a major policy, and is barred from taking them into account when deciding whether to approve a new drug.

The move is one of several actions Gottlieb said he plans to take to address drug costs. The agency is also looking at a plan to eliminate within a year the backlog of 2,640 generic-drug applications, Gottlieb said.

Congressional Hearing

Congress has also taken an interest in drug pricing. The Senate Health, Education, Labor and Pensions Committee plans to hold a June hearing titled “The cost of prescription drugs: How the drug delivery system affects what patients pay.” In addition to blaming pharmaceutical companies for setting high prices, lawmakers as well as Trump have turned an eye toward pharmacy benefit managers such as Express Scripts Holding Co. and CVS Health Corp. that administer prescription drug programs for millions of Americans.

Other ideas Gottlieb has referenced in the recent past to bring down drug prices include looking into ways to thwart brand-name drugmakers from using programs where they restrict distribution of their products to keep generic drug manufacturers from accessing enough product for testing, which can require as many as 3,000 pills, he said.

“Getting access to 3,000 tablets can be hard unless the branded companies are going to facilitate the ability of the generic companies to get the drug,” Gottlieb said. “They can't just go into the market and buy it readily.”

List of Drugs

The FDA is also looking into whether it can publish a list of the 180 brand-name drugs that no longer have patent protection and still don't face any generic competition, 150 of which the agency has never received an application from a generic drugmaker to review.

Publishing it “might create a more compelling business opportunity,” he said.

Many of these ideas will be discussed at a public hearing the FDA plans to hold in the next several months to discuss ways to facilitate generic-drug competition, Gottlieb said.

He's also talked about finding ways to speed approvals of generics that copy complex medications like allergy shots or asthma inhalers, such as Mylan NV's EpiPen or GlaxoSmithKline Plc's Advair. The products create an additional complication because they combine a drug with an administration device.

Gottlieb said he expects the agency will release “a whole series” of documents to guide the industry on the issue, since generic drug manufacturers can run into trouble showing that their versions of the drug and device are equivalent.

To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett