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Sen. Warren’s Generic Drug Idea

Here’s a proposal from Sen. Elizabeth Warren to have the government manufacture generic drugs directly. (I was traveling yesterday and wasn’t able to blog this then). It’s clear that there are some problems with parts of the generic drug system that we have, so my first thoughts were (1) whether Warren saw the same problems I did and (2) if I thought that her ideas would fix them.

In order to work through these, though, you first have to whack this proposal with a hammer a few times to knock some of the rhetoric off of it. That’s a common problem with public statements from elected officials, of course, and it’s made worse by the fact that Warren is exploring a presidential bid in 2020 (along with a line of other possible contenders that stretches all the way around the corner). Many of the other contenders have introduced whack-that-pharma-industry ideas recently, by some odd coincidence. So the Washington Post op-ed linked to above spends a good amount of its space attacking the drug industry as a whole – generic firms, research-driven ones, we’re all evil bloodsuckers in case you had any doubts, and the only differences are our wingspans and the shapes of our fangs.

Once past all that – it takes a few paragraphs – you get to the idea itself:

The Affordable Drug Manufacturing Act would allow the Department of Health and Human Services to step in where the market has failed. HHS would manufacture or contract for the manufacture of generic drugs in cases in which no company is manufacturing a drug, when only one or two companies manufacture a drug and its price has spiked, when the drug is in shortage, or when a medicine listed as essential by the World Health Organization faces limited competition and high prices.

To save time, I’m going to reference this post of mine from earlier this year. That was in response to a rather similar plan by several hospitals/health care systems to try manufacturing their own generic drugs, to address the exact same problems. A point made there is that there are a lot of ways that generic drug availability can go wrong, and the solutions for the problems may well need to differ, too. For example, Sen. Warren’s idea is couched in terms of the government reluctantly riding in to save consumers from profit-hungry corporations (which is her default mode, to be honest – I live in Massachusetts and I get to hear a lot from Senator Warren). But in many of these cases, the high-price, low-supply or single-manufacturer situations are either side effects of other government actions or were, in fact, created by such actions as a matter of deliberate policy. My libertarian hat may be jammed on a little too tight this morning, but often enough Warren’s plan amounts to the Department of Health and Human Services saving us from the Department of Health and Human Services.

Let’s save time in another manner: this will not pass the Senate. So it’s not worth discussing as a bill, but what about as a policy? The shortages and price hikes in some generic medications are bad things: stipulated. The hospital proposal was much more targeted – they know which compounds they just can’t purchase in the quantities needed, and they want to step in to make them. As that earlier post says, there are some complications in that idea, but Warren’s plan seems almost entirely focused on prices instead.

Which is a different issue, and much more politically attractive. The latest estimate I have (US government figures) is that retail spending on prescription drugs was about 10% of US health care expenditures. That’s the total of out-of-pocket, employer-sponsored health insurance and other private health insurance, Medicare, Medicaid, etc. Hospital expenditures on such drugs are not captured in that figure, but estimates are that another 30 to 40% can be added to the retail figures to capture that. So let’s say that total drug expenditures are 14% of all health care expenditures. Generic drug spending appears to be between 20 and 25% of that. The portion of that affected by price spikes and shortages is smaller still. So a back-of-the-envelope figure would have Senator Warren’s plan addressing about 1% of total US health care expenditures.

I know that she’s fond of talking about “the other 99%”, but I don’t think this is what she has in mind. That 1% of expenditure, though, is a very visible and politically productive segment, and for an elected official of either party, I don’t think it’s out of bounds to suggest that this is a factor. Frankly, if we’re going to have people step in and manufacture generics to drive down prices and increase supply, I’d rather have that hospital consortium try it. At least they’re not trying to run for President.

54 comments on “Sen. Warren’s Generic Drug Idea”

    1. Design Monkey says:

      On the other hand, would you yourself like to produce that drug for a measly price of 4.46£, given that certain steps in manufacturing it has to have precautions tighter than in making of V-gases, otherwise your workers will fall left and right and center with hyperthyreosis? That price had to be raised, 4.46£ absolutely was not an adequate reward for mess involved.

      Well, and once started, they got somewhat carried away, and overdid it a teeeny bit. So it goes.

      1. Falanx says:

        By no rational metric is 6000% a teeny bit. That’s a pitiful excuse.

  1. biotechtoreador says:

    Ironically, Martin Shkreli is taking credit for this idea: http://martinshkreli.com/ (IDK if this is legitimate).

