So in that last post, I mentioned a Priority Review Voucher as a likely reason for Marin Shkreli’s latest machinations, and that makes me think that I should explain what the heck a Priority Review Voucher is, since it’s an obscure topic if you’re not into the ins and outs of regulatory drug approval.
It’s a relatively recent invention, going back to the FDA Amendments Act of 2007. The idea, proposed in this 2006 paper, was to provide an incentive for drug development in areas whose markets would not normally invite enough investment. The first category was neglected tropical disease – the agency provided a list of diseases, and the provision was that if a company had a new therapy approved against one of these, that they would also receive a voucher good for “priority review” of a future drug application. The agency bound itself to making that review happen within six months, a potential savings of several months of regulatory hold-up.
Most importantly, these vouchers were fungible: once issued, they could be resold to the highest bidder. Now, that may seem a bit odd, because you’d think that a company that had been awarded one of these would want to hold on to it. But it depends on their cash flow – a small company may well need the money that the sale of the voucher could generate more than they need to hold onto it in the hopes that they’ll be able to get another drug in for review any time soon. Meanwhile, a larger company, especially in a competitive market, may well find that paying quite a bit for a priority review is still worthwhile.
Consider, also, that the idea is for the vouchers to be incentives for R&D. If they weren’t transferrable, they’d still be worth something, but nowhere near as much as if there were a secondary market. And several of them would surely expire unused, if the original companies that obtained them weren’t able to use them, sell them, or trade for them. So when the FDA issues one, its committing itself to a priority review of something in the future, the identity to be determined by who wants a priority review the most.
That’s exactly how it’s worked out. The FDA had sixteen tropical diseases on its list (things like blinding trachoma, leishmaniasis, dengue, guinea worm disease), and Congress has added some viral diseases (like Marburg and Ebola). More recently, the FDA also added Chagas and neurocysticercosis to the list. In 2012, a very similar program was put in for rare pediatric diseases (those primarily affecting people 18 and younger, and present in 200,000 patients or fewer). For a couple of years, there were significant differences between the two types of voucher (for example, the tropical disease ones required a year’s notice to the FDA and could be resold only once), but these differences were eliminated in 2014. Both types now can be redeemed with 90 days of notice, with unlimited resale. The FDA does charge a fee for priority review, several million dollars extra, but that’s not going to slow anyone down.
It doesn’t slow anyone down, because, as it turns out, these vouchers are worth hundreds of millions of dollars each. That link has a chart of the resale values, which have done nothing but climb. A recent high-profile use of one was Sanofi-Aventis/Regeneron beating Amgen to market in the US in the PCSK9, although Amgen had made it first in Europe. It was only a month’s head start, but in a market that large and competitive, it may well have been worth it (and sales figures are being watched closely by many others to see if it looks like it was).
These programs are an unusually clear and direct example of a pure economic solution being applied by a large government agency. Making the vouchers completely resellable is the key: that creates a market which then asks the basic question of capitalism: “What’s it worth to you?” The only way to find out how much money some good or service is actually worth is to see what people will pay for it, and so far it looks as if drug companies will pay quite a bit to have their drugs reviewed quickly. The incentives to develop drugs for otherwise-neglected diseases, then, are much stronger, and it’s not the government that has to offer the cash – drug companies themselves are paying for it. Overall, I think it’s an excellent idea, one that uses market mechanisms to correct a market failure.
Of course, there are complications. The biggest question is which diseases get this sort of special treatment. Someone has to make that call, and reach in and put in the bypass wiring from outside – there’s no market mechanism for that, because if there were, we wouldn’t be having to mess around with things like priority review vouchers in the first place. There are opposing mistakes to be made. You could designate a disease that, honestly, isn’t enough of a problem to make the award of one of these vouchers appropriate. (That’s the mistake that I complain about when the FDA awards market exclusivity for taking an older drug through the regulatory process – I think the payoff is disproportionate and distorting). On the other end of the scale, a disease like malaria has a worldwide toll in human suffering, death, and economic hardship that is worth more to alleviate than a single priority review voucher can cover. So not only does someone have to make the call of which diseases get preference, but there could be another call to make about the degree of preference. Should a powerful new malaria approach get two or three priority reviews awarded, for example?
But overall, I think that the idea is sound. Now, whether Martin Shkreli and KaloBios should be handed a PRV for a Chagas drug that’s already being used to treat Chagas disease. . .now that’s another question.