  2. 1% of healthcare expense? Can we please focus on changing processes that result in significant #HC cost reductions?
    -Limit profitability of #HealthInsurance cos &
    -Change the middlemen in distribution chain: #PBM Pharmacy Benefit Managers . . .

    1. Name * says:

      Just because it wouldn’t solve health care costs doesn’t mean it isn’t important. Families affected by price spikes in generics do not see it as a 1% problem. Sure, Warren and Trump and others incorrectly frame reducing drug prices as the solution to the health care debacle we are running into, but that doesn’t mean it isn’t worthwhile.

      1. x says:

        Right – this seeks to help a relatively small number of people by design, but it potentially helps those people quite a lot.

  3. To quote Hap (from the hospital manufacturing post): “If you don’t understand the problems with generic supply (and if making them yourself is a solution to the problems cited above, you probably don’t), then whatever you do isn’t going to be much use. They’d be much better off with lobbyists or campaign donations to get Congress to change the laws (to require sales for bioequivalence for FDA-approved drugs and to change the incentives for qualifying old drugs under the current regulatory framework).” Spot on.
    Sen. Warren can sponsor a regulatory reform bill NOW, vice after her hypothetical inauguration. Derek also noted (last January) that FDA commissioner Gottlieb wants to do something about these issues. Where’s the beef?

  4. Project Osprey says:

    Licence to sell drugs in one place doesn’t translate to license to sell them in another. So a particular generic might be suffering a shortage in the US but be in ready supply in the EU.

    Some generic drugs have been around for decades, sometimes being produced by the same companies for most of that time.

    Under those circumstances would it not be easier to offer some sort of time-limited declaration of regulatory equivalency? Essentially saying: “If you’ve been feeding it to people over there for X number of years and there’ve been no issues then it should be safe if you do it here”

    You set the barriers high and if they want to trade permanently in the US then they need to do the normal paperwork but while there’s a shortage – and if its a life or death kind of thing – then they get a 6 or 12 month licence.

    Would that work

  5. mallam says:

    Yes, the current system is terrible. But the government getting into generic drug manufacturing is a terrible concept. Can you imagine the opportunity for corruption? For lining pockets of politicians? For appointment of non-qualified cronies to “watch over” the enterprise?

  6. b says:

    Right, because the turnaround on generic production is cheap and fast. No need for GMP manufacturing, process validation, formulation, bioequivalence studies, yada yada yada. Hey, I guess one way to show them how much time this stuff takes and how much it costs is to let them do it themselves. Then, if their desire is to break even (maybe a stretch to assume), they’ll have to recoup those costs with the price of the generic, which could be undercut by the original company who has long ago recouped those costs. Genius. Sounds like a bigger money pit to me.

    1. zero says:

      Suppose company A was previously selling at cost +20% then updated to cost +1,000%. Let’s assume for the sake of argument that cost was $100.
      A nonprofit entity (after obtaining necessary approvals, licensing, inspection, etc.) starts selling at company A’s cost +50%. They make no profit in the process and are likely to lose money in the long run.
      Company A reacts by undercutting the nonprofit and selling at cost + 40%.

      What just happened?
      Company A went on a greed binge and jacked their prices up from $120 to $1,100. Sales drop but net profits rise, so the corporate types are happy. Costs to governments sharply increase for this patient population.
      Nonprofit spent some significant sum of money to allow them to sell at $150. Company A’s sales plummet, so the corporate types are very unhappy because profits are down. Costs to government fall by $950 per treatment, although perhaps not enough to offset the startup costs for a while.
      Company A dropped prices due to competition. Now they out-compete the nonprofit and get most of the market back; sales are up and profits are up, so the corporate types are happy. Costs to government fall another few tens of dollars.

      A manufacturer of last resort is a way to regulate the market using market forces directly. The numbers may only work out for a few drugs that have been egregiously overpriced but everyone in the market now has to consider whether their price increase is enough to trigger competition from a nonprofit that only cares about patient outcomes, not profit margins. The startup costs for a dozen or so generic drugs will be a small price to pay for stalling any future price-gouging misadventures.

      1. x says:

        It demonstrates the triumph of neoliberalism when we have to use “market forces” to implement what is essentially a mandated price control… and when we have to waste a lot of money and man-hours setting up manufacturing and distribution for a product that isn’t really intended for market sale at all as a bludgeon to force private companies to do the things we want.

        It would be far less wasteful to spend a fraction of that money checking to see what the controlled price should be, and then mandate production and sale at that price than trying to play economic chicken with primary producers. And if the companies have a problem with it, maybe they’d like to be discorporated for not serving the public good? That threat should tank stocks and trigger an easy lawsuit from stockholders long before the order to discorporate is ever given…

        Of course, to actually do that, we’d have to have politicians who aren’t bought by the industries they’re supposed to lean on and wealthy donors of all sorts who would rather not see those precedents set.

    2. Lola says:

      Except it works elsewhere quite well. I wouldn’t necessarily support government manufacture of generics, but they can surely be sourced cheaper. As much as an anathema it is to the US, I think the Euro/Australian approach of an (effective) single buyer of prescription drugs/no consumer advertising works well. Given the US culture, and entrenched system of HMOs etc. etc. I wouldn’t say it would necessarily work in the US. The US needs its own solution, and I am guessing that Warren’s is too unpalatably left-wing to work there (although it might not be a big deal elsewhere).

  7. Hap says:

    It’d be better to attack the problems with regulations/FDA policies (overvaluing new clinical data on unfiled/generic drugs and the use of control systems for toxic drugs to prevent their generic manufacture) than to make new plans that seem badly conceived and likely to be badly executed. You might even be able to work with saner Republicans (if there are any left) or conservatives to achieve them. That doesn’t throw raw meat to the base, though.

    I guess I’m hoping that the hospital plan works, because having a consistent supply chain would help, but it doesn’t solve most of the pricing problems people notice and care about. This seems like a worse version of that plan, because it doesn’t seem like it will solve anything (other than political problems which Senator Warren has) while creating new and worse problems.

  8. zero says:

    To put it bluntly, the pharma advertising I see is about 60% wrinkle injections, 20% ED pills and 20% random stuff like antidepression pills or RA treatments with shockingly bad side effects. Is it any surprise the average person thinks pharma is in it to make a buck by any means possible? Many companies’ leadership has that exact goal in mind as far as I can tell, and the people doing actual science have very little power to change that.
    The public face of pharma is ads for expensive cosmetic treatments crossed with news reports of widespread death and suffering due to lack of affordable treatments. Public opinion is not likely to move much until both of those change.

    It may seem ridiculous to focus on such a tiny slice of the pie, but 1% of $3.5 trillion is an awful lot of pie. That’s about $107 per person annually according to CMS data and Derek’s estimate.

    We have the capability to work on several problems at once, so let’s not dismiss this one just because it doesn’t have the biggest ‘bang for the buck’. I agree it shouldn’t be turned into a political stunt, but that seems to be the only way we will get anything meaningful done at this point; lobbying has been enormously successful at preventing reforms so far. I think the only industry more successful than pharma at subverting the public will is gun manufacturers, and that’s not exactly good company.

    The focus on cost is partly because high costs kill real availability. There are people today not getting treatment for their treatable conditions because they personally can’t afford medication after the corporate raider mindset took hold at certain generics manufacturers.

    This is a wedge. If some nonprofit entity (whether a hospital consortium, NGO or government agency) were to start manufacturing generics to address specific market failures then we can examine other ways that capability can cut healthcare spending. It gives legislators a thing they can point at and say “Look, that works right now, all we need to do is add X”. It also gives manufacturers and other stakeholders a chance to see how the market is actually affected, which is an important data point when we start talking about expansion.

    Suppose for instance that Medicare/Medicaid is given authority to contract this entity to manufacture generics for them. That represents potentially enormous savings at the state and federal level for common things like insulin as well as guaranteed availability of treatments for obscure diseases that would otherwise be unprofitable to make. That path in turn makes single payer a bit easier to accomplish, which is where we start hacking out huge slices of the most wasteful parts of our healthcare spending.

    We may need to make concessions to generic manufacturers, as they do genuinely provide a necessary service. Perhaps Medicare could commit to buying drugs from third parties on a preferred basis as long as the price is within a certain margin of the nonprofit. That’s a bit of a giveaway, but it is probably reasonable to offset the chaos and disruption the plan would introduce in that market segment.

    1. Scott says:

      $108 a year per person is $9 a month. That’s negligible, even by my “cannot-afford-to-eat-at-McDonald’s” level of income.

      Pretty sure that’s two $tarbuck$ coffees a month that are spent in Generics, currently. Might only be one!

      1. zero says:

        In the real world that negligible price isn’t averaged. Most people pay nothing, while a few pay thousands or more. (Or die.)

        Perhaps this is a political opinion, but I believe that the wealthiest nation in the world should keep people from dying of treatable conditions due to lack of access to care. If $9 per month per capita is so reasonable then let’s all pay it and everyone can have free generics. (Via an income-dependent tax so it doesn’t become regressive.)
        That’s a non-starter in the current climate, so some sort of compromise is going to happen instead. The question generics makers should be asking themselves is, “Now that self-regulation has failed, what can we do to avoid hard price caps and direct oversight?”
        Allowing a manufacturer of last resort is likely to be better for manufacturers than a federal agency setting their sale prices directly.

        1. Scott says:

          “The question generics makers should be asking themselves is, “Now that self-regulation has failed, what can we do to avoid hard price caps and direct oversight?””

          That’s actually a *very* good point. If manufacturers sufficiently breach their social approval to operate, that’s how you get regulated to death.

          While I don’t know anywhere near enough about the mechanics of making drugs in commercial quantities, I do know that there are a lot of barriers to entry (and not just from the regulatory side in terms of proving that your drug is what you thought it was). This makes it very hard for new companies to start up to compete.

          The least-disruptive idea might be for Uncle Sam to cover the setup costs of the production lines of new companies based in the US. This gives a secondary effect of adding some jobs. What I would imagine are rather high-paying jobs, at that.

        2. Design Monkey says:

          zero, that stuff you are talking about, is called communism. Amerikans are against it, that’s why they elected blabbing Nazi for their president.

          Besides, if you are so interested in caps and regulations, then go and start, let’s say, with trumpie tower. Put a hard caps and government regulations, on how much flats there cost.

          1. Lola says:

            If it were for government companies making popular culture films, I’d agree it would be communism. If it’s for generic drugs, it would be a reasonable attempt at reigning in a problematic health outcome (people not being able to afford drugs that are cheap to make, and available cheaply – sometimes ridiculously so – in other countries. No, the biggest problem is the culture: the number of people in the US who think as you do. For that reason alone, I would not advocate Warren’s solution – it just wouldn’t work given the forces at play.

          2. Design Monkey says:

            lolie, you have heavy problems with reading and understanding. zero above was proposing giving out generic drugs for free. FYI, even in commie red soviet state drugs weres sold, granted, at realatively low prices, but still not given avay for free. zero was trying to be more communistic than marx, lenin and stalin together. And you are not even able to comprehend that.

          3. zero says:

            @ design monkey:
            We pay for roads by taxing certain people, then we let anyone with a license drive on them for free*. Is that communism too? Single-payer generics would hardly be communism since money would still flow to private entities; nationalizing the generics market entirely would be something in the neighborhood.

            * This doesn’t apply to toll roads, which are public-private partnerships where government has largely abdicated its responsibilities in favor of a company’s profits and political expediency.

            In terms of setting price caps on housing, some cites (including NYC) have done exactly that via rent controls. They did it in response to egregiously bad behavior on the part of landlords, not because of some ideological bun fight over the nature and purpose of property.

            Noticing a theme here? Unscrupulous people exploit the population so indefensibly that the population takes notice and then takes action. When they do, that action is often an overreaction that punishes the sector for past bad behavior. Given that people are dying and their stories are highly relatable, the sector should be taking notice and taking action. Generic makers should be banding together to prevent that outcome right now, working together to avoid painful regulations and hopefully saving some lives in the process. Isn’t that the point, after all?

            All they need to do is not be so obviously amoral and ruthless that people actually turn out to vote / complain to congress / etc. That shouldn’t be so hard given the risks to their profits. If a T*ring-like vampire corp tries to jack up an obscure generic, literally anyone else in the market could respond by announcing plans to make their own and promising to price it fairly. Think of it as spending to cancel bad press or to counteract an attack ad.

          4. x says:

            If “that’s communism!” is your best rebuttal, you lost the argument.

          5. Design Monkey says:

            Naah, x-ie, my best rebuttal is that you are incurably stupid. For you and others with comprehension problem – zero blabbed about giving generic drugs out for free. That is unworkable, and did not exist even in soviets.

    2. M says:

      Advertising on TV gives a very skewed idea of where the industry spends its focus. People who know they have cancer or HIV are generally in care and marketing focuses on those doctors. Mass market advertising generally focuses on “get tested.”

      Things that get TV ads are almost by definition not life or death, which is why you see ED or wrinkle injections. I’d also comment you can’t really sort out whether side effects are “shockingly bad” from ads because they mention occurrence, but not frequency.

      I say all this who wishes our industry didn’t do any TV ads.

  9. Brett says:

    It’d be a lot less complex and quicker just to impose price controls on generic drugs than to effectively charter a pharma manufacturer to produce generics for sale. Cap the price increase at 5% a year, and require that they file for an exemption and provide proof that a greater price increase is justified by the costs of manufacturing and distribution.

    1. biotechtoreador says:

      Price controls seem like an obvious solution, but be careful what you wish for….

      I haven’t walked by PFE HQ in Midtown for a few years, but despite what they write on the walls that ‘the patient is waiting’ they ain’t gonna let their net income line drop: if they can’t keep raising it by price increases they know there’s other ways to do it. R&D cuts = fewer new drugs and jobs for chemists.

      1. Hap says:

        They seem to have given up on actually doing R+D, though, so the threat of getting rid of their jobs with price controls seems less relevant.

        When Pharma was an integral part of a lot of places, people might have supported them, but the more jobs wander away (to other places or to CROs to whom they’re expendable), the less tolerance people have for the sharp end of the stick. (As in Glass Houses). People might be willing to eat money to save other people’s jobs (though not with their lives), but the fewer jobs there are, the less likely that people are willing to eat higher prices (or not mandate lower ones) to save them.

    2. Scott says:

      Price controls are a *terrible* way to address any problem with prices. If we’re talking about housing, well, the old line is “that short of strategic bombing, there is no faster way to destroy a city than rent control.”

      You’re much better off addressing the problem by adding more suppliers of whatever the unaffordable product is, which establishing a ‘manufacturer of last resort’ does.

  10. Uncle Al says:

    The Affordable Drug Manufacturing Act” If your medication is safe and effective, you can keep it. If you think things are expensive now, just wait to see how much they can cost when they are free.

  11. MoMo says:

    If Apotex or Sandoz pass on a generic opportunity it is probably not worth doing.

    Warren is swimming with the sharks on this one and I hear they like Liberal flesh.

  12. Tom says:

    I greatly enjoy this blog but was surprised to see this post fail to mention the generic drug price-fixing scandal that made headlines just a week and a half ago: https://www.washingtonpost.com/business/economy/investigation-of-generic-cartel-expands-to-300-drugs/2018/12/09/fb900e80-f708-11e8-863c-9e2f864d47e7_story.html

    Perhaps that lawsuit will address this behavior definitively. But it doesn’t seem all _that_ crazy for a legislator to respond as well.

    1. Hap says:

      No, it’s not unworthwhile for someone such as Senator Warren to attack the problem of generic prices (including price fixing) – this just seems like a bad way to do so, or rather a way that can fail lots of ways and isn’t very likely to succeed.

      Consistent supplies of generics would help, but that could probably be done outside (insurance companies pay fixed costs to generic manufacturers in return for guaranteed market share, just as for the hospital-run generic company) or through the FDA (change the rules for registration of old derisked compounds, mandate provision of bioequivalency samples for approved drugs or change how they’re tested). There’s reasonable places and ways to attack drug costs, but this may not be one of them.

  13. Duncan Bayne says:

    > The Affordable Drug Manufacturing Act would allow the Department of Health and Human Services to step in where the market has failed.

    That particular rhetoric makes me _so_ angry; the use of “market failure” to mean “the market is producing prices that we don’t like”.

    1. matt says:

      Perhaps it wouldn’t make you so angry if you realized you could view it differently. It means the market has failed to approximate those attributes that we associate with a “free market.” In particular, it is a monopoly market. It could be viewed as a “your money or your life” heist.

      If it were a better approximation of a free market, Adam Smith’s invisible hand would be pulling other manufacturers in to grab a share of the profits of making a cheap drug and charging sky-high prices. But this fails to happen. That can be said to be a failure of the market to respond, due to various problems. A high barrier to entry, for the most part, due to FDA generic manufacturing approval process delays, or FDA-granted market exclusivity, or the ability of the company to block potential competitors from getting their product legally, in addition to the cost of setting up a GMP manufacturing process for a drug. For insulin, it was the legacy treatment of insulin different from a biosimilar, in addition to the much stricter criteria certifying biosimilars compared to generic small molecule drugs.

      1. Peter says:

        Yup, if you slap leg irons and a straitjacket on the market, it sure will “fail” to run the marathon.

  14. kriggy says:

    Im wondering how long would it take to start manufacturing the stuff from the start of the sortage. Immagine there needs to be facility ready – which seems rather hard to immagine because if there is no shortage of the drug, what are you going to do there? Or it might be manugacturing somehing else already. Or you do it as a contract job but the contractor can charge quite a lot of money for that.

  15. Druid says:

    For a comparison, consider vaccines, which are mostly made through arrangements between government health agencies and vaccine developers and manufacturers. The quantity, delivery dates and the costs are negotiated beforehand. This is seen as a good arrangement because in most cases, the vaccine works better in disease control if >70% of the population is vaccinated so the price matters, and no-one wants to make it if it is not going to be bought. Who sees anything wrong with this? Are all libertarians anti-vax?

    1. J Tyson says:

      Druid- A number of years in recent memory there have been flu vaccine shortages, and I’ve been asked to wait to get my vaccine because I’m not in a “high risk” group. I’d hate to see this sort of thing happen for insulin.

      1. Druid says:

        True, it has happened this year. It could be because the price is too low, but more likely it is the uncertainty about which flu vaccine or which combination is predicted to be most effective in any particular winter. This is a failure of government health authorities, but it would be at least as difficult for a free market and then we would not know who to blaim. Compare this to HPV vaccines. Both Cervarix and Gardasil were developed at the risk of the manafacturers. They required safety and efficacy testing in children. The superiority of Gardasil resulted in its market-exclusivity and further development to gardasil-9. Cost – 3 courses at around $200 each in the west or $4.50 through GAVI. This is ethical cost-effective health-care. Respect to MSD and GSK.

  16. M says:

    I’m more favorable to an idea like this than many here. As mentioned, this can be viewed as a supplier of last resort–or, since it’s likely to be contracted out, minimum sales of important drugs. The impact might be most significant as an implicit threat to keep generics being sold at near the marginal cost of production, which is what they should be.

    The benefits of generics go beyond market share. Drugs in general are way more cost effective than other expenditures, and generics are way more cost effective than on-patent medication. Anything you can do to make sure generics are available and affordable to people who need them will have an impact far greater than that measured in sales.

  17. DrOcto says:

    My main issue with this is that the FDA is also a government entity. Do you think that a government generics manufacturer would submit to being audited by Pfizer?

  18. dearieme says:

    “you first have to whack this proposal with a hammer a few times”: with a tomahawk, surely?

  19. dearieme says:

    Government-manufactured drugs? Eventually taking them would become compulsory.

  20. Li says:

    I’m totally ignorant here. My question is: where is the prototype? where is the proof of concept? Which nation has such a system in place? If that pinko commie Warren wants to try it out, why not? Pick one low hanging fruit and go for it. I’d bet costs would be >100x more than what the proponents claim and the benefits >10x less.

  21. John Wayne says:

    If I was king for a day I would consider on shoring the manufacturing of critical components of a modern society*. Generic drugs would be a part of that. In my mind this is an issue of national security.

    * We can argue about what those are, but basic health care, energy and food production are my short list.

  22. loupgarous says:

    The problem that seems to get the most press is that, in allowing firms to be compensated with market exclusivity for doing the necessary safety and efficacy studies on drugs for which those data do not exist, FDA cannot seem to prevent the companies involved from increasing the prices of these drugs dramatically.

    Of course, it’s taken for granted by the journalists who cover this phenomenon that we somehow know those drugs are safe and effective, even though the drugs are being sold without that information having been gathered (they were grandfathered in or made available under compassionate use arrangements).

    It’s worth being sure that we don’t have another odanacatib on our hands which passed healthy volunteer studies but turned out to increase the risk of stroke or other dire side effects in patients for whom its use is indicated. But awarding market exclusivity seems to bring out the Gordon Gekko in some pharma firms.

    FDA could pay for safety and efficacy studies on grandfathered and orphan drugs itself by CROs, then sell licenses to manufacture those drugs (the ones which meet FDA standards for safety and efficacy) without market exclusivity to any qualified pharma manufacturer. Market forces, not unbridled greed, would determine how much the drugs cost. The license fees could then be used to fund future safety and efficacy studies of grandfathered and orphan drugs.

    This allows all the parties involved to do what they do best – FDA continues regulating drugs and making sure they’re safe and effective, CROs run the studies needed to affirm or deny the safety and efficacy of grandfathered and/or orphan drugs, and drug manufacturers get to make the drugs in an open, competitive market, in which prices more closely cover costs of manufacture plus a reasonable profit.

    This won’t answer all of Senator Warren’s concerns, but not all of the concerns she raises in what is essentially campaign literature for her next run for office are valid from a scientific, economic or moral standpoint. But it would, hopefully, eliminate the worst abuses of how FDA is now directed to make sure we know how safe and effective grandfathered and/or orphan drugs are marketed.

    Other solutions will have to be found for, say, the price of insulin analogs and other drugs which are both costly and essential to the health of large numbers of Americans. A large part of those solutions would be distributing the cost of developing and testing these drugs more equitably worldwide, instead of requiring Americans to pay the majority of that cost in order to prop up socialized medicine schemes in the rest of the world.

  23. Johannes Høher-Larsen says:

    It works fine in Denmark, we have a stately run generic drug outfit that produces both the most common generic drugs and specialty ones. Leaves them in a lot better barganing position

  24. MagickChicken says:

    I work for a very large pharma CMO, and I think Derek is making a false assumption here. He is arguing that generic shortages and price gouging are due to companies unable to make a profit. I’m gonna step in here and say that, for my company at least, it’s because they don’t make *enough* profit compared to other products. We bump productions daily because a larger/more important order comes in, so the business managers can hit sales targets. If we don’t make a profit on omeprazole, why are we making it at all, instead of just on slow days?

  25. Kaleberg says:

    The problem Warren is addressing is the public health problem, not the cost problem. There are a large number of Americans who have to choose between filling their prescriptions and paying their electric bill. Choosing electric light or gasoline over insulin, for example, increases the likelihood of disability, poverty, morbidity and mortality. The government would have to deal with the consequences through reduced GDP, increased late resort health care, higher disability payments and so on.

    One solution is to raise wages so that fewer people have to make this choice. Another solution is to provide cheaper housing leaving more money left over for medicine. Yet another solution is to provide better health insurance to more people so that they are isolated from rising costs and co-payments. I’m not going to argue about these solutions.

    Warren’s proposal addresses the problem more directly. We have seen recent, dramatic rises in the costs of basic public health drugs like insulin, epinephrine and a host of others. Yes, some of this is encouraged by government policies, but it is unlikely that simply reversing those policies would solve the public health problem. Her proposal is to allow the government to step in and become the affordable drug supplier of last resort. Odds are, the drugs so produced would cost more than those provided by the private sector, but they would be available to more people and save the government money overall.

    Governments aren’t households and they aren’t businesses. They have a whole different economics.

    1. loupgarous says:

      Seen that way, yes, it’s a case where some drugs aren’t just goods on a market, but can radically reduce late costs to government (which provides a disproportionate amount of care to people who couldn’t take proper early care of their conditions, and wind up needing dialysis, cardiac care, and other costly care for, for example, late complications of diabetes).

      Seen that way, it’s pretty insightful. But removing the cost penalty for insulin/insulin analogs entirely may remove the incentive to provide alternative treatments, such as tackling insulin resistance (which is notionally the reason Lilly, Novo Nordisk and other insulins companies were always playing around with the protein sequences of human insulins/analogs. Of course, the market exclusivity on the newer insulins was nifty, too).

      We, the people. ought to take a hard look at why we’re looking at getting government into drug manufacturing, government’s record as a producer of goods (not great from either a pricing standpoint, an efficiency standpoint, or a “not providing opportunities for crony capitalism” standpoint). Ideally, we’d have people of all political persuasions examining the need for and desirability of government drug manufacturing. It’s naïve to think that this won’t become an ATM for some people and a political football for others.

      1. Stanislav Radl says:

        Development of the generic API synthesis takes about 2 years (including scale-up and validation), development of the formulation takes also some time (it could be done in parallel, if the API is available). Then you must get approval to do bioequivallence studies and if successful, you can process the data and submit them for registration. Of course, for the generic drug application the basic patent must be expired, but still you must avoid many patents on synthesis, polymorphism, drug formulations, etc.

  26. MAJack says:

    Sorry, our government should not enter the commercial fray in generic drug manufacturing or anything else. Let the market do its work. Liz Warren is a fraudulent crackpot.

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